Introduction Of Starbucks
Starbucks was opened in 1971 at Pike Place Market in Seattle. It is the leading retailer of coffee in the world with more than 16000 locations which is either company owned or licensed or through franchise in locations like North America, Europe, Asia Pacific and Middle East. Starbucks coffee is sold at centralised and important locations through out the city like Airports, Supermarkets, Universities and Hotels.
The Starbucks Experience
"You get more than the finest coffee when you visit a
Starbucksyou get great people, first-rate music and a comfortable and upbeat meeting place, says Howard Schultz, Starbucks Chairman, president and chief executive officer.
In the present economy people come to Coffee shops not just for drinking coffee but to socialize , read, or enjoy music while drinking coffee. So Starbucks made sure that each and every store they open has a proper ambience for providing a Feel At Home experience.
Starbucks portfolio includes Tazo Teas, bottled water Ethos, and Liqueurs. Starbucks reaches vast diversity of people by offering variety of coffee flavour options through their brands like Seattle's Best Coffee and Torrefazione Italia. Coffee Starbucks keeps up their relationship with the working people by making sure that they deliver the service as fast as possible. They also provide consumers with the option of purchasing brewing equipment to use at home and office.
In today's global village, having an international presence sounds easy, but actually having it, is a feather on their hat. Starbucks is one of those few organisations that has stood still and withheld the bang of the economic crisis. It is proudly the largest coffeehouse company in the world, having around 16,635 stores in 49 countries, out of which 11,068 (6,764 Company Owned, 4,304 Franchised) in the United States, and around 1,000 in Canada with more than 800 in Japan. Their focus on strengthening global operations justifies its increasing presence all over the world, and its strategy of operating as a local company where it conducts its business activity is responsible for the position they are in today.
From the above graph you can see how Starbucks leads all its competitors in the terms of both Quality of the Social atmosphere and Quality of Coffee followed by its nearest competitor Panera Breads then by Dunkin Donuts and Mc Donald's.
Internationalising Strategy of Starbucks
Many restaurants have found it profitable to franchise, allowing independent owners to bear the primary weight of upholding the brand name. Largely, the competitors have gone the franchising route. McDonald's, quite possibly the most recognized franchisor in the restaurant business and competitor of starbucks describes itself as being "committed to franchising as a predominant way of doing business, In spite of such a trend occurring in the industry, Starbucks holds to maintaining all of its free-standing coffee shops as company-owned stores.
Starbucks' franchising scheme is somewhat different, offering in lieu of franchises licenses to sell Starbucks in certain venues. Licensed stores have made Starbucks products available everywhere from airports, to bookstores, to college campuses. With such a licensing structure, Starbucks can make its products available to more people without losing control of the brand. The principle advantage given to Starbucks in its licensing model relative to its competitors' franchising structures lies in the incentives for poor quality created through franchising.
Mc Donald's profitable way of franchising has its flaw: poor quality control because normally the franchisees don't care about the brand, what they care about is fat profit, therefore they will choose low quality products to make as much as possible, which causes damage to the overall brand. Although franchising is profitable and easy for global expansion, Starbucks sticks to company-owned stores. Unlike McDonald's in the 'fast-food' industry, Starbucks in the 'third place' industry is not primarily attempting to maintain the quality of a certain product. Starbucks' primary goal is to maintain the quality of the atmosphere. If the quality of the coffee were the only issue, perhaps Starbucks would look more favourably upon franchising. As it stands, Starbucks emphasizes quality in a sector that can no more easily be monitored as it can be measured. The quality is found not in what the customer buys, but rather in what the customer experiences. So the best way to internationalise for Starbucks is to start a wholly owned subsidiary.
One Starbucks executive, Martin Coles, states, "The thing in our company and the thing that works universally is this whole notion of Third Place. It's about the in store Experienceall of it
From the above figure we can see that South Asia has advantages in all the field over Africa even though are competing well to each other. So taking into consideration the above aspects, doing business in South Asia will be the best option for Starbucks Internationalising plans.
The potential targets identified for Starbucks to enter into south Asia are India, Pakistan and Sri Lanka. Considering the present global crisis situation, India is ranked 2nd among the top 10 countries in the world to be least affected by recession, and it is also ranked above Pakistan and Sri Lanka in terms of ease of starting business by Doingbusiness.org. And there only two countries in the world that has shown positive GDP growth among which one is India with 7% growth, which will help Starbucks find an attractive market.
