Starbucks expansion and operations in India

Starbucks in India

Identification of foreign market and the reason(s) for its selection.

Provide here a brief and clear summary of your rationale for the selection of this foreign market (details will follow in each subsequent section of your Situation Analysis). In an appendix, detail your market screening procedure.

In conjunction with the broad social trend of the westernization of Indian call center, business process outsourcing and other professional employees, there are two specific trends also contributing to a growth-oriented environment for the global coffee retailer. The first is the rising popularity of specialty coffee shops, and the second is the growing purchasing power and more affluent lifestyles of employees in high growth occupations. For Starbucks', their opportunity is in the on-premise coffee shop and food service business. According to EuroMonitor (Hot Drinks in India Executive Summary) expects growth for overall hot drinks to slow over the next five years, coffee included. The forecasts call for overall hot drinks to grow at a 5-year CAGR of 5%. While the growth of heated beverages is modest in India compared to other emerging markets including China, the purchasing power of Indian consumers is a very significant factor in choosing to expand into this market. Relating just as much to the growth in call centers and business processing outsourcing staff as the migration of highly skilled jobs to Bangalore, Bombay, Mumbai and other high tech centers in the country, in conjunction with westernization, is driving up demand for specialty coffee shops.

Starbucks will find entering India to be a challenge, given the many government regulations pertaining to foreign owned corporations and the necessity of having a Joint Venture in place to be in compliance to the governments' regulations for launching a new business in this country. The requirements of having two Indian-born nationals on the subsidiaries' board of directors are also a critical consideration. To overcome these challenges, the company will need to rely on its global strengths relating to supply chain efficiency and ability to quickly launch stores. Appendix I is a global analysis of Starbucks' Corporation using Porters' Five Forces Model as the foundation for entering a new and unfamiliar foreign market.

3d. Competitor Analysis (1 page)

Identify the major competitors (in-industry rivals as well as substitutes).

How are the competitors positioned?

What are the strengths and weaknesses of the competitors?

Entering into the Indian market is fraught with risk and challenge for Starbucks' given the significant competitive advantage local coffee retailers and food services companies have on sourcing coffee and food in-country while Starbucks would need to import these critical supplies for the operation of their business. This point is made clear when one considers that the owner of the Cafe Coffee Day brand of cafes is Amalgamated Bean Coffee Trading Ltd., and is in addition one of the most pervasive coffee chains in India, is the country's leading coffee importer. In addition to the strengths of Amalgamated Bean Coffee Trading Ltd., in supply chain management, planning and execution, the company is also credited with a significant level of innovation in creating specialist coffee shops culture in India. This is also a core strength of Starbucks', including the innovation of creating new drinks and food products, including the Developing a steady flow of new beverages and other products is a central element of the company's business model (Baird 2).

Unlike its rival Barista owned by Barista Coffee Company, Cafe Coffee Day owns 5,000 acres of coffee plantations (Business Line et.al). The company owns several brands, the biggest of which is the Cafe Coffee Day chain of cafes, numbering 393 cafes in 73 Indian cities (Cafe Coffee Day). This is the largest chain of specialist coffee shops in India. Other brands, such as Cafe Coffee Day Xpress Kiosks offer takeaway coffee and other hot drinks and are found at busy locations, such as airports and railway stations. Additional competitors, neither of which are as dominant as Cafe Coffee Day include Cafe Mocha and Qwiky's. Cafe Mocha operates 50 upscale locations in major metro areas and caters to the upscale younger workers who have higher-than-country average per capita incomes. Qwiky's operates a smaller chain of outlets called coffee pubs, with the goal of creating ambience and a sense of relaxed atmosphere while selling higher-end coffees and specialty drinks.

The rise in coffee drinking is part of the transition to more branded consumption in India, and is led by the growth of branded coffee cafe chains such as Barista, Cafe Coffee Day and Qwiky's (KPMG 18).

3e. Context (Environmental) Analysis (1 page)

Summarize trends in the Macro Environment. What changes are occurring or are expected to occur? Consider, for example, the demographic, economic, ecological, political, legal, informational, social, technological environments. (Note: Not all environmental factors are important in every company's situation. Choose the factors which are most relevant to marketing decision-making).

India is for the most part a tea-drinking society, reflecting widespread availability, perceived health benefits, and cultural mores regarding this beverage, with the majority of Indians drinking tea at least twice a day. Starbucks is beginning to realize that like China, food services companies and providers in India are gradually changing the image of coffee. Creating a pleasing environment, training staff to be cooperative and helpful, appealing to the influx of business process outsourcing, call center, customer service employees in major metro areas all are fueling greater demand for coffee.

The Indian market however is not nearly as advanced as China from a structural standpoint. The stringent Indian foreign ownership restrictions in this nation still apply, and the real estate prices in urban areas are significantly higher than in comparable Chinese urban areas. Due to the high cost of real estate in major urban areas, it makes sense for Starbucks to consider a Joint Venture with another coffee retailer with an established series of stores in the major urban areas of the nation. The most obvious choice for this Joint Venture would be Amalgamated Bean Coffee Trading Ltd., which has a competitive strength of innovative drink and food development as Starbuck's does.