INTRODUCTION

Starbucks Corp. is aiming India as its next major hub for development. Starbucks want to replicate the success they had in USA and more recently, in china. Surprisingly, their venture in China proved to be more profitable than that of US. Here in India, Starbucks entered into a deal with TATA Coffee Ltd, Asia largest publicly traded coffee grower. This is, in particular, a non-binding agreement between two giants. There are plans to combine the trust and legacy of TATA coffee with the iconic brand image of Starbucks which can move on to development of Starbucks retail coffee chains in other parts of Asia. In addition to sourcing coffee beans from TATAs Indian facilities, the companies will also work towards developing Starbucks stores in retail outlets and hotels. Starbucks: Caffeinating India

India and China are the worlds two fastest growing economies. Starbucks had already ventured into the Chinese market and not surprisingly, their Chinese venture turned out to be much profitable than that of their US business. Thus, they want to replicate their success in Chinese mainland in India. Also, the Indian market is heavily driven by the upcoming youth culture which is totally driven by the western trends. With the growing disposable income of Indians, people tend to spend more towards apparels and fast foods. With the success of Indian owned Caf Coffee Day and Barista Coffee, it is a widely proven fact that there is lot of scope for the development of coffee caf culture in India. Thus, Starbucks want to capitalize on this particular opportunity.

BACKGROUND
Starbucks, as we see today was not there from the very beginning. Starbucks has the very humble start when three coffee fanatics, Gerald Baldwin, Gordon bowker , and Ziev siegl, opened a small coffee shop in Seattle's pike place market. The shop specialized in selling the Arabica beans to the niche market of coffee purists. It was only in 1982, that Howard Schultz5, joined the companys marketing division. After joining the company, he travelled to Italy, where he was fascinated by the Italy's coffee culture. He was highly impressed by the way that the local coffee bars influenced the lives of native Italians. After returning back from Italy, he convinced the company to set up the espresso bars in the corner of its downtown Seattle shop. Later, Schultz said that the espresso bar of that time became the prototype of his long term vision. According to him, there were only two places at that time, where Americans mostly spend their time. Home and workplace. He thought of giving them another place where they could go and relax. Though. When he proposed his plans of expansion, he was met with a great resistance. A few years later, Schultz got the chance to acquire Starbucks when the founders agree to sell him their share in Starbucks. As soon as he took over, he started opening new stores all over USA. The stores sold whole beans and premium priced coffee beverages and their target market was the young white collar Americans who are educated and have high disposable incomes. He was later, in 1992, joined by Orin Smith, who is the present day CEO of Starbucks. By 2002, Starbucks has been established as the dominant specialty coffee brand in North America. Sales of Starbucks had climbed by the CAGR2 of 40% and net earnings had earned by the CAGR6 of 50%. As of 2011, Starbucks have more than 15000 stores in more than 50
2

countries Industry structure and rivalry: In India, the specialty coffee industry has the potential for high barriers to entry but lacks them due to the industries immature state and the presence of no established firms. An ideal strategy would involve a firm establishing themselves in a rapid manner through an aggressive growth strategy. As defined by Michael Porter there are three potentially successful generic strategies: Overall cost leadership, Differentiation and Focus For Starbucks India seems to fit into the generic strategy of focus with an emphasis on differentiation within the particular target consumer segment, since they would be opening up their stores in Taj group of Hotels, one of the premium hotels in India. A focused strategy should target market segments that are less vulnerable to substitutes or where a competition is weakest to earn above-average return on investment. Starbucks India can also but combines this broad scope with a differentiation strategy based on design, branding and user experience that enables it to charge a price premium due to the perceived unavailability of close substitutes. However the industry structure in India for retail coffee stores is bit different. Caf coffee day and Barista have their stores open in the public areas where the masses as well as the elites have the access. So in terms of accessibility of the stores the current Indian industry structure differs from that of Starbucks. Since Retail coffee stores are mushrooming at every other place because of the high industry growth rate and demand condition we expect a greater extent of competitive rivalry in the respective markets Caf coffee Day Caf coffee day is Indias largest coffee retail chain. At first, Indias largest coffee conglomerate, amalgamated bean coffee trading company ltd started the concept of coffee bars in India with first store in 1996 on brigade road in Bangalore. With Asia's second-largest

network of coffee estates (10,500 acres) and 11,000 small growers, Coffee Day has a rich and abundant source of coffee. It has network strength of more than thousand coffee stores across 120 cities in India. Major chunk of CCD customers falls within the age group of 20 to 30 which accounts for 57% of the overall percentage. The group comprises of mainly college going students and young working professionals A lot can happen over coffee" became a popular line among youngsters. In a bid to take their coffee chain national in 2000, the management decided to strengthen their brand pull with an appealing tag line. Factors like ambience, food, music, and atmosphere and meeting people were identified as the aspects that were drawing people to their Cafes. Encompassing all these factors in a single line, the sentence "A lot can happen over Coffee, was phrased. International exposure of Caf coffee day Caf coffee day, in June 2010, acquired Caf Emporio- A caf chain from Czech Republic. Cafe Emporio has 11 cafes in Czech Republic- 7 of them in Prague and 1 each in Brno and Olomouc and 2 at Freeport-Hate. Caf Emporio runs on 2 formats similar to CCDs regular cafs and Lounge & Square set ups. The regular cafes are pure play cafs serving hot and cold beverages and ready to eat snacks while the lounges and squares come with a broader menu and elegant layouts. CCD has won the best BREWMASTERS in the country. It is also having fairly impressive track record at the IBC (India Barista Championship) & WBC (World Barista Championship) is as follows: 2003: Top 5 ranks at IBC & stood 5th at WBC at Boston, USA. 2004: Top 6 positions at IBC & resulted at WBC at Trieste, Italy. 2005 : Top 6 positions at IBC & resulted at WBC at Seattle, USA 2006: Second and third place at IBC 2008: Top three positions at IBC and represented India at WBC at Copenhagen

