Case - STARBUCKS'S FORAY IN TEA-LOVING INDIA
On September 28, 2012, Starbucks announced its long-awaited plans to expand its coffee retailing empire in tea-loving India. A few weeks later, on October 19, 2012, the global coffee chain opened its first store in Mumbai's Horniman Circle, the heart of the city's commercial district. The area is home to luxury shops, including a Hermes store, and numerous offices and bank headquarters. The 4,500 square feet store (418 sq. meters) is far larger than most Starbucks stores elsewhere around the world.
To enter India, Starhucks set up an $80 million 50-50 joint venture with Tata Global Beverages, a division of the very diversified Tata Group conglomerate. joint venture was already set up before the Indian government decided to allow so-called single-brand retailers to set up shop in the market on their own. The Indian partner describes itself as "Asia's largest coffee plantation company." In fact, the Mumbai-first shop is located in a restored heritage building that is owned by Tata Sons, another division of the 'rata Group. l'he coffee chain had initially planned to open its first stores in India in mid-2011, but needed to postpone its debut when it had difficulty finding suitable real estate.
In a first for the firm, all the coffee sold in Starhucks stores across India would be locally sourced and roasted in India. rata Coffee, a unit of Starbucks jointventure partner, had built the roasting facility in the southern Indian state of Karnataka. The new facility would have a capacity of 375 metric tons of coffee beans annually.
Even though India is a nation of tea lovers, the country has seen a rise in the coffee shop culture over the past few years. According to one consultancy, the total coffee shop market was expected to grow from $230 million in 2012 to $410 million by 2017. At the time of Starhucks's entry, Bangalore-based Café Coffee Day dominated the market with more than 1,300 stores across the country. Other notable coffee chains included The Coffee Bean and Tea Leaf, a privately held U.S. firm, and U.K.-based Costa Coffee. Costa Coffee set up business in India in 2005. By mid-2012, the chain had stores in six cities across India; it opened its one hundredth outlet in Mumbai in August 2012. Costa Coffee planned to open another 100 stores over the coming two years. Costa Coffee also recognized the need to go beyond serving coffee alone.
Starbucks's expansion into India is part of its strategy to reduce the dominance of the United States in its operations. Of its more than 17,000 outlets, about 6,000 were in more than 50 countries outsidethe U.S. In Europe, Starbucks had struggled in some countries, particularly France. China, on the other hand, has been a crown jewel of the company's international empire. The China business, however, did meet a few obstacles. A Starhucks outlet set up in 2000 in Beijing's Forbidden City was closed seven years later after protesters claimed that the store tarnished the historical site. By 2012, Starbucks had over 500 outlets in China. It expected that China would become its second-largest market by 2014 and planned to have 1,500 stores across the country by 2015. Starbucks also had high aspirations for India. In an interview with the New York Times,John Culver, president of Starbucks China and Asia Pacific, said: "We're goingto beverythoughtful on how we grow, but at the sametime we're going to look at accelerating growth and capturing the opportunity that exists for us here in India."
DISCUSSION QUESTIONS
1. Starbucks decided to enter India through a 50-50 joint ven¬ture with Tata Global Beverages. As the case points out, the first store was based in Mumbai. Assess Starbucks's entry strategy-entry mode choice, partner choice, and scope.
2. Starbucks entered India relatively late. Costa Coffee, a major global chain based in the 11.K., set up business seven years earlier. By the time of Starhucks's entry in the country, Costa already operated 100 outlets. In fact, Starbucks planned to enter India much earlier but it had to postpone its move. Evaluate the timing decision. Does Costa Coffee have a signif¬icant first mover advantage vis-à-vis Starbucks? If so, would Starhucks be able to overcome it?
3. What criteria would you use for selecting future cities in India to set up shop?
4. What marketing mix recommendations in terms of menu and promotion would you recommend to Starbucks? Should it make concessions to the Indian palate as other Western global restaurant chains operating in India have done? Should Starhucks charge a premium price as it does in most other countries or lower the price for its coffees?