Coffee War Case Analysis
CASE ANALYSIS Course name: Marketing Management
Coffee Wars in India: Café Coffee Day takes on the Global Brands
FAS Group No: E2
TERM 2 – 2015
Problem Statement The primary purpose of V.G. Siddhartha in setting up Coffee Day was to bring the coffee culture in India that was recognized as a tea nation. He belonged to that owned coffee plantations, and hence it was easier for him to venture into the coffee market and strategize to differentiate his business. In 1993 he established Amalgamated Bean Coffee in Chikmangalur and became the largest exporter of coffee. Later in 1996, in an attempt to move up in the coffee value chain, Siddhartha started their first café outlet by the name Café Coffee Day in Brigade Road, Bangalore. By April 2013, CCD became India’s leading Coffee chain with a market share of over 60%. However in January 2012, in attempt to penetrate in the Indian Coffee Market, Starbucks entered on 50-50 joint venture with the Tata Global Beverages as Tata Starbucks. This venture helped Starbucks in many ways: As Tata’s were well connected, it helped Starbucks open stores quicker compared to other foreign brands; the former also provided them the ability to come with a local coffee brand. The strategy followed by Starbucks was similar to the one CCD had adapted. For example, CCD got all its coffee beans from its 11,000 acre plantation and did not depend on wholesalers. So did Starbucks, expect that instead of own plantation they purchased directly from coffee producing countries. Similar to CCD most of Starbuck’s retail stores were owned and not franchised to ensure quality delivery. Both the firms also concentrated on providing a coffee experience through excellent customer service rather than just delivering coffee. Also, neither of them believed in mass media advertisement, rather concentrated on promotional and word of mouth approach. By April 2013, Starbuck had already setup 11 functional stores and was in process of rapid expansion. CCD at this point had to make a decision as to only a slight course correction would be sufficient or do they take more aggressive approach to retain their position. As it had been on 7 months after Starbucks entered India, it was too early to predict the turnout of Coffee War. To analyze the case we need to evaluate it from the following questions point of view:
What is the picture for Starbucks on ‘Advantages’ and ‘Challenges’ in India After its first international venture in 1996, it took Starbucks 12 years to enter into the Indian market. India which was historically a tea drinking nation, by the time Starbucks decided to enter Indian market, it was being rapidly exposed to the coffee culture by Coffee Day who was the market leader in this segment. This works in favour of Starbucks, as it not spend in coffee education for its customers, like they did in China. Moreover, a 50-50 joint venture with Tata Global Beverages – world’s second largest branded tea company, helped Starbucks expand and open stores quicker than other foreign brands, as Tata’s were well connected in the country. Tata Coffee helped Starbucks make new blend of espresso roast for the Indian market and set up roasting plants, come up with locally inspired dishes like chicken tandoori sandwiches and elaichi mint croissant etc. This
partnership also, helped them engage with local craftsmen to help design store furniture and fittings to give a more indianised ambience to Starbucks stores. Bringing its global service practice to India was another advantage to Starbucks. As they paid twice the pay level of CCD, 15-17% of their Indian staffs were poached from CCD. Also, with a per capita coffee consumption only at 100gm compared to 4.5Kgs in US, the Indian Coffee Market had a promising future. On the flip side, there are some challenges which Starbucks will face in Indian market. The coffee retail is a segment which has also seen many players struggling and failing. With more than 2300 stores across the country, the competition is quite intense with very less margin for error. Costa Coffee which is world's second largest coffee retailer had been in India for quite a few years has about only 100 stores and were still not able to find its footing in the country. Other global players like Gloria Jean and Lavazza also were in similar situation. Thus implying that foreign brands were finding it more difficult to penetrate in Indian market. Café Coffee Day was already established in the Indian Market and were doing extremely well in the segment. Moreover, Starbucks is 50% more expensive than CCD and hence will not be able to attract the younger lot. The pyramidal structure of Indian Market can thus pose a challenge. Maintaining its customer service levels would be another issue. Providing great service in 10 stores is easy, however, maintaining the same level of service for 100-300 stores would be a challenge in itself. High real estate price would be another challenge that cuts into the margin of Starbucks. CCD had entered many high-street location early and hence were able to setup stores at relatively lower price.