COFFEE: A RECESSION FREE PRODUCT COFFEE INDUSTRY: IN A NUT SHELL PORTERs FIVE FORCES The Threat of New Entry The entry barriers in the coffee retail industry are relatively low in India, particularly for the foreign players. This is possible owing to the fact that 51 % FDI2 is allowed in India in retail sector. Any large or well-funded company having the thorough understanding of the market can enter into retail sector in India. Economies of Scale: Given the fact that Starbucks is a global, it is having its own advantages when it comes to achieving the economies of scale. Though, for a start, they will open few stores in India, they have plans to open new stores in most of the major Indian cities. Capital Requirement: Starbucks being the global coffee retail chain, they are going to have any particular capital related problems. Also, they are having MoU being signed with TATAs for opening their outlets in their Taj group of hotels and resorts. Thus, their entry can assured to be pretty smooth. Access to supply: India, being the sixth largest producer of coffee in the world is having the largest home grown supply of coffee beans. Thus, sourcing coffee for any new entrant in this industry is not going to be much of the problem.

Customer or supplier loyalty: Indian market is already being captured by the long established brands like Caf coffee day, Barista, Barista Lavazza and Costa Coffee. Thus, it is going to be pretty much difficult for any of the new entrant to establish its brand name in the Indian market. However, Starbucks being the international brand will definitely help in attracting the educated Indian crowd Market Experience: The existing players in the Indian coffee retail industry have been here in the market from last 10 years. Thus, their management must be having greater understanding of the Indian markets and Pallets. Therefore, for Starbucks, it is going to be important to first understand the Indian preferences, before making any major move. Legislation or government action: In India FDI regulation for single branded retail stores is 51%. Thus, any foreign player will need to have an Indian partner, compulsorily. Therefore, Starbucks is also planning to enter in Indian markets with collaboration with TATA coffee. Differentiation: Coffee is not the product where there is a great scope for product differentiation. However, it depends on most of the cases on the store ambience, which can act as the point of differentiation.

THREAT OF SUBSTITUTES Products for Product substitution Product substitutes, here, will include other beverages, apart from the Starbucks coffee, for example, soda, fruit juices, water, beer or other liquid beverages. This will also include other fast food beverages like burgers etc. Substitution of a need This will include the lower end local coffee houses or other snack shops which are less luxurious. These are places which provide people with the place to sit, chat and relax. The Bargaining Power of Suppliers In this case of coffee retail, the suppliers, supplying the retailer with the coffee beans are not having much of the bargaining power. This is particularly because of the fact that coffee retailers like that of Starbucks tend to be very big buyers for any of the supplier to lose as a whole. This also gives the Starbucks to dictate terms to the supplier. Similarly, suppliers of other resources like that of paper products etc., will not be having much of the bargaining power as there are many sources from which the company can source them. However, this is not valid in the case of the suppliers supplying the technological machinery as there are not many suppliers here. The Bargaining Power of Buyers In the past, buyers in India were not having much of the bargaining power as there were not many food retail giants which were present in the country. However, with the advent of multinational food retail giants in India, like that of Mc Donalds, Barista Lavazza, Caf Coffee Day and Costa Coffee, consumer is faced with lots of choices. Thus, it will be difficult for Starbucks to influence the Indian buyers to pay premium for their products.

Competitive rivalry Major competition for Starbucks in India comes from that of Caf coffee day. The abbreviation CCD is known to most of the people in urban parts of India. Their positioning is same as what Starbucks have in US. The other competitors include Barista Lavazza, Barista and Costa Coffee, which are also the multinational brands, widely recognized. Apart from them, secondary competitors include the Georgia Coffee served in fast food joints like that of Mc Donalds and KFC.

PORTERS DIAMOND 1) Demand condition for porters diamond Restaurant chain Cafe Coffee Day said it plans to almost double the number of outlets it operates in India by the end of 2014 as it embarks on an expansion spree. A division of the Amalgamated Bean Coffee Trading Company Ltd (ABCTCL), Cafe Coffee Day currently operates 1,185 outlets across India across three formats -- lounges, cafes and kiosks. It is looking to add about 815 new outlets in the next three-and-a-half years. "The company has a plan to aggressively expand the number of outlets it operates to 2,000 cafes by the end of 2014," Cafe Coffee Day president (marketing) K Ramakrishnan said.This tells us that demand for Specialty coffee is rising every year. Also, Tea consumption in India has declined ever since the subcontinent's population discovered the lure of the bean and the roast. As demand rises, traditional suppliers in Brazil and Columbia will struggle to match it - and the price to the coffee shops will rise and rise. Supply and Demand Fundamentals4 Coffee prices are largely determined by supply/demand fundamentals, and to a slight degree, speculative actions. So, coffee prices generally increase
8

when demand exceeds supply and they generally decrease when supply exceeds demand. For example, if the world-wide coffee crop yield decreased for any given year to an amount less than the demand from world-wide coffee retailers then coffee prices would likely to increase as the availability of coffee would be less and people would be willing to pay a higher price if there was a strong lush enough demand for coffee. 2) Related and supporting industries: Coffee cultivation and manufacturing in India Specialty coffee cultivation in India. MONSOONED MALABAR AA Monsooned coffee or coffee beans swollen with moisture from the air, is prepared at the curing works situated on the West Coast of Southern India. Stored in special warehouses, moist monsoon winds circulate around the coffee beans, making them swell in size and take on a mellowed but aggressive, musty flavour. This process yellows the bean and reduces the acidity, imparting a heavy, syrupy flatness reminiscent of aged coffees. For preparing monsooned coffees only dry processed Arabica and Robusta beans are used. The coffees are mainly used in blends to mellow and impart richness to rougher, acidier coffees. The best grade in monsooned coffee is Monsooned Malabar AA. MYSORE NUGGETS EXTRA BOLD These wonderful and exotic coffees are prepared from washed Arabicas grown in the regions of Chikmagalur, Coorg, Biligiris, Bababudangiris and Shevaroys. The beans are very large, uniform bluish-green in color, with a clean polished appearance. In the cup, the coffee exhibits full aroma, medium to good body, good acidity and fine flavor, with a hint of spice. This is a rare, premium coffee and truly represents the best quality coffee from India.

