Assignment 1: Coffee Wars in India

A report submitted to
Prof. Gita Chaudhuri

In Partial fulfillments of requirements of course

Written Analysis and Communication- II

By
Kuntal Deka Baruah & Mayank Kumar Singh
Section A
Roll Nos 155064 & 155067
On
27-09-2015

Letter of Transmittal

Mr. Venu Madhav

Director, CCD
01 July, 2012

Sub: Report on detail analysis of the strategic implementation of CCD

Dear sir

Problem Statement: With the entry of Star Bucks, how CCD should respond to continue its
substantial market share.

Options:
1. Slight course correction: CCD opts to upgrade its stores in terms of quality, service and
ambience, about 150 stores per year and to increase the number of stores to 400 in the
next 30 months. Also it will spend $3 million on advertisement to build its brand.
2. Pushed to the wall strategy: CCD adopts a more aggressive strategy to focus its growth in
affluent segments by increasing the number of Lounges and Squares to 25-30%.

Criteria:
1.
2.
3.
4.
5.

Maintaining its position as the leader in specialty coffee brand in India

Expansion in affluent segments
Customer loyalty
Financial investments to implement the strategy
Timeframe in implementing

Evaluation of options:
1. Slight course correction: In this option, CCD is targeting the same segment by increasing
its stores and upgrading the older ones. There are around 105 million people in the age
group 20-24 years which is the main target. This age group is mainly the students, who
tend to grab as much as possible at low cost. CCD being very much low priced than its
competitors, is the perfect place for the youth to spend their time. When Starbucks

entered India, there was too much hype about it. The youth went to Starbucks to
experience it, but due to high price (almost twice than CCD) they werent able to afford
and had to come back to CCD. But they also expected the ambience and service of CCD
to be better. So to live up to the expectation of their loyal customer, CCD should upgrade
its cafs and also should open new cafs, 400 in the next 30 months. After upgradation, it
is assumed that the sales and expenses of an outlet increases by 10%. The total EBITDA
for all stores for 40 months calculated is $156,789,760, the net profit being $110,737,260
(Exhibit ). Also to establish its brand image it should spend $3 million on advertising so
that it could retain its loyal customers and also focus on targeting tourists from abroad.

2. Push to the wall strategy:

Cafes
Lounges
Squares
Cafes upgraded
Cafes
Lounges
Squares
Cafes upgraded

Existing Cafes
New Cafes
Year 2013, July-December
1421
77
46
2
2
1
75
Year 2014
1498
155
54
4
3
1
150
Year 2015
1653
155
58
4
4
1
150

Total Cafes
1498
48
3

1653
58
4

Cafes
1808
Lounges
62
Squares
5
Cafes upgraded
Assumptions:
- Target number of cafes in 30 months: 400
- Increase in total stores each year: 160
- Number of cafes to be upgraded is included in the Existing cafes count

Upgradation
New stores
Cafe
Lounge
Squares

No. of stores
150

Expenses
Expense per store
Total expense
65% of $85,000 = $8,287,500
$55250

387
10
3
Total Expense

$85,000
$130,000
$190,000

Let us assume increase in sales/cost of goods/salary per year

sales
Cost of goods
salary

Percentage increase
10%
10%
10%

$32,895,000
$1,300,000
$570,000
$43,052,500

Economics of a CCD caf:

Amount (all amount in $)
Monthly sales
7,200*1.1 = 7,920
Cost of goods
2,520*1.1 = 2,772
Rent
1,400
Salary
936*1.1 = 1,030
Electricity
550
EBITDA
2,168
EBITDA for all cafes for 40 156,789,760
months
Additional Expense
Advertisement
3,000,000
Setup of new cafes and 43,052,500
upgrading
Total
46,052,500
Net Profit
110,737,260