INTERNATIONAL MARKETING MANAGEMENT

ANALYSIS OF NEWS ARTICLE

GROUP 2
SECTION A
ADITYA GAUR
DEEPIKA RASTOGI
SIVA CHARAN MANGU
ROSHAN TATED
SOHAM GANDHI

3A
15A
24A
38A
50A

THE ARTICLE
Starbucks outshines coffee chain rivals in first full year in India
Sagar Malviya, ET Bureau Nov 7, 2014, 01.56AM IST

MUMBAI: Starbucks, the world's largest coffee retailer, posted nearly three times more per-store sales
than established rivals in India in its first full year of operations in the country.
Tata Starbucks, a joint venture between Starbucks and Tata Global Beverages, generated total revenues of
Rs 95.42 crore in the year ended March 2014, according to its annual report filed with the Registrar of
Companies (RoC) on Thursday.
With 43 stores until March, a back-of-the-envelope calculation shows that each Starbucks shop sold coffee,
snacks and merchandise worth over Rs 2.2 crore last fiscal, significantly higher than the per-store sales
of other coffee chains.
Amalgamated Coffee Bean, which runs the country's top coffeehouse chain Cafe Coffee Day, hasn't
disclosed its latest financials yet. For 2012-13 it had revenues of 1,126 crore including income from its

plantations business and sales through 1,400-odd cafes. That translates into not more than 80 lakh
annual sales per store.
Starbucks' per-store sales is, however, a tad lower than Jubilant Foodworks that runs over 752 Domino's
Pizza outlets and Dunkin Donuts and clocked sales of Rs 1,732 crore last fiscal, which means Rs 2.3
crore per outlet on an average.
While the company didn't comment on financial details, a Tata Starbucks spokesperson said it is humbled
by how Indian customers have embraced the Starbucks experience in the two years they have been in
the India market. "We believe that over the long-term, India will be among the top 5 markets for
Starbucks," said the spokesperson.
Starbucks currently operates 59 stores in the country and plans to close the financial year with 90 doors.
Over last year, the coffee chain has more than trebled its authorised capital to 220 crore.
The company may not be able to keep up its high per-store sales as it opens stores in suburbs and towns
where most consumers may find Starbucks pricey. Hence, it plans to open many stores that will nearly
be three times smaller than its first few stores or half the size of average existing cafes.
"As they move from high traffic and high spends location, revenues or productivity of the stores will come
down. Hence, per store sales might come down over the years once they open stores in smaller
locations," said Devangshu Dutta, chief executive at retail consultancy Third Eyesight.
Profitability also remains a challenge. In FY14, Tata Starbucks' loss at Rs 51.87 crore was more than half
its total sales. "They are in growth mode and will have to incur initial losses," Dutta said.
Starbucks, which opened its first India store in October 2012, had posted Rs 14.61 crore in sales for five
months ended March 2013.
While its pace of expansion in India has been a record for Starbucks in its 43-year-old history, Cafe Coffee
Day has been opening new outlets several times faster - the home-grown chain opened around 150
stores in the past 12 months, taking its tally to nearly 1,500 cafes.

ALLOTMENT OF SUB TOPICS

OBJECTIVES
Entry Mode Strategy and Description
SWOT Analysis of Starbucks in India
Analysis of competitors of Star Bucks: The Threat well taken or not?
A Comparative study of Starbucks in China
Its Vision for Future: Extension into Home Delivery: Viable or not?

ALLOTEE
Aditya 3A
Deepika 15A
Siva 24A
Roshan 38A
Soham 50A

THE SYNOPSIS AS PER OBJECTIVES

OBJECTIVE 1
Entry Mode
Strategy and
Description

When an MNC seeks to enter a foreign country, it must choose the most appropriate entry
mode for that specific market, such as exporting, licensing, a turnkey project, franchising,
joint ventures or wholly-owned subsidiaries. Starbucks Coffee has tied up with Tata Coffee
to enter
India on a Joint Venture Model.
A joint venture is a typical entry mode used world-wide. Starbucks, famous for making
coffee drinking fashionable in the US, had tried to enter India by striking an alliance with
Kishore Biyani's Future Group three years ago, but these plans were rejected by the Foreign
Investment Promotion Board, or FIPB, the government body that regulates inflow of foreign
money into India's factories, shops and mines. Organised coffee retailing is a niche but
growing segment in India. Industry officials said the size of the segment, which is
dominated by unlisted companies, is around Rs 500-600 crore. Until a year ago, Starbucks
were reviving its plans for India and began talks with Shyam and Hari Bhartia-controlled
Jubilant Group for a possible alliance. Jubilant Foodworks, part of Delhi-based Jubilant
Group, is the India franchisee for Domino's, the pizza chain. The group's flagship is Jubilant
Organosys, a leading contract manufacturer of pharmaceutical products. However this too
also did not work out and finally Starbucks Coffee signed a Memorandum of Understanding
with Tata Coffee in January2011.

