Business Strategy Case Starbucks Coffeee

Regular 46B, Syndicate 1

Reski Mapriharto (29111326) Delfiana Primashinta (29111373) Teguh P Sidik (29111366) Muhammad Rahadi Prasetya (29111325) Reza Destryanto (29111354)

MASTER OF BUSINESS ADMINISTRATION SCHOOL OF BUSINESS AND MANAGEMENT INSTITUT TEKNOLOGI BANDUNG 2013

1. CURRENT SITUATION

Starbucks actually announced that it was planning to enter India. Later it postponed its entry as it had entered China. However, there was news that Starbucks reviving its plan to enter India. Starbucks officially visited India but they returned unconvinced about appropriate partner for its entry. All in all, Starbucks announced that they were ready to entry Indian market in the next 18 months, but again, it's postponed.
2. ENVIRONMENTAL SCANNING

SWOT Analysis Strengths Good Starbucks brand image in coffee business Starbucks experience as differentiating factor The founder (Howard Schultz) has an innovative vision and strong leadership Starbucks has a loyal customer that willing to pay premium prices Has strong financial capability Weakness The products price are relatively more expensive than the competitors, Aggressive expansion leads to cannibalization and lowering brand image Starbucks related to health implications as it served a high-calorie and high-fat products. OPPORTUNITIES India economic reforms Permission foreign direct investment with government control India GDP growth Middle class increase spending power Young people demographic THREAT High fiscal deficits Different food habits across religion and regions Generally preferred tea, in exception south India Inadequate infrastructure aside urban area

2.1. External Environment Political, Economic, Socio-cultural, Technological (PEST) Analysis

Political

India economic reforms since 1991 (O) Permission foreign direct investment with goverment control (O/T)

Economic

India GDP growth (O)

Middle class increase spending power (O)

High fiscal deficits (T) Socio-cultural Different food habits across religion and regions (O/T) Generally preffered tea, in exception south India (O/T) Young people demographic (O) Technology Has good IT workforce, and good familiarity with IT (O) Inadequate infrastructure aside urban area (T)

Political India is a nation that is characterized as a "sovereign socialist secular democratic republic". Like the United States, India has had a federal form of government since it adopted its constitution. However, the central government in India has greater power in relation to its states, and its central government is patterned after the British parliamentary system. The national government has the power to dismiss state governments under specific constitutional clauses or in case no majority party or coalition is able to form a government. The central government can also impose direct federal rule known as president's rule (or central rule). Since 1991 India had embarked on a series of economic reforms. The reforms include liberalization of foreign investment. The reforms over the year had resulted higher growth rates, lower inflation, and significant increase in foreign investment. Economic There is growth in India GDP from 1990s until 2004 which 8.1%. Trade liberalization, financial liberalization, tax reforms and opening up to foreign investments were some of

the important steps, which helped Indian economy to gain momentum. India also emerges to become prime destination for business process outsourcing (BPO) companies. The real estate market in India was also undergoing boom. Socio-Cultural India is notable for its religious diversity, with Hinduism, Sikhism, Islam, Christianity, and Jainism among the nation's major religions. The predominant religion, Hinduism, has been shaped by various historical schools of thought. Also in India the food habits differed across diverse religions and regions. While coffee was more popular in South India, tea being preferred at North India. Generally tea was the most popular beverages in India, followed by milk and third preference is coffee. Technology While presence of big IT Company is exist within urban area, apparently overall country infrastructure still inadequate.
2.2. Task Environment

The Porters Five Forces is used to analyze the task environment of Starbucks

 Threat of New Entrants (H) Open policy in India about foreign direct investment attracts several international coffees. Some this company like Costa Coffee and Gloria Jean in preparation to enter India market. Bargaining Power of Buyers (H) Bargaining power buyers is high due to many choices of coffee stores in India. This also affected by copy is not preferred as main beverages in this country. Bargaining Power of Substitute Products or Services (H) Bargaining power of substitute also quite high, mainly because India basically tea drinker, and famous for their Darjeeling tea. Also India preferred milk as second substitute to tea. India customer perceives both as healthy beverages, although coffee preferred as main beverages in South India. Bargaining Power of Suppliers (H) Compare to coffee stores only few quality India coffee producer and their product already recognize for its quality. Hence their product naturally being sought by many coffee stores company in domestic and internationally. Rivalry Among Existing Competitors (H) Although exist several well established coffee caf in India, somewhat until now they have distinct character that differentiate each other. The fact coffee still not popular in India customer probably they coexist to increase awareness coffee as beverage coffee caf as hangout place to India customer. Like head marketing CCD said We dont have any competition because we are not competing with the other. In fact we are aiding each other in creating and growing coffee culture. While in term of price they are competing with each other.

2.3. 2.3 EFAS Table In the EFAS Table Above, the weights are generated using Starbucks method by Expert Choice and the rating are generated through Focused Group Discussion (FGD) between the members of our group. The EFAS Score are 3.116 3. Internal Environment 3.1 Corporate Culture Starbucks have a common culture for all of its outlets. They believe that the baristas should not only know how to handle the coffee properly but also how to impart to customers the passion of the products. Starbucks offers all of the full and part-time employee the opportunity to receive full healthcare benefits, stock options/discounted stock purchase plans, and other benefits.