Robusta Kaapi Royale This coffee is prepared from Robusta Parchment AB from the regions of Coorg, Wayanad, Chikmagalur and Travancore. The beans are bold, round with pointed ends, and grey to bluish-grey in color. The cup ensures full body, soft, smooth and mellow flavor 3) Factor conditions in India: Land Land is not a major concern, what matters is location for coffee stores. Stores are often opened up in the vicinity of crowded places. Availability of space for opening up retail coffee stores in real estates establishment like openings in Hotels, shopping malls, corporates etc. is not a problem here. However, proper land is also available in India if Starbucks wants to open independent stores. Labor: Availability of cheap labor: Cheap labor, like all other industries, is the main stake of Indian Coffee Industry. Availability of cheap labor in most of the coffee growing region and qualified labor for working in coffee cafes is a something promising for the coffee retailing in India. Understanding of English language: Much of the labor pool available in India is well versed with English language. This is particularly beneficial for the multinational coffee retail chains like that of Starbucks. This also helps in promoting the brand among the tourists from western parts of the world, who are very well aware of Brand Name Starbucks Capital: Coffee stores not a capital intensive industry. Capital required is not huge but on medium level. Majority of the expenditure is made in purchasing a strategic location and building a quality store that provides a good ambience and experience to the customers. 4) Firm Structure, Industry Structure and Rivalry Firm Structure of Starbucks can help them a lot as their original management system is closely in synchronization with Indian philosophy of management. Thus, Starbucks can add this factor in their favor when they will be launching their full scale operations in India. In Indian coffee
10

retail industry, there are very few players which are driving the market. However, there is a increasing competition among them, which is increasing year after year.

SWOT Analysis CCD Strengths: Large Number of outlet. In house sourcing of coffee beans. Tie Ups with good companies. USP of brand is its considered a highly affordable brand.

Weaknesses: Many of the CCD stores are incurring loses due to wrong site selection. Improper sitting arrangement

Opportunity Coffee cafe industry is one of the fastest growing industry in Asia. Large untapped Market Tie-ups with other companied for promotion. More people like to visit CCD for informal meetings.

Threat: Entry of foreign players like Georgia, Starbucks etc. Other hukka parlors like Sheeshas , Peshawar , Koylas7, U Turn are also gaining lot of attention and preferred by young generation to hang around which in turn is attracting the market captivated by CCD
11

STRATEGIES ADOPTED BY CAFE COFFEE DAY:

1) Cafe Coffee Day offered an informal ambience with bright and eye-catching interiors. Visitors could sip coffee, browse the internet, conduct business meetings or just spend time with friends. 2) The baseline A lot can happen over coffee, positions it close to every ones heart. 3) Cafe Coffee Days also targeted other locations like corporate houses, airport, hospitals and shopping malls. Cafe Coffee Day priced its products 20% lower than its competitors. 4) Cafe Coffee Day positioned itself as a mass market brand; mini-metros were also added to its list. It targeted the middle class, upper middle class, house wives and students. The prices are less compared to the other two. This segment has high potential and great buying power and has great market share.

BARISTA LAVAZZA
Barista Lavazza is a chain of espresso bars in India. They are headquartered in NOIDA, having outlets in Sri Lanka, Bangladesh and Middle East. It was founded first in 1997 by Amit Judge and was part of his group companies. His first equity deal was with TATA coffee. After the deal with TATA coffee fell, apart, Sterling Sivasankaran, bought over the firm. In 2007, Sterling divested their entire stake to Lavazza. Barista Lavazza is currently owned by Lavazza, Italys largest coffee company. Coffee is supplied by the Indian roaster Fresh and Honest, headquartered in Chennai. The latter is also owned by Lavazza. As of 2009, the chain has 200 stores in India, with estimated annual revenue of Rs 200 crores.

12

Barista was the fastest brand to make it to the list of super brands and is ranked among the top 50 phenomenon that changed India The first Barista Lavazza was opened at Basant Lok, New Delhi in Feb 2000. Lavazza traces its origin back to 1895. Lavazza is the sixth largest coffee roaster in the world. Operating in over 80 countries, it has a 46.5% share in the Italian retail market Barista Lavazza's pioneering efforts at providing truly Italian coffee house experience has been met with tremendous appreciation. Most Admired Retail Leisure Chain 2011-Awards for shoppers and consumer insights Times Food Guide 2008-Best Coffee Bar Award IMAGES Retail Award 2007-'Most admired retailer of the year: Catering Outlets' Super Brand 2006-2007 HT Food Guide 2000-Best place to have coffee TOPS award for Specialty Coffee Excellence by the Specialty Coffee Association of America(SCAA) Times Group and Business Standard recognizes Barista Lavazza as the 'Brand of the year' in 2002

SWOT ANALYSIS OF BARISTA

Strengths: Claim to sell the best coffee. Strong Brand image. Excellent Human resource. Large Number of outlet in house sourcing of coffee beans Espresso-Highest selling coffee Weaknesses: Perceived as an expensive brand.
13

 Self Service for the customers.

Opportunity Strong brand recall. Tie-ups with other companies for promotion. Threat Coffee Substitute. Rise in the cost of coffee and dairy products. Competition from national and international players

STRATEGIES ADOPTED BY BARISTA

1) Barista positioned itself as a lifestyle brand with Italian neighbourhood. 2) Alliance with Tata coffee would supply food items like baguettes, croissants, cookies, sandwiches, pastries and desserts. 3) Every month, it introduced and focused on a particular type of coffee. The idea was to change customers occasional indulgence and make it a habit and educate them about the original coffees. It also developed store-in-store concept by focusing on themes that compliment coffee, such as music, books and art. 4) Barista entered into marketing tie-ups with planet M, crossword and Ebony to set up it Espressos at the corner. The company also entered branded merchandising with caps, coasters and cups.