Brief Information about Indian Economy
India, being the 7th largest country of the world has a population of nearly 1.5 billion people, a majority of which falls into the age group of 15- 64 years, making it one of the youngest countries in the world. Having a median age of just above 25 years is a great advantage to it when compared to US and China with 37 years and Japan with 45 years. Thanks to the booming IT/ Software service industries in India it has seen a constant rise in the per capita and the economic growth over the last decade has been an impressive 7%. Having almost 29% of the population urbanised (and an urbanisation rate of 2.4%), the Indian consumer market holds immense potential and has always proven to be extremely beneficial to the investors. Considering the Improvement in political and legal reforms since the beginning of the 1990's it has been a highly attractive form of foreign direct investment (FDI) . India is thus like a mine for foreign companies to set up their shops.
Starbucks And India
It was not very long back when it was believed by the people of India that they would see the first Starbuck coffee shop and especially when the consumption of coffee was rising with the economical growth of India. However, in 1998 Starbucks when decided to enter Chinese market had to put the plan of entering Indian market on hold for next few years. This proved to be the biggest mistake by Starbucks, the reason for this was that the coffee revolution in India has already begun and local coffee chain shops Barista and Caf Coffee Day popularly know as CCD were entering in every part of the country with almost one new caf every day. After 2006, Starbucks had a number of failed attempts to enter Indian market, with its first attempt to start the joint venture with India's RPG Enterprises in mid 2007. However before starting only this coffee giant backed off that plan and later agreed to enter the market again along with Future Group, another Indian giant, through a joint venture (New Horizons Retail) with its Indonesian franchisee. This time round it was the Indian government and the Foreign Investment Promotion Board (FIPB) that came in the way and the company was asked to resubmit its proposal through a FDI route rather then sending it via franchisee. With the Indian FDI regulations at that point of time allowing only up to 51% investment in a single brand, Starbucks just like Tesco and Carrefour decided to wait for the change of the FDI to take effect and probably change in the rules.
Starbucks finally on experimental basis entered into a distribution tie-up with one the top multiplex operator PVR cinemas in India for its selected products. However not having a clear idea about the demand for Starbucks in India, PVR Cinemas was cautious in opening out the coffee stores at their multiplexes. Martin Coles, President of Starbucks Coffee International once said, "Without sounding arrogant, we're looking at our own strategy. There's nothing that keeps us doing business in India. India is a huge market for any international firm to overlook; especially when Starbucks have already been successful in establishing itself in other traditionally tea drinking nations like China and Japan.
Analyses of International Business Situation of India in Accordance with Starbucks
When it comes to advantages inherited in the Indian market condition, it might be suitable to cover the PEST analysis as it is most relevant in describing the market environment.
- Political Forces:
India has sustained itself as a single largest democracy in the world, in spite of India being culturally and regionally very diverse. After 1991 Indian economy has grown to a large extent, but still it faces political problem with its neighbouring countries like Pakistani and Bangladesh. India has two major political parties i.e. Congress and Bhartiya Janata Party.
India having a very strong democratic setup with its root deep in India helps the company Starbucks coming with a joint venture to a great extent. With present UPA lead congress government India has grown rapidly. Recently accountability of Indian politicians have also increased to a considerably. Now it has become mandatory of the candidates standing for election to show their wealth.
With this UPA government in power and star bucks entering Indian market will be very beneficial as this government supports industry growth in India. Star bucks do have competition in terms of Barista and Caf coffee day, but the brand which star buck bring in is not comparable, and also India is a very huge market considering the demographics of India with almost 65% people in the age group of 14-65 years, the westernized ideas and life style of this youth of India shows a great deal of business for star bucks.
- Economic Forces:
Indian economy continues to show favourable indications with great performances by its manufacturing and service industry, which compensate with low down in the agricultural economy which once use to be the strongest point of Indian economy. Indian economy has grown to 8% in last 2 years, which was once 9.8% before this economic slow down. India has witnessed growth in all sectors of its industry, with a great deal in technological, finance, telecom and service industry. India also has very large working people and still to grow by huge number in next few years, which helps in improving Indian economy.
With government policies benefitting foreign direct investment and lots of foreign companies coming to India and considering present economic situation it's the best time for star bucks to enter into Indian market, with almost all the sector of India growing. With the growing population of India and where unemployment is concerned, star bucks can get cheap labour and due to urbanization and most of the people moving from rural area to urban area helps star bucks to capture the market with youth following western culture and government spending a lot in infrastructure helps the company, also increasing trends of franchising would be beneficial and prove to be boon to the company. Retail industry in India is doing great profit, which leads to the conclusion that it's the best time to start business in India, with its economy on rapid growth as compared to economies of the other countries.
- Social Forces:
The increasing number of educated youth in India has also fuelled the skilled English speaking services sector leading to increased per capita GDP and improved living standard of people. India per capita GDP (PPP) was estimated to be at $2800 for the year 2008 as compared to $2700 for the year 2007, which indicates that the people are able and willing to spend more money on life quality improvement. The increasing number of educated youth in India has also fuelled the skilled English speaking services sector leading to increased per capita GDP and improved living standard of people. This has an implication on the coffee consumption as coffee is still considered as an exclusive beverage compared to the traditional tea. The percentage of consumption of Tea and Coffee has increased to high extent in recent times. The explosion of coffee and gourmet coffee outlets is an indication of the rising coffee culture of India and an indication to Starbucks that Indian market is far from saturation.
