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BRAND

Come to Starbucks, the one opposite Cafe Coffee Day

One not so pleasant morning I was being struck to consciousness by the hammerhead when I stumbled upon a tweet, #Starbucks to enter India. The next gulp was bigger and slower because it was news I had been waiting for, for a while. I mean fuck finally! Starbucks is here. After the initial jolt subsided with smaller more frequent sips of the black, I started thinking about what this would mean for the café’ business in urban India to start with.

Starbucks has been the real McCoy of coffee chains.  It’s legend propagates itself, a value system of “taking over the world one cup at a time is stuff ambitious college fantasies are made of.

Having said that, the idea of Starbucks traveled to India much before the brand itself decided to get into bed with Tatas as equals. As a consumer, ever since I deserted the daily glass of milk in favor of coffee, whenever I’ve traveled abroad, I’ve made the pilgrimage to a neighborhood Starbucks for breakfast & that cuppa. I’m reasonably certain with the absence of imrb like pseudoness that I’m not alone in this affliction.This is true for plenty desis who’s flight tickets have been stamped with the twin tailed siren (starbucks logo).

So, when Starbucks recently announced its foray there was only cheer and optimism amongst consumers & industry watchers.There was not much else anybody had to say apart from “Where were you all this while?”.

Newspapers & magazines in India and U.S (such as NY times) have been in a sort of a frenzy over this announcement and the accompanying possibilities, suggesting possible menus and kicking up usual brouhaha that accompanies such items of news.

All fuss aside, what intrigues us is,

After sitting out a decade, Why now

If we quickly look at the current state of the industry, on last count there were close to 2000 organized retail driven coffee bars doing a collective estimated business of almost Rs. 1000 crores.

Majority of the above shared between 3 major players –

Cafe Coffee Day : 1270 outlets

LavazzaBarista :188 outlets

Costa coffee       : 48 outlets

The industry is in bloom with upwards 25% growth year on year. Coinciding of course with a decade of  rising incomes and extreme western exposures the growth of the affluent service class and the  Indian economy as a whole has certainly helped this pollination process.

These facts & figures often  betray other important realities:

  • Starbucks waited out the initial curve  of educating the tea  favoring populace, let its current rivals do the dirty work and go through the labor pains of creating a real market of the latent. It is entering the market when it’s on a growth trajectory. The market has the critical mass in terms of consumers and numbers that provides the platform for its grand entry
  • The market is now clearly segmented  and consumer taste insights can simply be looked up in competition menus
  • They come in with a bird’s eye view of the market and that makes them better positioned to leverage their strengths and play on competition’s weakness

Having said that, no amount of insight can guarantee success on Indian turf,  they are coming into potentially one of the worlds largest markets and that presents its unique set of challenges and turns conventional management ideology on its head.

Full of Beans this one!
(Challenges Starbucks faces in conquering the Indian market) –

Starbucks  comes into India where its biggest competition has welcomed its entry. Café Coffee day is either genuinely not worried or are doing a pretty good job of hiding their bother. Venu Madhav, Chief Operating Officer, Cafe Coffee Day says, “The news about Starbucks’s entry will increase awareness about coffee, and enlarge the community of cafe goers. There is enough room for everyone to grow.”

This confidence is not without a reason.

Competitor analysis:-

Café Coffee day

  • Has a 15 year head start  in the market. It’s way past the learning curve in terms of consumer taste, price sensitivity, market dynamics.
  • Controls 65% of market in terms of outlets and market share. Expanding at rapid clip, plans to have 2000 cafes by 2014, its less than 2 years from now. It might take that time for Starbucks to learn to operate its 50 outlets in India, increasing the gap between the two.
  • The fact that it is a backward integrated company and one of the largest exporters of coffee keepsthe cost per cup much lower, enabling them to price their offering much lower than competition.
  • With effective pricing, menu ( focusing on sweet sugary drinks preferred by teens) and location ( present in catchment area of every youth hub like IT/ITES offices + educational institutions), CCD is formidable competition.

Barista

  • Between its regular Barista Lavazza( slightly more premium than ccd) & Crème (catering to higher end clientele), it has about 200 outlets notching up about 300 crores in revenue p.a.
  • The pain point for Barista has been its constant management upheavals. Sleeping with too many since its inception has resulted in lack of focus, conflicting strategy and non cohesive operational code. They have though managed to retain (not maintain) the first guitar each outlet sanctioned. It has progressively lost market share to CCD and has allowed Costa to gain a foot hold among the up end of market.

Costa

 

Has been the third front is this coffee politics, not affecting the leader ( Coffee day) but eating the shares of Opposition ( Barista). A non starter itself, failing inexplicably tocapitalize in terms of swiftness of expansion and increasing market share, whilst Barista was fighting its inner demons. Over the last 5 years has managed to notch up only 50 outlets, mainly in metros, catering  to almost exclusively premier clientele.

However, it’s not just mature competition that Starbucks will be up against:

There are Organizational Culture & brand ethos aspects where they will be walking tight ropes, what with the added slugishness of Tata systems.

Starbucks has conquered the international markets on its strong innate value system. This could very well be its biggest weakness in India.

Starbucks has always stressed on uniformity of processes and preparations. This could backfire in India as it did in Israel where consumers ditched Starbucks where preparation style was not kosher.

Get a grip of these:

  • 40% on international sales in coffee bars happens before 11 a.m. In India  how ever  café’s open between 10 and 11. So coffee chains are not exactly catering to office going , in a hurry on the go consumer like in the west. Average occupancy time at a table is high, as consumers stick for longer times.
  • Leveraging on iconic preparations like skinny latte or an Americano is not easy. The unique tastes of Indian consumer has forced every major food chain to radically  alter its menu to suits his/her tastes. Even now super successful McDonalds went through the labor pain, till McAlootiki came along.

This will test Starbucks’ flexibility, and we’re quite curious if it’ll bollywoodise itself.

It all boils down to 2 mind spaces (positioning) that Starbucks can choose from

  • If it  has to lure away the youth from its competition, basically take on CCD headon, Starbucks would have to pull all stops in terms of pricing, location and menu mix and yet be aspiration. Tough one.
  • Or it could choose to be a more upend premium chain (which most likely would be the case) attracting the upwardly mobile, status conscious  This audience are like UWAGS, u standing for “unsatisfied” who’ve settled for a lesser option for the paucity of men they see in the movies.

Starstuds, i mean the Grande Latte, Starbucks is here ladies and its a good time do wake up and smell some coffee.


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