Starbucks: Expanding Into India, Case Study
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The document provides a comprehensive analysis of Starbucks' strategic decision to expand into India, including an environmental analysis, market opportunities, and threats. It outlines recommendations for adaptation and partner collaboration, particularly with Pantaloon Retail, to succeed in the Indian market. The action plan emphasizes immediate implementation and careful evaluation based on previous international expansion lessons while considering local consumer preferences.
Starbucks: Expanding Into India, Case Study
- 1. Starbucks Coffee Company Expanding into India BRENDAN CRONIN INSIDE: This document contains an environmental analysis of Starbucks Coffee Company, strategic decision options, an action plan to implement those strategic decisions and a recommendation on Starbucks expanding into India.
- 2. 2 Current Situation: Starbucks is a provider of high-end coffee products and more importantly, a relaxed experience. Starbucks as it is known today was purchased in 1987 and has seen tremendous amounts of growth over the years. The company is known globally and does business internationally, although it’s headquartered in the United States. Starbucks has historically had a differentiation strategy, with prices comparably high and uniquely high-quality products, service and environment for the consumer. This differentiation strategy is used with a horizontal growth strategy internationally. Starbucks currently has a market expansion strategy focused around Asia, and has recently seen both problems and great sales figures arise from this market in China and Japan. The objective of this strategic campaign is to capitalize on the highly dense Asian market, with its high population and growing wealth. In 2002, Starbucks announced that it intended on breaking into the Indian market, however has failed to do so four years later. The problem facing Starbucks right now is whether or not to expand into India and if the company were to expand, how it would go about doing so. If Starbucks does decide to expand into India with a promising strategy, there is still the problem of finding a suitable partner currently in India to form a partnership with. Environmental Scanning The external factor analysis summary (Table 1) shows the external opportunities and threats that face Starbucks. These will later be addressed in terms of how they can be taken advantage of, or avoided. The opportunities that Starbucks
- 3. 3 may take advantage of are the Indian interest in Western brands, the geographic popularity of coffee, the characteristics of the Indian population, and the market for the product. Threats to Starbucks include the obesity and obesity related disease rate in India, the beverage habits in India, barriers to entry, the conflict seen within global policies, and established competition. The internal factor analysis summary (Table 2) shows the internal strengths and weaknesses that Starbucks has and will either use to an advantage or try to minimize. Starbucks’ strengths include its strong company mission, vision and values, the company’s brand awareness, the experience Starbucks has in expanding into global markets, high buying power and high quality products. Weaknesses of Starbucks include the lack of a presence in India, which is a highly populated country, Starbucks’ premium priced products, small product breadth and the company’s corporate structure. These external and internal factors are then combined in the strategic factor analysis summary (Table 3) to show the most influential factors of a company’s environment. The internal factors chosen by a weighted score include the experience in expanding into global markets, the strong company mission, vision and values, the small product breadth and the premium priced products. The external factors chosen based on a weighted score include the Indian population, the geographic popularity of coffee, established competition and beverage habits in India. These factors are also given a time range in regard to when they effect the company, such as Starbucks’ experience in expanding into global markets will help them in the long run rather than immediately in the short run.
- 4. 4 These important factors of the environment are then used in a TOWS Matrix (Table 4) to show different business strategies that can be used based on these factors. One SO strategy that can be used is to examine past successful global expansions in Starbucks’ history and imitate the methods used there and the lessons learned in these countries. An example of a ST strategy is to acquire the best Indian ingredients for local Indian tea for use in Indian Starbucks. One WO strategy within the TOWS Matrix is to increase product breadth by adding more varieties of coffee beverages, snacks, etc. This is more likely to appeal to a broader range of the population and will make it easier for Starbucks to penetrate into the Indian market. A WT strategy that Starbucks may wish to use is to set a price penetration strategy when first expanding into India. It has been stated that Starbucks will adjust its prices for India, but these prices should be lower than the competitors’ in order to gain immediate customers. Recommendation: It is recommended that Starbucks expand into India immediately, as to avoid letting its current competition expand. Starbucks cannot carry over its same business operations as it had in other countries however, and must instead adapt and change as it did in Japan. Recommendations for the expansion of Starbucks into India include: Contact Pantaloon Retail in regards to forming a partnership in India. This possible partner has over 100 stores in Indian cities, where the target market of Starbucks lives. The partner also owns Big Bazaar, Food Bazaar, and
- 5. 5 Pantaloon, which have comparably high sales and would be good start-off locations for Starbucks outlets. The group has revenues of $10.73 billion, as of 2005. Advertise heavily in urban areas. This is where Starbucks’ target market lives, so this should be where the Starbucks’ brand is recognized the most. Use the challenges faced when expanding into China and Japan as examples to adapt quickly to the customer need. Certain needs can be met to satisfy the new customer base while still maintaining the same vision, mission and values. Adjust Starbucks positioning’ to reflect its differentiation strategy. The local competition already has a dominating amount of market share and provides the service in India that Starbucks is known for in the U.S., onlybetter than Starbucks does. Instead of being known as the place to get gourmet coffee in India, position Starbucks to be the place to relax in style with a coffee. Continuously analyze the competition’s expansion methods. Starbucks has vast experience expanding and can capitalize on any mistakes made by the competition. Consider expanding product breadth in the future to include a larger variety of tea-based products, primarily iced teas, and preferably using Indian-grown ingredients. This larger product line should also include spices that may mix well with tea, coffee, or other Starbucks products.