With the changing culture of the Indian towards coffee consumption and the increase in disposable income amongst the youth, the cafes have come to act as a place for socialising and hanging out mainly for collegian and the young people.
One area where Starbucks can focus on is the Corporate Social Responsibility (CSR) and its policies towards the upliftment of the rural Indian community. These efforts would go a long way if Starbucks is looking at cementing its position in Indian subcontinent. Although the company may not expect to open any outlets in villages of India, it can work for the betterment of lives of these people. The best way to start could be the coffee partners and workers in India so as to create a synergy between the tree plantations owners, workers as well the Starbucks community. These will prove to be beneficial for Starbucks in long run when many of these workers and their families would be part of the urban population and when Starbucks become a part of their lives.
- Technological Forces:
Indian coffee has been improving in quality continuously and almost 80% of India coffee is exported. In 2004 Tata entered into an alliance with Tata to supply coffee beans for the latter. The whole process leading to this alliance was the fact that in 2004 Tata coffee won the Gold Medal for the 'Best Robusta in the World' at Grands Crus de Cafe. This shows that the Indian coffee lovers are seriously working at improving the standards in order to bring India up to the mark in the coffee world. With low cost of labour and easy availability of high quality coffee beans, Starbucks would be well placed to do business in India. If Starbucks was to take this into consideration, the building up of strong working relations with the Tata Group could also be the key to achieving the lower cost and probably Starbucks might even be able to match the prices offered by its local competitors.
Proposed Strategies For Starbucks in India in the form of 4p's of Marketing
Starbucks can bring with it all the items offered by it in other countries like its coffee varieties, flavoured beverages, pastries etc. But it can also introduce new products in its Indian menu like different variants of sandwiches in Indian style. It can also introduce merchandises like its competitors who sell t-shirts with logos and varieties of traditional teas like flavoured teas with spices. Starbucks can make it big if it can provide the same ambience which it has been providing internationally with products like Hear Music, Free Wi-Fi etc, so that people will be motivated to come and relax at starbucks.
Starbucks can buy its raw materials from the local farmers by giving them contract to supply coffee beans, which in turn provides employment opportunity to locals who are unemployed. This will save starbucks from spending huge costs on importing its raw materials. India being one of the biggest coffee exporters in the world will make sure that the coffee beans provided to starbucks are of high quality. This will make sure that the company maintains its Brand name by providing products of world class quality. Starbucks can open their coffee shops by concentrating more on metropolitan cities first. This will be cost efficient because all the metropolitan cities have good transportation networks. Starbucks can locate their warehouses in near by villages so that there's no inventory shortage.
Starbucks when deciding their price has to consider the competitors price but it also has to make sure it cover its cost. Leading competitors are Barista and CCD which at present charge around 60Rupees (US Dollar 1.30) for a cup of coffee. Starbucks being an international premium company will be able to charge a little higher than its competitors; So 70 Rupees for a cup of coffee will be the right price for starbucks and it can accordingly price its other segments of products. People will be ready to pay the premium price charged by Starbucks considering the ambience that it will offer to its customers.
India like all other countries have all the means of advertising including newspaper, television, radio, hoardings etc. For a company like starbucks there are lots of options. The first and foremost important means is hoarding, because people will get the tendency to visit the shop when see the hoardings. Even radio is becoming a revolution in India especially among teenagers, so radio is also a great option of promotion. It can also keep special day based offers like item of the day or buy one get next for half price. It can also pass message through television advertisement by depicting something about traditional Indian culture.
Questionnaires Conducted In Indian City Mumbai
As seen above India is one of the fastest growing economies in the world. So the opportunities of Foreign Direct Investment into India are unlimited. Taking example of many foreign companies which recently entered India and became highly successful, it can be said that, this is the right time for Starbucks to enter India. With fresh investment of 30 billion for next five years, Indian market will grow 40% according to the Franchise report 2009-2010, and it also added that the growth rate of market is supposed to reach 535 billion by 2013. The Franchise India summit reported that India's franchising market which is currently valued at 7.2 billion is expected to reach 20 billion in 2013.
When the whole world is under the crisis of recession, India is the only country which is still standing stable and continuing its business activities without any obstacles and it has achieved 7% growth at the end of third quarter in 2009. So the next country which Starbucks should look onto in this period is definitely India. Even though they will face lots of challenges from government and the public, it can definitely be an 'INSTANT HIT ' in Indian market, after all India is one of the largest coffee exporters in the world.
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