14

5) Barista entered home brew segment with freshly grounded coffee. The company extended its product portfolio from roasted coffee range to single origin coffee. 6) Baristas adopted a strategy on which it segmented itself to the elite class. This class has high potential because these people associate with anything that is of status symbol, they spend very high. So Barista choose this segment contains people with big designations like MDs, Doctors, CEOs and people belonging to elite class. They like to be in a place which is classy and luxurious like Barista.

BARISTA
Barista with Taj Group: Barista Coffee, a leading coffee bar chain, has tied up with Taj group of Hotels for setting up exclusive Barista espresso bars at the Taj hotels in metro cities. The first such bar would be at the Emperor Lounge at the Taj Mahal hotel in New Delhi followed by a Barista Bar at the Sea Lounge at the Taj Mahal Hotel in Mumbai. This would be followed by similar bars at Taj Mahal hotels in Calcutta, Chennai and Bangalore. Barista also will be housed at the coffee shops of all major Taj Hotels in the country. Barista with Tata Tele services: Barista has also tied up with Tata Tele service. This tie-up was primarily done in order to provide consumers' access to the Internet. The objective being, today if you look at Barista consumers, a fair number of them come to Barista to discuss business over a cup of coffee. Moreover, it is easier for them to meet at Barista, discuss business and send the information across. It is going to be focused primarily on work, towards the busy executive who is traveling and has dropped by for coffee or the small office segment who might just want to work out of Barista.
15

Lacoste with Barista: Lacoste India has decided to tie-up with coffee outlet chain Barista in all the major metros and some mini-metros. The strategy is to target younger audiences, which have a penchant for the "finer things in life". The customer segment of Barista is very different from the ones who visit a regular coffee shop. Elle-18: Barista is jointly tied up with Elle 18 to promote their product. Elle-18 is launching a collection of coffee colored lipsticks and has named it after Baristas beverages! Therefore, they are working with Elle 18, which is a youthful brand. Moreover, they both will grow with this association. For Elle 18, the objective is to build a platform for their range of coffee colored lipsticks and for them, the objective is to associate with the brand and have their consumers coming in to Barista. AMBIENCE CCD First Impression is the Last Impression. This is true, particularly, in this business. The first thing that the customers come across is the surrounding and the ambience of the store. To further brighten the vibrant atmosphere of the cafs, there has been a greater thrust on providing more value added services such as video juke boxes, cozy sofa seating, and exciting round the year promotions. Caf interiors at the company's 430 outlets are being given a whole, new look. In a change from the largely wood and granite based interiors, there

16

is more of steel and lots more color. The young colors of today, lime green, yellow, orange, and purple will predominate. The crockery will also sport these colors. The larger cafes will also have lounge areas and a few beanbags

BARISTA The colour shades that they have used are terracotta; it is warm - it is orange. The background has a dark Orange colour. Orange colour signifies of a style and friendly ambience of its own. In order to match the colour combination of the surrounding even the uniform of employees are orange in colour. The place invites the customers to spend time. However, the focus would, continue to be to recreate the ambience of the typical Italian neighbourhood espresso bars in India, so, as to provide a comfortable place for people to relax and experience the joy of coffee. The ambience of the location and the quality of coffee would, continue to be the key factors while growing the chain. It has lots of board games for anyone to indulge in, like chess, word scramblers, and a guitar to pluck some chords.
17

Business Model Followed By CCD: they follow franchisee Model for their business Barista: Company Owned Outlets. Merchandising CCD Funky Caps @ Rs 60 onwards Cool T-Shirts @ Rs 175 onwards Bags @ Rs 160 onwards Mugs @ Rs 60 onwards Coffee Filters @ Rs 95 onwards Reglon Sleeves T-Shirts @ Rs 249 Marquis pens @ Rs 315 Onwards. Shoulder Bags @ Rs 209 Coffee Mints @ Rs 40

BARISTA Coffee Mugs in Orange and Blue which cost Rs 55 and Rs 99 T-Shirts which cost Rs 150 Barista has also started a new concept of Barista merchandise. Barista Merchandise is available only at selected Barista espresso bars in Delhi, Mumbai, Kolkata, Chennai, Hyderabad and Bangalore. In Barista Merchandise customer can take home different types of beans and have coffee of his own taste. Some of the Barista Merchandise is as follows:

18

1. French Press 2. Barista House blend One of the most interesting things to keep in mind with regards to all the coffee chains is the manner in which they have blended into the Indian culture. Its not that these were foreign franchises, but the very fact that spending Rs. 50/- for a cup of coffee was not a routine thing for the Indian consumers. So, these chains had to make sure that they were able to attract the consumers by making themselves a part of the Indian culture. One thing in this regard that they have done is that they have shaped their menus to be flexible enough so that they can adjust to changing situations such as weather. For this very fact, the Indian consumers were in for a pleasant surprise when they found out that they can have local delicacies like Aam Panna, Mango Shake in these coffee chains as well. Its Not that the taste would be the same like the older days, but still it was close it could get to the original taste.