OBJECTIVE 2
SWOT Analysis
of Starbucks in
India

Strengths
1. Sound financial records
2. No.1 brand in coffeehouse segment,
valued at 4 billion
3. Starbucks experience
4. Larest coffee house chain in the
world
5. Employee management

Weakness
1. Coffee beans price is the major
influence over firm's profits
2. Product pricing
3. Negative publicity

SWOT

Opportunities
1. Entend supplier range
2. Expansion to emerging economies
3. Increase product offerings
4. Expansion of retail operations

Threats
1. Rising prices of coffee beans and
dairy products
2. Trademark infringements
3. Increased competition from local
cafes and specialization of other
coffeehouse chains
4. Saturated markets in developed
economies
5. Supply disruptions

OBJECTIVE 3
Analysis of
competitors of
Star Bucks: The
Threat well
taken or not?

OBJECTIVE 4
A Comparative
study of
Starbucks in
China

Undeterred by the entry of iconic US-based coffee chain Starbucks at competitive prices,
entrenched players such as CCD, Barista and Costa Coffee are unlikely to go in for price
war, and plan to continue with differentiated pricing strategy.
Starbucks, said it will follow low pricing strategy across all its forthcoming outlets,
including the next one at the premium Taj Hotel. Starbucks, with Tatas as partner, has opted
for competitive pricing that is nearly half the coffee chain's charges elsewhere in the world - with a cup of coffee costing about Rs 80 for a small offering and Rs 165 for a large one.
When contacted, Cafe Coffee Day (CCD), which runs 1,350 stores, said it will continue to
follow a different pricing strategy which includes the rental. "It is different for different
outlets. Our pricing depends on consumer potential and what are the input costs that go into
running that store, including rentals. We would have different pricing across different retail
points," CCD Marketing President Ramakrishnan K said. Asked if CCD will revise its price
now in view of the entry of Starbucks, Ramakrishnan replied in the negative saying, "Our
pricing is not determined by competition but by customers. We have no intention of
changing that on the basis of somebody else's pricing."
Italian chain Lavazza-run Barista declined to comment on Starbucks pricing, however, its
director for South Asia R Shivashankar said, "Our pricing varies across formats and does
not depend on rentals. We don't open outlets in five star hotels." Barista is the No 2 player
with over 300 outlets.
Costa Coffee said it welcomes Starbucks to the country, but believes the England-based
company has an edge as it entered the market earlier. "While we welcome the entry of
Starbucks here, I believe we have a good understanding of the cafe consumer here which
has been detailed into our business strategy including pricing. So, we will continue with
what we are doing. "Yes, our prices vary with rentals and demographics," Costa Coffee
India chief executive Santosh Unni said.
Bullish on the Indian market for growth, Starbucks CEO Howard Schultz has said his
company plans to open "thousands of stores" in India in the "not-too- distant" future,
making the country one of its two largest markets outside North America along with China.
China and India offer Starbucks one of the greatest opportunities for growth.
"Getting there would not be easy. Our successful beginning in India has not been without
hurdles. On the contrary, it has been a complicated six year journey," he said referring to
Starbucks' long wait to get into the Indian market.
"We'd watched the Indian market develop for many years. We could see that all the
important pre-requisites for success were falling into place". He quoted instances like the
emergence of a growing middle class with strong aspirations, enthusiasm for western
culture and brands, gradual development of the nation's infrastructure and "what seemed to
be healthy changes in the regulatory framework for foreign investment".

OBJECTIVE 5
Its Vision for
Future:
Extension into
Home Delivery:
Viable or not?

Starbucks numbers reflect a decrease in traffic to malls and other retail destinations
as consumers go shopping online. If fewer consumers are coming in contact with
Starbucks, the chain figures one solution is to take its beverages and foods to them. To that
end, Starbucks plans to debut delivery service in select markets in the second half of next
year. Mr. Schultz said the new service will be incorporated into Starbucks MobileOrder
and Pay app, which will be introduced nationwide in 2015.
Matt Ryan, Starbucks chief global strategy officer, said the company was not willing to tip
its hand on the specifics of the delivery plan yet, but said it was moving full steam ahead
and would begin pilots soon. Mr. Ryan did not provide an answer as to whether Starbucks

would make deliveries itself or outsource the function.

The chances of turning a profit with home delivery seems unlikely to many of the industry
insiders on the RetailWire BrainTrust.
Simple question: How do you make money doing this without adding at least $10 for
delivery or jacking up the prices to offset the expense? asked Tony Orlando, owner of
Tony Os Supermarket & Catering.
Having been a coffee franchisor I dont know how this could possibly be profitable,
said Bob Phibbs, president and CEO of The Retail Doctor. Coffee is a low-margin
business. The money is in the espresso/blended drinks. The people most likely to complain
for a redo are the very ones most likely to use this service.
I just dont see how this creates value for Starbucks, said Cathy Hotka, principal at Cathy
Hotka & Associates. Will the whipped cream on that salted caramel latte still be cold? Will
this new process affect the impulse buy side of the house, like CDs and candy? Whats the
delivery zone? Lots of questions here to pursue in this objective!