3.2 Corporate Structure

The Starbucks implemented matrix organizational structure In U.S, there are four divisions: Western/Pacific, Northwest/Mountain, Southeast/Plains, and Northeast/Atlantic. The major advantages: maximize communication channel. With this changes, Starbucks will be able to develop products specified to market appeal more rapidly after the appropriate adjustment have been made

3.3 Corporate Resource Has a strong foothold in American market. Strong expansion throughout the world Has a broad distribution channels and product line Has done strategic alliances with many company B e l o w

t h e line marketing strategy (word of mouth)

3.4 IFAS Table

In the IFAS Table Above, the weights are generated using Starbucks method by Expert Choice and the rating are generated through Focused Group Discussion (FGD) between the members of our group. The IFAS Score are 3.203

4. STRATEGIC ALTERNATIVES 4.1 Corporate Strategy Directional Strategy Directional strategy is a method to analyze Starbucks position in the market based on the external environment and internal environment. The strategy is used to find the further strategy for Starbucks in corporate level. The analysis uses directional matrix which consists of 4 quadrants of strategy. The growth strategy allows Starbucks to grow even bigger because it has strong internal and external by using integration (concentric strategy) or diversification. Diversification allows company to build new product on new market. Stability advises the company to hold developments and wait for opportunity and retrenchment advises to ready for turnaround. The analysis uses EFAS and IFAS score to represents the external and internal environment of Starbucks. In this case, EFAS score for Starbucks is 3.116 points while IFAS score lies on 3,203 points. Here is the directional matrix for Starbucks:

Starbucks

Concentric Diversification Strategy: Localization products: tea beverages, local food, Merchandise products . Buat QSPMnya za

TOWS Matrix Strenghts

1 2 3 4 5 Good Brand image Starbucks Experience Innovative Leader Loyal Customer Strong financial

Weaknesses
1 Expensive products 2 Aggressive Expansion 3 Health implications

Opportunities
1 2 3 4 5 India Economic Reform Permision of FDI GDP Growth Mid Class increase Young People Demographic

SO strategies
1 Entering india market (S1, S5, O2) 2 Targeting youth and business market (S2, O5 O4) 3 Modern ambience (S4, O4)

WO strategies
1 Put premium price (W1, O4, O3) 2 Increase low fat coffee (W3, O3)

Threats
1 2 3 4 High Fiscal Defisit Diff Food Habit Generally preferred tea Inadequate infrastructure aside urban

ST strategies
1 Product localization (S3, T2, T3)

WT strategies
1 Focus on urban area (W2, T4, T1)

4.2 TOWS Matrix

4.3 Functional Strategy Marketing 1. Targeting youth and business market (S2, O4, O5) 2. Designing modern ambience store (S2, O4) 3. Put premium price (W1, O3, O4) 4. Focused on urban area (W2, T1, T4) RnD 1. Develop low fat coffee (W3, O3) 2. Develop product localization (S3, T2, T3) HRM 1. Focused on product localization (S3, T2, T3)

Financial 1. Entering Indias market ( S1, S5, O2)

5. PORTFOLIO ANALYSIS The portfolio analysis is used to map the corporate strategy for each business unit based on their competitive advantage and Market effectiveness. In this case, to calculate the elements we use GE matrix. GE matrix is used to analyze the existing condition of Starbucks Coffees competitive position. This matrix analyzes Starbucks Coffee from two perspectives, the Starbucks Coffee internal position and the attractiveness of the market. GE matrix Starbucks Coffee based on general attributes in market attractiveness and competitive position.
Rating Description 1 2 3 4 5 Worst Poor Average Good Excellent

Element Overall Market Size Competitive intensity Historical profit margin Ambience store Market Attractiveness Pricing package Innovation Culture region Environmental impact Total
Element Market share Share growth Service quality Competitive Position Brand reputation Performance efficiency Advertising cost Performance productivity Total

Weight Rating 0.252 0.109 0.098 0.068 0.063 0.072 0.225 0.113 1
Weight Rating 0.239 0.091 0.279 0.139 0.113 0.039 0.1 1

Value 5 1.26 3 0.33 4 0.39 4 0.27 3 0.19 3 0.22 4 0.90 3 0.34 3.90
Value 5 1.20 4 0.36 4 1.12 5 0.70 4 0.45 2 0.08 3 0.30 4.20

Based on the analysis, it is recommended that Starbucks Coffee should take position in strategies that revolves around protect the position. Position of Starbucks coffee actually in strong area with high market attractiveness and strong competitive position. The strategy includes invest to grow at maximum digestible rate and concentrate effort on maintaining strength. This also can be done by increasing competitive advantage of Starbucks with make new innovation about the packaging and based on habitual and culture of country. On the other hand, for emphasizing profitability Starbucks Coffee must doing more market penetration in overseas target that potentially gain more profit based on culture of country that usually consuming coffee. So that the productivity will get higher and profitability will follow it.

5. CONCLUSION AND RECOMENDATION

Starbucks Underlying Reason for the Postponed In Entering Indian Market: We can see from the years planed of Starbucks, that actually the company intend to enter Indian Market, but there are some reason behind its postponed. Based on our discussion, the reasons behind that were:

Regulatory

Starbucks thinks that government regulatory about FDI was unfavorable for t hem (51% max). Stability of government policy present risk to the business in the future.

Market Culture

Tea Culture

Timing

Too late to enter the market because there were already player in this market.

Suggestions: Based on our analysis, we suggest Starbucks to enter Indian Market, because: GDP Steady growth from 1999 to 2004 Growing of the middle class (which is Starbuckss target market)

Consumer spending rises. Most of population in India ranges between 15-59 years old, which are the main segmentation for the company. Change of regulation by the government that allow FDI in 2006. Emerging Coffee culture (The increase of coffee consumption in India from 50000 tons per year reaching 85000 tons in 2005). Growing interest in Western consumer Brands and Luxury product.