19

The biggest beneficiaries for this were the working mothers and the students who were away from home for studies or work. The motherswho are working and do not get the time to make things like these which are relished by their children. So, they can any time walk into a coffee chain in the sweltering heat with their children and enjoy these drinks. Also, for the children away from home, it acts as a close substitute for the drinks back at home. Although the prices may be a little high, but the very fact that you can have these drinks at your beck and call, does not pinch the consumers a great deal and in turn puts the coffee outlets in good stead. Another thing that they have done is that, instead of focusing only on the western foods, they have given equal importance to local foods such as Samosa, Kulchas, etc. So, it is not that you will only get to eat burgers, sandwiches, but instead one can have their favorite coffee with a local delicacy. That surely is a lip smacking prospect for the Indian Consumer.
20

But there is one glaring mistake they are reportedly committing till now. None of the coffee giants has tried and ventured into the segment like the one adopted by the Subway. None of them offer a facility wherein customers can be a part of the actual production of their coffee. Subway gives the consumers the convenience to choose their own breads, sauces and even the toppings. This makes them feel related to them as it gives a sense of pride to be able to whip up your own favorite goodie. That is one aspect where Starbucks can focus, by opening self-help kiosks in places such as metro stations, malls, etc. People can punch in their order and make their own coffee using the ingredients of Starbucks. This will make the consumers feel a sense of importance and gain a sense of belonging towards Starbucks.

CSR INITIATIVES BY BARISTA LAVAZZA, CAF COFFEE DAY, COSTA COFFEE

CSR or Corporate Social Responsibility has always been a topic where there is never a commonly reached consensus. But with increased guidelines about allotting a certain percentage of profits aside for giving back to the society, CSR has assumed greater importance in the cash purses of major corporates. So, the three coffee stalwarts, viz. Barista Lavazza, Caf Coffee Day, and Costa Coffee, also did not lag far behind. Barista Lavazza: Taking its 'Use Mobile, Save Paper' campaign further, Idea Cellular8 has partnered with the two coffee chains to make it possible to eliminate the use of paper in transactions. Through a
21

unique mobile software application, which has been made available at CCD and Barista outlets, people can download the menu card and bill on their mobile phones, thereby eliminating the need to use paper for these purposes. Customers, who come to these outlets, will be informed about this initiative. They will be given the option of downloading the application onto their mobile phone, through a Bluetooth transfer. The home screen of the application will have three options: Order, which enables the customer to browse the menu, select the items to be ordered and see the order summary; Bill, where the customer can view the total bill for the items ordered; and About Us, which carries information on the campaign.

Caf Coffee Day: Their biggest CSR initiative9 is the SVGH Vocational Training College which was established in April 2005 in Chikmaglur, Karnataka. It has the aim of bridging the gap between the urban and the rural youth by giving opportunities for the economically underprivileged ones for learning, training and ensuring them due placements. It has the vision to create an environment where students are motivated to find their purpose and realize their full potential. The college trains and supports rural youth to be independent, responsible and adaptable. It provides them an opportunity for personal and professional development thereby equipping them with skills to handle the rapidly changing environment. The college has trained 1180 students, many of whom have found employment at CCD outlets across the country. Courses offered include Certificate Course in Hospitality Management & Micro Finance. The Trust bears the entire expenses of the course which includes imparting

22

education, providing food and accommodation, uniforms and transport facilities. The trained students are guaranteed employment. Current employees are involved actively in SVGH programs and help by conducting modules etc. Costa Coffee: Even this coffee giant is not lagging behind the CSR standards. It has given employment opportunities to many hearing impaired employees as its latest initiative10. So next time you visit a Cafe Coffee Day or Costa Coffee outlet, you might be welcomed by a silent brew master carrying a note: Im hearing impaired. Please jot down your order. If corporate social responsibility (CSR) beckons hotels and restaurants across the country, they are all ears. To do their bit for the society, they are recruiting physically challenged people for various operations. Costa Coffee plans to open eight to nine stores which will be run entirely by handicap employees in the next one year. We have tied up with an NGO called Enable India and want to hire about 100 such employees per year, says Cafe Coffee Days HR head, Shyamala Deshpande. So, we see that all these companies have already initiating the process of CSR in India. They have already taken it to a new level and it will be up to Starbucks to see as to how it will react to all these initiatives. Not much can be expected in the nascent stages as they will still be finding their feet in the Indian market initially. But, as time progresses, the Indian market might want to see CSR initiatives taken from Starbucks as well.

23

THE SWOT
Opportunities and Roadblocks Ahead Opportunities: Coffee stores are becoming quite popular in India. These stores have become a hotspot for the quite popular among youths in India as hangout places. More than 1,500 cafes have sprung up across India in the past decade, mostly from six organized chains, clocking an average annual growth of around 40 percent. Valued at around US$185 million, the organized caf market in India is estimated to be growing at a compound annual rate of 25%. Stirring up the market is India's growing youth segment: around 50% of India's 1.2 billion people are 25 or younger. By 2015, this is expected to increase to 55%. For this segment, particularly those with steady, disposable incomes, coffee shops serve as a social hub.

24

According to industry estimates, there is scope for another 5,000 or so outlets strategically located close to offices, colleges and shopping malls. Thats the space the foreign chains want to tap. Stirring up the market is India's growing youth segment: around 50% of India's 1.2 billion people are 25 or younger. By 2015, this is expected to increase to 55%. For this segment, particularly those with steady, disposable incomes, coffee shops serve as a social hub. Increasing Coffee Consumption India's coffee consumption pattern gives a clue to the potential that the market holds. The nation's per capita consumption of coffee is just 85 grams, compared to 4.5 kilograms in France, 4.6 kilograms in Japan and 6 kilograms in the U.S. The Indian Coffee Board's numbers reveal that while India is the sixth largest coffee producer in the world, with an annual output of 300,000 tons, domestic consumption is only a third, or 100,000 tons. That's because like most of Asia, India is predominantly a tea drinking nation. Coffee is a staple only in the southern part of the country.

