Academic journal article Journal of Case Studies

Kofi or Coffee-Starbucks Enters the Indian Market

Academic journal article Journal of Case Studies

Kofi or Coffee-Starbucks Enters the Indian Market

Article excerpt

Introduction

Avani Davda apologized as an employee cleaned up the mess she had made with the coffee machine (Vijayaraghavan, 2015). But brewing errors were the least of Avani's problems. As CEO of Tata-Starbucks, and the youngest chief executive in the sprawling Tata conglomerate, there was a lot she had to learn quickly. The most immediate need was to steer current stores to profitability in a crowded and difficult marketplace. Soon thereafter, Avani would have to implement expansion strategies as well.

Tata-Starbucks was an exciting, high-stakes endeavor, a joint venture between Starbucks and Tata Global Beverages (TGB). In its quest for growth opportunities around the globe, Starbucks had been eyeing India for some time. After all, India was the world's second most populous country, with potential for significant international revenue. For TGB, the joint venture was an opportunity to enter the Indian retail market. TGB had been under pressure from its investors to improve its performance and Tata-Starbucks could be the way for it to bump up revenues and increase profit margins. If successful, the joint venture would deliver welcome results for both these giants.

India, with its growing population of more than one billion people, held the promise several million new customers. On the downside, the picky, tradition-bound, and notoriously price-sensitive Indians were tough customers (Thomas, 2014). A few international coffee chains had previously entered the market, only to withdraw, partially or completely, in defeat. Meanwhile, a local coffee chain had survived through a combination of dogged persistence and nimble positioning, and it would be a tough rival.

The pressure was on, and the day of reckoning was getting closer for Avani. The venture's launch in Mumbai and initial store openings in other major cities had been met with excitement by customers. But these locations were in high-demand areas and may simply have been low-hanging fruit. Future growth would not be that easy. Avani would have to expand into less predictable areas and build a loyal customer base. Competitors would step up their efforts and investors their demands. Avani knew the time had come to double down on positioning and location strategies. What she had to decide soon was "how."

Did Starbucks "Have" to Enter India?

Since first setting up shop in Seattle in 1971, Starbucks had expanded to more than 20,000 retail stores in 65 countries and grown into an iconic global brand (www.starbucks.com). Starbucks had also diversified beyond its original stand-alone store format in several ways: through partnering, placement in highway rest areas and distributing product via supermarkets and grocery stores. After dominating several market categories in the United States, including that of "Coffee and Snack Shops" (Lazlich, 2013), Starbucks was now on the lookout for new avenues for growth.

Starbucks' annual report indicated the company anticipated its overall sales and growth in the near future to come primarily from the Americas and the China-Asia Pacific region (Starbucks, 2014). The U.S. market had been Starbucks' main source of revenue from the start. Though historically a reliable market, the Americas did not show potential for rapid growth in the future. Some data showed that coffee drinking might be declining overall in the U.S. (Fortune, 2015), while other data indicated that sales of "gourmet" coffee had increased during the same time period. In the gourmet category, the primary factor of interest to Starbucks was the increasing popularity of at-home gourmet coffee brewing rather than in-store consumption (Beverage Industry, 2014). Overall sales growth had stalled in the Europe and Middle East region; however, the China Asia Pacific region had recorded sales increases at almost double-digit rates.

India, the second biggest market in Asia, so far remained untapped. Starbucks had considered building a presence there off and on for years. …

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