Academic journal article Journal of Case Studies

Starbucks in India

Academic journal article Journal of Case Studies

Starbucks in India

Article excerpt

Introduction

Howard Schultz looked over the financial data. Starbucks generally preferred a strategy of premium prices, using a menu and store layout somewhat modified for local tastes. This strategy had been working well in India. However, local and foreign specialty coffee retailers were proving increasingly formidable competitors. India's larger cities were becoming saturated. Many competitors had now turned their attention to expanding into smaller cities. India was a large, but complex market, fragmented along age, geographic, income, and demographic lines. Continued success was not certain. It was not yet clear how Starbucks should best adapt.

Starbucks' History

In 1971, English teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker, opened the original Starbucks Coffee, Tea and Spice, in Pike Place Market in Seattle (Strickland, 1999). The store began by selling scoops of freshly roasted coffee beans. The founders named their store after Starbuck, a ship captain in Herman Melville's Moby Dick novel who drank a lot of coffee. A logo was designed that featured a two-tailed mermaid, to reflect the sailing traditions of the first coffee merchants. The company slowly grew to include a roaster and 4 retail stores by the early 1980s.

Meanwhile, Howard Schultz was working for a Swedish houseware company (Strickland, 1999). He discovered that Starbucks ordered more drip coffee makers than Macys, and decided to visit Seattle to find out why. Schultz was impressed with the specialty coffees for sale, as well as the customer experience the store created. He decided he wanted to join the team.

After some initial hesitation, Starbucks hired Schultz as the director of operations and marketing in 1982 (Strickland, 1999). In 1983, Starbucks sent Schultz to a housewares fare in Italy. While there, Shultz learned about the local coffee bar culture, which provided a social experience along with mixed coffee drinks. Schultz realized the potential for introducing this concept to American consumers as a way to differentiate Starbucks from its competitors.

Starbucks agreed to experiment with Schultz's ideas in a single store (Strickland, 1999). Although it was successful, the founders were leery of expanding the store's original scope to more locations. Thus, in 1985, Schultz opened his own coffee bar, Il Giornale's, which quickly expanded.

Schultz was very successful. In 1987, Baldwin and Bowker decided to sell Starbucks to him (Strickland, 1999). Il Giornale bought Starbucks' assets and trademark, and renamed the combined business Starbucks Corporation. From only 11 stores in 1987, Starbucks grew to 19,657 stores in 62 countries by 2013 (Starbucks, 2013).

The Starbucks Experience

Starbucks' success involved continuous quality improvement for both its menu and the customer experience. Starbucks offered high quality coffee, an assortment of other beverages, sandwiches, and desserts (Campos, 2013). The customer experience was enhanced through a warm and inviting store atmosphere with excellent customer service (Schultz & Yang, 1997), along with fast and free Wi-Fi Internet (Graser, 2013).

Brewing Trouble

In 2000, Jim Donald took over as CEO, and Schultz became chairman (McDonnell, 2011). Growth remained impressive until 2007. At that time, worsening economic conditions in the US made many consumers reluctant to spend a lot of money on premium coffee. This downturn in demand came after Starbucks' rapid expansion throughout the US with company-operated stores. In July 2008, Starbucks reported a third quarter net loss of $6.7 million, compared to a profit of $158.3 million in the third quarter of 2007 (Coleman-Lochner & Stanford, 2008). Starbucks was stunned by its first loss since 1992, and realized it had no choice but to retrench. Starbucks decided to close 600 US stores, which resulted in an additional loss of $168 million. …

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