25

Starbucks Corp., the worlds largest coffee retailer, was also eyeing the Indian market, after having dropped the plan a few years ago following some regulatory hurdles. Now it has made announcement to enter India to exploit the vast potential of Indian market as mentioned above. Challenges: Even as the market gets more competitive, there are strong roadblocks ahead. The price of roasted coffee is currently at an all-time high of US$7 to US$8 per kilogram, up 60% since last year. Then there is the huge real estate cost. For most foreign players, the rent-to-sales ratio in India is one of the highest across their global markets. With all players targeting a similar profile of consumers, zeroing in on the right location is crucial. Gloria Jean's White points out that the mix of high rent costs and low menu prices puts tremendous pressure on the business. Manpower is yet another challenge. Much of the success of a caf depends not just on the quality of the products it serves, but on the overall ambience and guest experience. This requires trained staff. But vending coffee is not a highly skilled job and is low paying, which often results in high turnover. With every player on expansion track, there is a scramble for putting together the best team. Some brands like CCD and Gloria Jeanshave set up their own training schools, but for others it's a tough task. With more players entering the arena, the challenges around managing costs, even as one strives to deliver the best international standard of cafe experience, will only intensify. Indian consumers, however affluent, have always put a premium on value-for-money offerings. Also due to inflationary pressures in the economy in recent times people have started spending less on frills and save more.

26

STARBUCKS: SWOT ANALYSIS

While analysing Starbucks from the strategy point of view, there is a need to analyze the performance of the company in the recent past. Also, in order to gauge the company performance, we have to look, not only at the company characteristics but also at the market characteristics in which it operates. Therefore, we will be using SWOT analysis to assess the company characteristics, here in this project. Strengths: Most of the consumers, at least in the USA, are familiar with the brand name, Starbucks and it is the part of their daily lives. In US, the name Starbucks is being associated with quality. They are having presence in almost every part of the market and hence, greater brand visibility in comparison to that of their competitors. Starbucks is having the great advantage over its competitors when it comes to brand visibility. This is particularly because of the large number of coffee outlets, they have in US. They also have large number of international stores in other parts of the world. This allows them to implement new products quickly across a large demographic and ensures a large exposure of clientele to prevent new entrants from gaining market share. Starbucks is having the well-established international outlets all over the world. This apart from obvious scale advantage gives them access to lot of international markets. This also allows them to confront international competitors before they enter into the US market. Starbucks has a wellknown Starbucks has a wellknown practice to make efforts to preserve the environment and be ethical in its dealings. Company has also initiated the CSR activities which gives the company a good public image. This also serves to counter some criticism that its sheer size creates.

27

Starbucks has been successful in changing the positioning of coffee as the commodity to a luxury product. With this, they are able to charge premium prices for their product, something which might not have been possible before. This has helped them to create all new categories. Starbucks operate around 15,000 stores across 50 countries. This helps them achieve economies of scales in sourcing the raw material. It has also premium pricing for its products, and thus enjoys a significant profit margin Weaknesses: Among masses, Starbucks is still considered as the luxury coffee outlet. Most of the customers will pay for their products, without thinking twice. However, there is an increasing notion that Starbucks is literally fleecing their customers. Also, Starbucks prices are not flexible, in terms of location. For example, they charge same price for their products, regardless of the country they are operating in. The main problem for Starbucks is that, its entire business rests on the coffee industry. If coffee does turn out to be a fad, they must diversify or go out of business whereas other competitors, such as Dunkin Donuts, have investments in a variety of industries. Also, Starbucks had faced problems in maintaining their outlets in many of the international locations. They apply the same business models and formulas, regardless of culture and values of the country they are operating in. for example, In Israel, Starbucks has had a hard time taking off because it wont maintain kosher standards Opportunities: Acquisition of brand names such as that of Seattles Best, XM Caf, and Tazo Tea, allowed Starbucks to gain exposure to different market niches. Starbucks also offers a range of products that it sells to other companies such as its bottled Frappuccinos and other specialty goods, which expand its market at a lower cost than opening full branches.
28

Starbucks had used their vast resources in order to develop businesses all over the world. This has allowed them to generate even more revenue and give them better brand image. Also, one of their biggest opportunities continues to be in development of overseas business. There is a great opportunity for Starbucks in the developing economies like India. They have already experimented in china, which turned out to be extremely profitable venture.

29

Threats: Other fast food chains like that of McDonalds, Dunkin Donuts, Burger King, etc., already have the infrastructure in place and are instead adding quality coffee to their menus to compete with Starbucks. Rising prices of coffee are putting pressure on the profit margins of the company. Growing health concerns among the masses has shifted the demand from coffee towards health drinks, juices etc.

STRATEGIC POSITION STARBUCKS

We can't achieve our strategic objectives without a work force of people who are immersed in the same commitment as management. Our only sustainable advantage is the quality of our workforce. We're building a national retail company by creating pride in--and a stake in--the outcome of our labor." --Howard Schultz Founder and former CEO of Starbucks .According to this statement, the human resource is the number one resource in Starbucks Corporation. Schultz believes that happy employees are the keys to competitiveness and growth. In 1996, Starbucks employed approximately 16,600 individuals, including roughly 15,000 in retail stores and regional offices. All of these "happy" employees help account for another of Starbucks' intangible resources--the company's reputation for providing quality and knowledgeable service. Starbucks deploys their human resources by requiring that each employee have at least 24 hours of training. Classes cover everything from coffee history to a seven-hour workshop called "Brewing the Perfect Cup at Home". This workshop is one of five classes that all employees (called partners) must complete during their first six weeks with the company. This workshop focuses on the need to educate the customer in the proper coffee making techniques. Store managers teach the classes. These classes are designed to

