18-02-2013, 10:25 AM
TATA STARBUCKS LTD.
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INTRODUCTION
Tata Global Beverages Limited and Starbucks Coffee Company launched a joint venture between the iconic international coffee brand and the 2nd largest branded tea company in the world. The 50/50 joint venture, named TATA Starbucks Limited, owns and operates Starbucks cafés, branded as Starbucks Coffee “A Tata Alliance.” The first store has already opened and subsequent stores are in line to be opened at Mumbai in India at the end of October, 2012. The alliance is expected to be very fruitful to both the companies in the long run. The report seeks to strategically assess the viability of this strategic alliance by peeping into its myriads of dimensions.
SITUATIONAL ANALYSIS
India and China are the world‘s two fastest growing economies. Starbucks had already ventured into the Chinese market and not surprisingly, their Chinese venture turned out to be much profitable than that of their US business. Thus, they want to replicate their success in Chinese mainland in India. Also, the Indian market is heavily driven by the upcoming youth culture which is totally driven by the western trends. With the growing disposable income of Indians, people tend to spend more towards apparels and fast foods. With the success of Indian owned Café Coffee Day and Barista Coffee, it is a widely proven fact that there is lot of scope for the development of coffee café culture in India. Thus, Starbucks want to capitalize on this particular opportunity. They are planning to start with targeting the niche upper class segment by opening their outlets in TAJ Hotels and Resorts. Their primary target market is the younger generation of age 16-40years. They will also target the tourists who will be visiting India. Since, most of the tourists coming to India are from the countries of U.S., England, Germany, and Japan who are well aware of Starbucks brand name. Thus, there will not be the problem of brand name recognition among them.
STRATEGIC INTENT
Starbucks Corp. is aiming India as its next major hub for development. Starbucks want to replicate the success they had in USA and more recently, in china. Surprisingly, their venture in China proved to be more profitable than that of US. Here in India, Starbucks entered into a deal with TATA Coffee Ltd, Asia's largest publicly traded coffee grower. This is, in particular, a non-binding agreement between two giants. There are plans to combine the trust and legacy of TATA coffee with the iconic brand image of Starbucks which can move on to development of Starbucks retail coffee chains in other parts of Asia. In addition to sourcing coffee beans from TATA‘s Indian facilities, the companies will also work towards developing Starbucks stores in retail outlets and hotels.
Threats
India is a tea-based culture. (The Indian hot-beverage market is dominated by tea. India was the largest producer and consumer of tea in the world and accounted for 29% of the total production and over 20% of the total consumption globally.60 Most of the Indians consumed tea at least twice a day, in the morning and in the afternoon.)
Homegrown brands dominate the retail coffee market. Coffee Café Day (CCD) pioneered the concept of specialty coffee in India followed by Qwiky’s and Barista Coffee.
Lower per capita income in India. High price of coffee is felt as a barrier in the South and the North. (Starbucks products were priced at a premium and the per capita income in India is lower compared to other markets where it is already present, there is immense need to offer products at locally competitive price.)
Increasing Health Consciousness among consumers. (The increasing rate of obesity and obesity related diseases such as diabetes, high blood pressure, and heart diseases in India. Starbucks was said to have been on the target of many consumer health groups worldwide who planned to campaign against the high-calorie and high fat products that Starbucks sold and which could lead to increased obesity risk, heart diseases, and cancer.)
Visiting cafes is not a frequent habit among most of the Indians.
Other fast food chains like that of McDonalds, Dunkin Donuts, Burger King, etc., already have the infrastructure in place and are instead adding quality coffee to their menus to compete with Starbucks.
