Starbucks' Foray into Tea-Drinking India
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Case Code: BSTR435 Case Length: 17 Pages Period: 2012-2013 Pub Date: 2013 Teaching Note: Not Available |
Price: Rs.400 Organization: Starbucks Industry: Electronic Retailer Countries: India Themes: Internationalization, International Management, Joint Ventures |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Starbucs and Globalization
Since it was set up in 1971, Starbucks had been expanding in Seattle and by 1986, it had opened 6 stores. However, after Schultz took over the company in 1987, the expansion was more rapid and Starbucks opened its first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois. In March the same year, Starbucks ventured outside the US and established its first international store at the Seabus Skytrain Station in Vancouver, Canada. By 1989, the store numbers had increased to 46, covering the Northwest and Midwest regions. By the time the company went public in 1992, it had grown to 140 stores in North America...
India Coffee Market
India was the sixth largest coffee producer in the world with a 4% share of global coffee production. The production was mainly confined to the southern states of the country – Karnataka, Kerala, and Tamil Nadu and it was consumed mostly in the southern parts of the country. But relatively speaking, India consumed a very tiny volume for a population of 1.2 billion. India represented only 1.4% of global coffee demand with a per capita consumption of coffee of just 85 grams, compared to 4.5 kilograms in France, 4.6 kilograms in Japan, and 6 kilograms in the US. However, coffee cultivation was beginning to be promoted in the rural areas of Andhra Pradesh and the North Eastern states of the country. The consumption of coffee too was increasing across the country...
Starbucks' Foray into India
In 2006, Starbucks announced its decision to enter India and approached the country's Foreign Investment Promotion Board (FIPB) for this. The company proposed to own equity in New Horizon Retail, (its licensee for India), a JV between Starbucks' Indonesian franchisee VP Sharma (Sharma) and Future Group CEO Kishore Biyani (Biyani). However, the application was rejected on the grounds that the combined stakes of Starbucks and Sharma (whose investment was also foreign investment due to his NRI status) breached the 51% FDI limit in single brand retail which was in operation at that time. In April 2007, the company submitted a revised application stating that it would not hold any equity. The application was rejected again in June 2007 by the Department of Industrial Policy & Promotion (DIPP), which suggested that Starbucks take the 51% FDI route rather than the franchisee route...
Initial results
When Starbucks opened its first store in October 2012, India gave a warm welcome to the brand. During the early days of its opening, customers lined up to take a sip of the branded hot beverage. The lines stretched so long that a 'one-in, one-out' policy was implemented. After two months, the lines were gone, but not the enthusiasm of the customers. Customers took hour long treks to reach the stores from different parts of the city. Apart from coffee and snacks, customers also bought Starbucks tumblers; others took pictures of the cups, Starbucks' logo, and the interiors to post on Facebook...
Competition in the Indian Cafe Market
In the Indian market, Starbucks would have to withstand competition from established players like CCD and Barista (who had started almost one and a half decades earlier) and had now entered into newer territories with their cafés on highways and locations such as hospitals and college campuses by trying out new formats like kiosks and coffee carts. These competitors had strengthened their supply chains and refined their menus, and offered an improved experience to the Indian customers. Apart from these coffee chains, hundreds of western-influenced stand-alone coffee shops had mushroomed across the country ...
Looking Ahead
India was predominantly a tea drinking nation, with coffee moderately popular only in some southern states. Pamela Boykoff at CNN said, "Most Indians still begin their day with a steaming cup of milky, sweet chai, and it's unclear whether their taste for coffee will grow. Plus Starbucks' profit margins in India are smaller: It's selling its products at a significant discount so prices are more in line with Indian standards." But Schultz, retorted, "Not any more. Walk the streets of India. There are so many coffee players doing pretty well. That gives us a lot of confidence that the winds are going to be at our back."...
Exhibits
Exhibit I: Starbucks Presence Across the Globe
Exhibit II: Starbucks Financial Information
Exhibit III: Retail Value of Coffee in China (in billions of Yuan)
Exhibit IV: Key Competitors of Starbucks in India
Exhibit V: Café Competition in India
Exhibit VI: Comparison of Starbucks' Prices in US and India
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