30

teach the employees to make decisions that will enhance customer satisfaction without requiring manager authorization. Another way that Starbucks ensures that its employees are content is by offering a stock option plan called the Bean Stock Plan. After one year, employees may join a 401K plan. There is a vesting period of five years; it starts one year after the option is granted, and then vests the employee at 20 percent every year. In addition, every employee receives a new stock option award each year and a new vesting period begins. Schultz believes that without these benefits, people do not feel financially or spiritually tied to their jobs. He argues that stock options and the complete benefits package increase employee loyalty and encourage attentive service to the customer. Starbucks hopes to attain a sustainable competitive advantage by keeping its employees happy and trained which in turn leads to superior customer service. As of early 1998, Starbucks Corporation (with the exception of airport locations) owns and operates 1,250 retail outlets worldwide. These outlets include: company operated units, coffee connection outlets, and licensed kiosks located in airports. It also operates three roasting and distribution facilities. The stores range from 200 to 400 square feet, with new units tending to range from 1,500 - 1,700 square feet. However, the intangible resource associated with these physical resources is the ambience that each store provides. The firm employs a staff of over 100 people whose job is to plan, design and build the unique interiors and displays. Starbucks opens its stores in those cities where its direct mail business is strong so it can ensure a ready audience. By owning and operating most of its outlets and its roasting and distribution facilities, Starbucks has a broad range of control. Store design, training and evaluation, promotional events, etc. are all controlled by Starbucks. This equates to a competitive advantage over rivals such as Seattle's Best Coffee (SBC) who franchises rights to its stores in order to expand rapidly, but lacks total control of its own operations. As far as its other primary physical resource, coffee, Starbucks has a reputation for obtaining some of the worlds highest quality coffee beans. In

31

order to make this work, Dave Olsen, the company's senior vice-president and chief coffee procurer, scours mountain trails in Indonesia, Kenya, Guatemala, and elsewhere in search of Starbucks' premium bean. His standards are demanding and he conducts exacting experiments in order to get the proper balance of flavor, body, and acidity. This capability of attention to detail and caliber is one way how Starbucks delivers a consistently high-quality product. According to the 1998 S&P, Starbucks has a P/E ratio of 47.1. This valuable financial resource indicates that Starbucks is a fast growing and a relatively low risk company for investors to invest in. Starbucks is taking advantage of this resource by obtaining both short and long-term capital to finance its rapid expansion both domestically and abroad. Starbucks also has resources within its company partnerships, and agreements with foreign growers and their host countries. Partnerships with companies such as Nordstrom and Barnes & Noble allow Starbucks to set up shop in arenas suitable to the Starbucks experience. A joint venture with Pepsi has produced successful sales of Frappucino within supermarkets. Developing relations with foreign countries and growers have enabled Starbucks to obtain rights to the Narino Supremo coffee bean - one of the highest-quality beans in the world. These agreements are providing opportunities for Starbucks to expand its product line, obtain high-profile locations, procure reliable sources of quality coffee beans, and penetrate foreign markets. Starbucks' main core competency is its ability to offer a quality cup of coffee served by attentive and knowledgeable staff in a comfortable environment while continuing to grow at a rapid rate. Presently, Starbucks does not have any rivals that can match its reputation, nor its ability to grow. This seems to be the most opportune time for the Starbucks Coffee Company to open its shops in India. Initially they have planned to open up in Mumbai and Delhi; these locations were strategically picked to ensure success of the business venture and will serve as test locations. If the new stores are highly profitable, Starbucks can expand to more than 200
32

locations in India. Starbucks India locations will customize their menu to meet the tastes of their new target market. This includes the addition of more tea items taking in accordance that Indians are known to be more a tea-drinking population, as well as adding some new flavors in their coffee selection. The major competition for Starbucks at the moment is the Barista Coffee Co., which is an existing coffee shop branch in India, but Starbucks is expected to gain its market share for several reasons. The international popularity of the Starbucks brand will help the company step into the country. With superb marketing and reasonable prices, Starbucks might take over the market, and with its assurance of quality and commitment to giving back to the community, the company will earn brand loyalty.

33

TOWS ANALYSIS

34

REACTIONS AND OUTLOOK

Company Reaction over a period of time Starbucks brewed an agreement with Tata Coffee, India's largest coffee producer, in January. Starbucks will source and roast green coffee beans from Tata Coffee and will also set up retail outlets in partnership with the Tatas. Starbucks will look to create different entry points for different demographics and will create food relevant to Indian consumers that [it does not] provide anywhere else. Starbucks had in fact begun scenting opportunity in India much earlier, and initially wanted to make a solo entry. But the company's effort was stalled by FDI regulations. India does not allow 100% foreign ownership in single-brand retail outlets and was compelled to take the partnership route. On announcement of agreement between the two parties, Tata Coffee gained as much as 17 percent, the biggest intraday jump since Aug. 21, 2009, to 544.50 rupees in Mumbai trading. The stock traded at 490.55 rupees at 10:35 a.m. Starbucks rose 0.7 percent to $32.41 in NASDAQ Stock Market trading on that day. This reflects the confidence that investors show in both the company and the upcoming deal. Future Outlook of Starbucks in India Starbucks is another industry stalwart to enter the Indian markets due to vast potential and the huge untapped market. Indian market is always influenced by the traditions followed in the Western counterparts hence the success of Mcdonalds, KFC14, etc to name a few. With access to Hollywood movies where these brands are flashed quite often, the aura surrounding brands such as Starbucks scale new heights.

35

Movies like Youve got mail starring Tom Hanks and Meg Ryan, show both of them having Starbucks coffee before leaving for work leaves a lasting impression on the minds of consumers. With the success of Barista, Caf Coffee Day, the world is a witness that the Indian market is ready to usher in Starbucks and make it a successful venture. Indian consumers have always welcomed change when it comes to their taste buds. Cappuccinos, Latte have eclipsed the traditional Espresso filter coffee. Filter coffee seems like an archaic notion, only restricted to the elderly people. In fact the coffee shops have itself undergone a tremendous transformation, with them replacing a hang-out joint for the teenagers. The timing of their entry could not have been better. With Barista, Caf Coffee Day and Costa coffee almost losing their sheen, Starbucks comes in like a breath of fresh air. The future outlook of any company is not complete without an analysis of the industry in which it operates. The coffee industry of India is the sixth largest producer of coffee in the world, accounting for over four percent of world coffee production, with the bulk of all production taking place in its Southern states. India is most noted for its Monsooned Malabar variety. It is believed
36

that coffee has been cultivated in India longer than anywhere outside of the Arabian Peninsula. Currently it is in talks with Tata Coffee for an entry in the Indian shores. The impact of this announcement was reflected in the stock prices of Tata Coffee reaching their 52-week highs during this period. he two companies will collaborate on providing training to local farmers, technicians and agronomists to improve coffee-growing and milling skills. The two companies will also explore social projects in the coffee-growing regions Tata Coffee operates. One of the hurdles that the two companies have to sort out is Starbucks franchisee-led business model something Tata is uncomfortable with. This is an important aspect as this model has benefitted Starbucks in the past, with their market share increasing in proportion to their increasing number of franchises. That is one of the issues to be sorted out. Apart from this, the union of Starbucks and Tata Coffee looks to create a froth that will leave the Indian consumers wanting for more.