- 6. 6 It is believed that if Starbucks uses this strategy with these guidelines, then it will be able to effectively expand into India. Strategy Implementation Plan: Starbucks must contact Pantaloon Retail to form a partnership with this company. In doing so, Starbucks will have its foot in the door in India. Pantaloon Retail also operates several chains of retail stores, which Starbucks could set up small outlets inside of, or in cooperation with. It is also likely that the experience this partner has with the food industry (Food Bazaar) in India will be beneficial to the initial Starbucks development team. It can only be assumed through the company’s current fiscal situation and its projected sales that Pantaloon Retail has high brand name recognition and a good reputation in its field, which is essential in a partnership with Starbucks. Starbucks will be implementing a market expansion strategy, focused around horizontal growth through differentiation. Action Plan: CEO, Howard Schultz, must contact CEO of Pantaloon Retail about forming a partnership in India. This is the first step in forming a partnership with the firm, so this action must be taken immediately. In three months, plans for the installation of Starbucks outlets in Pantaloon Retail owned centers must be underway. If partnership is agreed upon, nine months is the cut off date in which one Starbucks outlet is to begin construction within a Pantaloon Retail
- 7. 7 store. As a precaution, Howard Schultz should remain in contact with another possible partner, the K Raheja Group. Operations managers should inquire with third party manufactures in India about the local supply of raw materials, and focusing on acquiring locally grown ingredients for spices and teas. This action must start immediately, at least six months prior to the first opening of a Starbucks branch in Mumbai, India. The CEO will be directly responsible for overseeing the timeliness and effectiveness of this action. This is expected to lower variable costs due to non-international shipping, with a contingency plan of shipping raw materials from Starbucks’ prior roasting facility in Kent. An international advertising team will be sent to Mumbai, India, two months prior to the installation of the new Starbucks branch to ensure proper advertisements are in place for the incoming store. This team will stay abroad for one year until a localized advertising team can be trained in India. The CMO will be responsible for overseeing the timeliness and effectiveness of this team. This action is in an attempt to increase sales, but requires a high rate of fixed costs in terms of advertising expenses and salaries. The contingency plan for this action is to hire a local advertising consultant firm located in India. This may drastically modify the general message of the marketing mix of Starbucks in India, and may be more expensive, but may be more effective in reaching the target audience due to cultural familiarity. Evaluation and Control:
- 8. 8 Starbucks encountered several problems when expanding into China and Japan, as seen below, which need to be avoided when expanding into India. Japan: Starbucks locations too close in proximity Lacked enough food options for Japanese culture No-smoking policy conflicts with Japanese societal habits High rent, High cost of labor Starbucks didn’t have a roasting facility in Japan China: Many opposed a Western coffee chain in China- traditionally a tea country Dominance of instant coffee Intense competition These concerns will be assessed and adjusted if needed, every quarter, using the balanced scorecard approach as follows: Financial: How are Starbucks sales figures progressing compared to the projected sales for the year in India? Are any locations of Starbucks gaining/losing profitability? Is this due to close proximity to another Starbucks? Is Starbucks in India keeping up with the growing market trends towards coffee in India? If not, compare to competition and instant coffee manufacturers.
- 9. 9 How does the contribution margin of Starbucks in India compare to other international markets? Is there a higher fixed cost/variable cost rate that needs to be allocated for and if need be, used to readjust pricing? Customer: Conduct in-store surveys bi-annually to get customer feedback and suggestions. This will give insight into any problems like lack of variety in food or problems with Starbucks policy like the no-smoking policy. Conduct geographical surveys to see if any region is less likely to have Starbucks consumers in it. This may be due to cultural opinions towards Western business expansion. Internal Business Perspective: Examine weak points within the new Starbucks outlets in India on an individual basis. Are there any outlets that do not reflect the differentiation strategy used by Starbucks? How can this be adjusted? Innovation and Learning: Are sales and brand awareness increasing at a rate in India that would warrant further expansion? Are there opportunities that are not being taken advantage of? After these evaluations are assessed, control can be implemented on an organizational level. After every financial quarter, these factors must be recognized and adjusted to maximize Starbucks’ market expansion growth strategy and ensure a solid future for Starbucks in India.