Technological Factors
The coffee beans and tea need be bought from local Indian farmers in order to support the local agricultural economy, save money in transportation and tariffs, and gain tax benefits. Indians tend to take more cream in their coffee. The association with the Tata Coffee Ltd for sourcing its Arabica Coffee would surely help in the long run. Further, the skim milk option need not be offered in India because dieting is not a commonly accepted practice in the country. Indians will feel that they are being cheated out of their money if skim milk is put in their beverages. Indians also like spices in their tea and coffee, especially ginger and black clove. One of India’s favorite fruit flavors in mango, and in fact the mango is India’s national fruit. The food segment needs to take care of vegetarians segment as they form the good proportion of the target market. However, Indians specially the affluent and young class will be delighted to have fast and efficient Wi-Fi services at the cafe plus; people here love to be associated with their traditional and rich heritage as well as its blending with modernity and this may be reflected in the stores' ambience. The awareness about how varieties of coffee are sourced, roasted, brewed, etc needed to make people more loyal to coffee specially the Starbuck's.
INDUSTRY ANALYSIS – PORTER’S FIVE FORCES FRAMEWORK
One of the widely held assessment tools of an industry’s competitive forces is the five forces model of competition created by Michael Porter. These five forces are: the competitive force of rivalry among sellers, the competitive force of potential new entrants, the competitive force of substitute product, the competitive force of supplier bargaining power, and the competitive force of buyer bargaining power (Porter, 1980).
Potential for New Entrants
The entry barriers in the coffee retail industry are relatively low in India, particularly for the foreign players. This is possible owing to the fact that 51 % FDI is allowed in India in retail sector. Any large or well-funded company having the thorough understanding of the market can enter into retail sector in India. Given the fact that Starbucks is a global, it is having its own advantages when it comes to achieving the economies of scale. Starbucks being the global coffee retail chain, they are not going to have any particular capital related problems. Also, they are having MoU being signed with TATA‘s for opening their outlets in their TAJ group of hotels and resorts. India, being the sixth largest producer of coffee in the world is having the largest home grown supply of coffee beans and thus, sourcing coffee in this industry is not going to be much of the problem.
Customer or Supplier Loyalty - Indian market is already being captured by the long established brands like Café coffee day, Barista, Barista Lavazza and Costa Coffee. Thus, it is going to be pretty much difficult for any of the new entrant to establish its brand name in the Indian market. However, Starbucks being the international brand will definitely help in attracting the educated Indian crowd.
MARKET ANALYSIS - DAVID AAKER'S 7 DIMENSIONS OF MARKET FORCES
Market Size
The recent past has witnessed an upward shift in the per capita consumption of coffee in India, with growing preference amongst the young population. With a young population of about 35% below the age group of 40 spending most of their time at work or outside home, the out of home consumption of coffee is spreading rapidly. Moreover, the increasing spending propensity of the young Indians and their changing lifestyle has increased the demand for coffee in India. As compared to FY’2005 a clear growth can be witnessed in FY’2010 in per capita consumption. The per capita consumption in FY’2010 increased to 89.3 grams as compared to 70.9 grams in FY’2005 due to presence of a strong preference towards instant coffee.
Market Growth Rate
The consumption of coffee in India has grown steadily at a historical CAGR of 6.3% during FY’2005-FY’2010 and is expected to pace at a CAGR of 4.9% in the near future. In FY’2010, the per capita consumption has increased to 89 grams from 85 grams in 2005 at a growth rate of 5%. The Indian coffee market has witnessed a steady growth in the past 5 years due to the growing preference for instant and organic coffee amongst the coffee drinkers. Moreover, rising consumer expenditure and export promotion schemes implemented by government has influenced the growth of the market in India. The coffee market in India has also witnessed a growth in the demand for out-of-home consumption of coffee because to the majority of time spent by the young adults at work or out-of-home. This potential of the market and the preference of the young population have led many global players to foray into the domestic market.
Market Profitability
The revolution in the Indian coffee market has changed the tastes of the consumers and overwhelmed them with variety of new options. Thus, a change is witnessed in the coffee drinking habits amongst Indians. Today people prefer instant coffee over the traditional coffee,
because of the busy lifestyle and changes in their tastes and preference towards instant coffee. The Indian coffee market is dominated by big players such as Nescafe who has a share of 68.8% followed by BRU and Tata Coffee with 13.5% and 3.2% respectively. Marketers today see a lot of potential in the instant coffee segment, which is one of the reason many big companies are adopting various strategies to capture it. The out-of-home coffee drinking culture is also gaining pace.