37

Challenges

No matter how lucrative a market is, but every company faces certain challenges when it enters into unknown waters. Similarly, in this case Starbucks is also poised to face certain challenges when it enters the Indian market. From our analysis, we feel that Starbucks will face the following challenges in the Indian market: Blending in the Indian culture

Venturing into Indian market is going to be a new thing for Starbucks. For this very reason it is following its tried and tested franchise model. In this case, it has ventured with Tata Coffe enter this segment. But still changing its product offerings to suit the needs of each of the market is an onerous task in itself. In this regard, Caf Coffee Day and Barista have done well. They both have imbibed the culture in their regular offerings. For example, they offer seasonal drinks, for eg Aam Panna, Mango Shake, etc. in the summer seasons. Through this the consumers can relate to them more easily as they can have their regular homely drinks at these places as well. So this has to be taken care by Starbucks as well so that they are able to win the hearts of the Indian consumer. Price sensitivity

Indian consumers by nature are very price sensitive. They want more by paying as less as possible. Why this might be a problem for Starbucks can be seen by the following diagram:

38

Through this we can see that a regular simple small coffee costs the consumer as much as Rs. 45/- (assuming a dollar to rupee rate of 1$- Rs.45). Similarly, the more popular coffee like Cappuccino and Latte would require the consumers to shell out almost Rs. 90/- for a small cup. When the consumers are very price sensitive, such prices would not do Starbucks much good and it will have to come up with attractive pricing strategies to lure the Indian customers. But as the alliance is with Tata Coffee, the consumers might not have to lose their purse strings too much as the conglomerate is famous for working for the middle man (from Tata Namak to Tata Nano fame). Competitive rivalry

Like any other industry, Starbucks will be facing tough competition from stalwarts like Caf Coffee Day, Barista Lavazza and Costa Coffee. All of them have been in the industry for

39

almost 5-6 years. During this time they have gauged the market very well and have really left the new entrant with a lot of thinking to do. They have blended in the culture really well and have become a synonym for hang out places and having fun. But following strategies can be used by them to overcome the threat of these competitors: By tying up with certain book stores, like Crossword, etc to provide a convenience to the customer. Though this has been adopted by Caf Coffee Day, but it can be used by them as well depending on the location in which they plan to open up their store. Have an outlet in music stores like Planet M and Music World. Imagine listening to your favorite music while sipping a hot cup of Cappuccino. This will surely attract a lot of consumers. Provide hot tea in those mud cups (kullhars), so that the people can relate to them in a better manner. These are some of the challenges that they might face and also some measures that they can adopt to curtail the competitive rivalry to some extent. The other promotional tactics that can be adopted by them is too early to be commented upon as they depend upon the location, time and the budget of their launch.

40

CONCLUSION
In spite of some drawbacks mentioned above regarding the business environment for Starbucks in India, the advantages far outweigh the limitations especially if Starbucks focuses its attention on the socio-cultural aspects of the Indian business environment. The fact remains that India is an emerging economy and like all emerging economies, it will be plagued by certain shortcomings. Over and above this, the retail food market in India is expected to grow by 9 % and although the traditionally tea-drinking country is the largest producer and consumer of tea in the world, coffee has made steady inroads into the minds and lives of the people serving nearly a million people every day. Starbucks has already entered most of the emerging economies except India, which seems to surprise everyone including its potential competitors in India, and it is clear from the analysis and the arguments provided above that the time is just right for Starbucks to try its luck now, albeit cautiously and with adequate preparation. Of course, there will always be groups and organizations ready to protest against such companies especially in emerging economies where the sentiments towards local companies are inherently strong. After all, India is (after China) undoubtedly the most developing amongst the emerging economies. Finally, how Starbucks decides to make its mark on the Indian gourmet coffee market and when it does so has to be left to the management of the company. However, it might prove beneficial for the company to dwell a bit upon adopting a multi-tier strategy and thinking beyond conventional entry modes in order to harness the immense potential that India holds.

41

REFERENCES WEBSITES
www.cafecoffeeday.com/Images/Brand_Partnerships.pdf http://globalcoffeegrind.hubpages.com/hub/Costa-Coffee-Fails-in-India http://www.livemint.com/2010/07/06233436/India-mulls-FDI-in-multi-brand.html www.business-standard.com/india/news/costa-coffee-brews-mass-market http://www.livemint.com/2011/06/22015037/42Indiansplantocutspendi.html?atype=tp http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4607 http://www.indiacoffee.org/newsview.php?newsid=68

BOOKS
The Starbucks Corporation: Past, Present and Future By Herv R. AUCH-ROY PEN: 1207HA December 21, 2004. Starbucks: Part of Youth Culture by Peter Dey The Future of Starbucks : An Analysis by Team Macchiato by Zack Higbee, Chen Yee Liaw ,Calvin Ting ,,Kevin Tjho ,Michelle Ton PARTNERING TO SCRIPT SUCCESS STORIES!- from cafecoffeeday.com Environmental Governance in the Coffee Forests of Kodagu, South India Transforming Cultures eJournal, Vol. 3 No 1, February 2008

42