- 10. 10 Appendix: Table 1.) External Factor Analysis Summary Weighted External Factors Weight Rating Comments Score Opportunities There is a growing curiosity Indian Interest in 0.08 3.1 0.25 and interest in Western Western Brands Brands in India Coffee is popular in urban Geographic Popularity 0.14 3.7 0.52 areas, where Starbucks of Coffee usually targets first Immense, rapidly growing, Indian Population 0.11 5.0 0.55 highly condensed, young population Well-defined in India and Market for Product 0.11 3.2 0.35 growing Threats Increasing rate, and which Obesity and Obesity Starbucks is already a Related Diseases in 0.09 3.4 0.31 critic of aiding the growth India of in other cultures Beverage Habits in Coffee is a secondary drink 0.13 4.1 0.53 India next to tea High in India, Starbucks Barriers to Entry 0.07 2.7 0.19 must acquire joint ventures Starbucks has strong policies that often do not Global Policy Conflicts 0.11 2.9 0.32 work in other areas (non- smoking, lack of enough food products) Large competition already Established 0.16 3.6 0.58 established in same market Competition in India Total 1.00 3.59
- 11. 11 Table 2.) Internal Factor Analysis Summary Weighted Internal Factors Weight Rating Comments Score Strengths Strong Company Starbucks has a consistent Mission, Vision, 0.13 5.0 0.65 global policy in terms of Values how it operates Brand Awareness 0.11 4.3 0.47 High globally Starbucks has already Experience expanded into several Expanding into 0.14 4.7 0.66 global markets including Global Markets China and Japan Starbucks can afford to be High Buying Power 0.09 3.4 0.31 specific about who it does joint ventures with Starbucks products are High quality considered of higher quality 0.07 3.0 0.21 products than other big brand coffee houses Weaknesses Starbucks currently has no Zero Presence in presence in one of the 0.08 5.0 0.40 India biggest markets in the world Premium Priced Starbucks is recognized for 0.12 3.5 0.42 Products its high prices Small Product Starbucks offers few things 0.17 2.9 0.49 Breadth of interests besides coffee Large, has hindered the Corporate 0.09 4.2 0.38 expansion into India for Structure several years already Total 1.00 3.99
- 12. 12 Table 3.) Strategic Factor Analysis Summary Strategic Weighted Weight Rating Short Intermediate Long Comments Factors Score Starbucks has Experience already expanded Expanding 0.13 4.7 0.61 X into several global into Global markets including Markets China and Japan Strong Starbucks has a Company consistent global Mission, 0.13 5.0 0.65 X policy in terms of Vision, how it operates Values Small Starbucks offers few Product 0.12 2.9 0.35 X things of interests Breadth besides coffee Premium Starbucks is Priced 0.08 3.5 0.28 X recognized for its Products high prices Immense, rapidly Indian growing, highly 0.14 5.0 0.70 X Population condensed, young population Coffee is popular in Geographic urban areas, where Popularity of 0.11 3.7 0.41 X Starbucks usually Coffee targets first Large competition Established already established 0.17 3.6 0.61 X Competition in same market in India Beverage Coffee is a Habits in 0.12 4.1 0.49 X secondary drink India next to tea Total 1.00 4.1
- 13. 13 Table 4.) TOWS Matrix Internal Strengths- Experience Weaknesses- Small Product Expanding into Global Breadth, Premium Priced Markets, Strong Company Products Vision, Mission, Values 1.) Examine past successful 1.) Increase product breadth global expansions in by adding more varieties of Starbucks' history (China, coffee beverages, snacks, etc. Japan) and imitate the This is more likely to appeal to methods used there and the a broader range of the lessons learned in these population, and will make it countries. India is a country easier for Starbucks to similar to China in population penetrate into the Indian size and to Japan in market. Opportunities- population density, so these 2.) Adjust prices of products Indian two experiences should be based on geographic location. Population, imitated in order to grow in Areas of high-traffic like the Geographic India's population. urban areas, which are Popularity of 2.) Advertise Starbucks' interested in companies like Coffee vision, mission, and values Starbucks, can pay marginally heavily in urban areas of less for products than rural India. This will help to reach communities. This will the dense population that encourage the majority of Starbucks is trying to market users to perceive Starbucks as to and will also build brand a lower priced company while awareness in India alongside allowing rural areas to still see External a friendly rapport. this as an exclusive brand, which should warrant their business. 1.) Use Starbucks' 1.) Set a price penetration experience expanding into strategy when first expanding global markets to analyze the into India. It has been stated competition and find any that Starbucks will adjust its faults with their expansion prices for India, but they methods. This strategy is should be lower than the focused on capitalizing on competitors in order to gain the successful aspects of immediate customers. Coffee is Threats- expansion that the less a instinct purchase, which Established experienced companies may means the price is elastic. Competition, be missing. People will be willing to buy Beverage 2.) Starbucks is dedicated to Starbucks coffee over the Habits in serving the highest quality competitions' if the premium India products to its customers, so prices are reduced. acquire the best Indian 2.) Increase product breadth to ingredients for local Indian include different types of tea tea for use in Indian and cold tea beverages. These Starbucks. This reflects the beverages may not work in company's vision and other markets, but India is satisfies the population's concerned with tea, so need for tea along with Starbucks should meet that coffee. need.
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