Coffee Wars

MARKETING MANAGEMENT CASE Coffee Wars inANALYSIS: India: Café Coffee Day Takes On The Global Brands

Submitted By: Team AC2 Ankit Baranwal Ashish G Gyanchandani Charu Pandey Natesh Bhardwaj Surya Bakshi

Question 1: What should be the important goals for Siddhartha and Venu Madhav when considering their responses to Starbuck’s entry into India?

Answer: 1. CCD has always competed well with foreign brands in the past. But with Starbucks entry into the Indian market, CCD needs to be more aggressive in its approach and stay relevant to its customers. 2. One of the goals of CCD could be to increase its customer base which has predominantly been Students or youngsters. The customer base of Starbucks has been much more wide in its range. 3. CCD can also increase the number of Squares and lounges. 4. Another goal of CCD has to be to retain its customers. It has to come up with different schemes to retain its customers, like the Starbucks offered health coverage to its customers based on some criteria. Measures like these can go a long way in retaining customers. 5. The pay level of CCD is much higher than Starbucks. It’s because of this reason that many of the staffs of Star Bucks were taken from CCD. CCD should consider revamping its salary scale to retain customers. 6. CCD should also strive to improve its service like Starbucks which is on par if not higher than many five star hotels. Question 2: What are CCD’s most important competitive advantages? Biggest competitive challenges? Answer: Competitive Advantages of CCD

1. First mover advantage has helped CCD to become a market leader with 1500 stores worldwide. 2. The coffee plants are easily available which helps the company in leveraging the leadership position and while the backward integration program will help them in managing its operation. 3. It has a strong nationwide presence and strong customer loyalty from the youth, i.e. people below 25 years of age Competitive Challenges: 4. Improving customer services and adopting international standards to compete with international brands. 5. Improving the food options, upgrading interiors and inculcate better culture among its employees. 6. Improving the morning usage of their centres though it looks culturally difficult.

7. Improving the brand image without actually increasing the prices so as to maintain its loyal customer base. 8. While expanding and opening new lounges and stores in the upscale urban areas, the real estate can be a problem.

Question 3: What are Starbuck’s most important advantages and challenges? Answer: Advantages: 1. Starbucks is one of the oldest Coffee Shops worldwide. 2. It has a strong brand name attached to it. 3. Its customer base included professionals, students, taxi drivers, artists, 4. 5. 6. 7. 8. 9.

shoppers. Its products include coffee, eateries, instant coffee powder, Starbucks branded ice creams, ground coffee and beans and other merchandise. Starbucks owned most of it stores, rather than franchising them. One of the earliest coffee shops to go international. The service provided by Starbucks to its customers is at a personal level and is no less than that provided at 5-star hotels. Starbucks came with a status symbol and as a sophisticated, upscale coffee shop. The stores which opened internationally kept in mind the local arts and culture

and designed the stores accordingly. 10. It tries to have a connection with the family of its employees. 11. Partnership with the second largest beverage group, Tata Beverage Group is an advantage. 12. Tata is well connected, which will allow Starbucks to expand faster. 13. Tata is a large coffee brand too, which gave Starbucks the ability to offer a local coffee brand rather than import coffee at higher prices. Challenges for Starbucks:

14. Its coffee and other products are priced too high. i) In India, it is 50% more expensive than CCD. This will reduce its customer base to working professionals as Indians are highly price sensitive. ii) Students cannot afford such high rates on a regular basis. Hence, Starbucks might lose out on this major market segment. 15. Maintaining the quality of service in a country like India, where attrition rate is high is difficult, especially as the number of stores increase.

16. Retail estate prices are sky rocketing and it will be costly for Starbucks to expand once special deals cease to exist. 17. It’s a challenge for Starbucks to overtake CCD which has been the market leader in India with 1496 stores PAN India. Question 4: Which of the following paths should Siddhartha and Venu Madhav follow and why? - Slight Course Correction - Bigger, bolder, aggressive reaction Answer: CCD must consider Starbucks a strong threat to their market leadership and adopt an aggressive approach towards Global expansion and Customer Relations. It must decide on a short term, medium term and long term strategy to tackle Starbucks and creating an international image for itself. CCD could also choose to go for ‘a slight course correction’ approach by concentrating solely on improving their processes and offerings and responding to what Starbucks bring on to the ‘table’. In order to justify the need for an ‘aggressive’ approach, it is important to look into following parameters: 1. Owing to its global brand recognition, Starbucks has attracted enormous media coverage and long queues of customers at its launch. It comes with an international image which is very popular in Indian youth culture (current target segment of CCD). 2. Growth Potential of Coffee chain market in India: India is a growing retail market and Indian Coffee retail & Coffee chains market is no exception. Since both CCD and Starbucks have means, it gives them an equal opportunity to increase their share of the bigger pie. So it comes down to the question that which, out of the two, can capitalize more on this opportunity. 3. Access to premium realty space & raw material: Both CCD and Starbucks (in turn Tata Group) own premium realty space as well as Coffee plantation and hence are capable of fully backward integrated operations model. This gives both CCD and Starbucks an equal opportunity and means of standing apart from other foreign and local coffee chain retailers. 4. CCD’s Global aspirations: CCD has a long term ambition to be recognized as an international player. They aspire to be number 2 or 3 in the World in next 20 years. 5. Starbucks success in China: Starbucks comes to India on the back of its success in establishing itself as a big player in China. Many were skeptical when Starbucks entered China but it partnered with local firms, as it has associated itself with Tata Group in India, in order to obtain local expertise about consumer tastes in various regions. It was also able to educate Chinese consumers about Coffee and influence the culture of Chinese people working at coffee bar. This indicates that Starbucks has the expertise and vision of

replicating its successful Chinese policy in India. 6. Quality and Service: CCD’s service and quality is at a decline, as Starbucks has been able to poach 15-17% of the CCD staff for higher salaries. On the other hand, Starbucks, even though only at 11 stores currently, has shown its focus on service and quality already. Action Plan CCD should continue specializing in its particular strengths and resist temptations to mimic Starbucks’ operations. Short Run: Specifically, in the short run (1 -2 years) CCD should: 1. Make internal improvements to training centers to increase employees’ customer service skills, 2. Build loyalty and commitment among its employees by introducing some employee benefit programs like providing health insurance to help control attrition rates, 3. Concentrate on maintaining an updated menu and store appearances with consumer preferences, and 4. Look to expand new cafes in the urban areas of metropolitan cities. Medium run: CCDs market leadership position is owed to customer loyalty so in the medium run (2-5 years) CCD must establish and retain customer loyalty by opening more lounges and squares (increase from existing 3% to 20% of stores portfolio) to maintain customers that are aging from teens and 20s into 30s and 40s. CCD should also consider increasing their penetration further in Tier-2 and Tier-3 cities as they are untapped by Starbucks and other foreign brands as yet - Open 700 more stores in next 30 months, including 300 in tier 3 cities. It should also increase visibility of the CCD brand and hence increase advertising budget from $3m to $5m. Long Run: In the long run (5-15 years), it must expand internationally in existing and new foreign locations, and establish itself as a Global brand. Examples of China and India, which were predominantly tea drinking countries, turning out to be big Coffee chain market suggests that complete Asian market is yet to be tapped. So they should first target expanding in South and South-east Asia in next 5-8 years (300 new stores) and then expand in Europe to strengthen their brand.