Starbucks

Business Strategy

Case – Starbucks Coffeee

Regular 46B, Syndicate 1

Reski Mapriharto (29111326)

Delfiana Primashinta (29111373)

Teguh P Sidik (29111366)

Muhammad Rahadi Prasetya (29111325)

Reza Destryanto (29111354)

MASTER OF BUSINESS ADMINISTRATION

SCHOOL OF BUSINESS AND MANAGEMENT

INSTITUT TEKNOLOGI BANDUNG

2013

1. CURRENT SITUATION

Starbucks actually announced that it was planning to enter India. Later it postponed its entry

as it had entered China. However, there was news that Starbucks reviving its plan to enter

India. Starbucks officially visited India but they returned unconvinced about appropriate

partner for its entry. All in all, Starbucks announced that they were ready to entry Indian

market in the next 18 months, but again, it's postponed.

2. ENVIRONMENTAL SCANNING

SWOT Analysis

• Strengths– Good Starbucks brand image in coffee business

– Starbucks experience as differentiating factor

– The founder (Howard Schultz) has an innovative vision and strong leadership

– Starbucks has a loyal customer that willing to pay premium prices

– Has strong financial capability

• Weakness– The products price are relatively more expensive than the competitors,

– Aggressive expansion leads to cannibalization and lowering brand image

– Starbucks related to health implications as it served a high-calorie and high-fat

products.

• OPPORTUNITIES

– India economic reforms

– Permission foreign direct investment with government control

– India GDP growth

– Middle class increase spending power

– Young people demographic

• THREAT

– High fiscal deficits

– Different food habits across religion and regions

– Generally preferred tea, in exception south India

– Inadequate infrastructure aside urban area

2.1. External Environment

Political, Economic, Socio-cultural, Technological (PEST) Analysis

Political

India is a nation that is characterized as a "sovereign socialist secular democratic

republic". Like the United States, India has had a federal form of government since it

adopted its constitution. However, the central government in India has greater power in

relation to its states, and its central government is patterned after the British

parliamentary system. The national government has the power to dismiss state

governments under specific constitutional clauses or in case no majority party or coalition

is able to form a government. The central government can also impose direct federal rule

known as president's rule (or central rule). Since 1991 India had embarked on a series of

economic reforms. The reforms include liberalization of foreign investment. The reforms

over the year had resulted higher growth rates, lower inflation, and significant increase in

foreign investment.

Economic

There is growth in India GDP from 1990s until 2004 which 8.1%. Trade liberalization,

financial liberalization, tax reforms and opening up to foreign investments were some of

Political India economic reforms since 1991 (O)

Permission foreign direct investment with goverment control (O/T)

Economic India GDP growth (O)

Middle class increase spending power (O)

High fiscal deficits (T)

Socio-cultural Different food habits across religion and regions (O/T)

Generally preffered tea, in exception south India (O/T)

Young people demographic (O)

Technology Has good IT workforce, and good familiarity with IT (O)

Inadequate infrastructure aside urban area (T)

the important steps, which helped Indian economy to gain momentum. India also emerges

to become prime destination for business process outsourcing (BPO) companies. The real

estate market in India was also undergoing boom.

Socio-Cultural

India is notable for its religious diversity, with Hinduism, Sikhism, Islam, Christianity,

and Jainism among the nation's major religions. The predominant religion, Hinduism, has

been shaped by various historical schools of thought. Also in India the food habits

differed across diverse religions and regions. While coffee was more popular in South

India, tea being preferred at North India. Generally tea was the most popular beverages in

India, followed by milk and third preference is coffee.

Technology

While presence of big IT Company is exist within urban area, apparently overall country

infrastructure still inadequate.

2.2. Task Environment

The Porter’s Five Forces is used to analyze the task environment of Starbucks

Threat of New Entrants (H)

Open policy in India about foreign direct investment attracts several international coffees.

Some this company like Costa Coffee and Gloria Jean in preparation to enter India

market.

Bargaining Power of Buyers (H)

Bargaining power buyers is high due to many choices of coffee stores in India. This also

affected by copy is not preferred as main beverages in this country.

Bargaining Power of Substitute Products or Services (H)

Bargaining power of substitute also quite high, mainly because India basically tea

drinker, and famous for their Darjeeling tea. Also India preferred milk as second

substitute to tea. India customer perceives both as healthy beverages, although coffee

preferred as main beverages in South India.

Bargaining Power of Suppliers (H)

Compare to coffee stores only few quality India coffee producer and their product already

recognize for its quality. Hence their product naturally being sought by many coffee

stores company in domestic and internationally.

Rivalry Among Existing Competitors (H)

Although exist several well established coffee café in India, somewhat until now they

have distinct character that differentiate each other. The fact coffee still not popular in

India customer probably they coexist to increase awareness coffee as beverage coffee

café as hangout place to India customer. Like head marketing CCD said “We don’t have

any competition because we are not competing with the other. In fact we are aiding each

other in creating and growing coffee culture”. While in term of price they are competing

with each other.

2.3. 2.3 EFAS Table

In the EFAS Table Above, the weights are generated using Starbucks method by Expert

Choice and the rating are generated through Focused Group Discussion (FGD) between the

members of our group. The EFAS Score are 3.116

3. Internal Environment

3.1 Corporate Culture

• Starbucks have a common culture for all of its outlets.

• They believe that the baristas should not only know how to handle the coffee properly but

also how to impart to customers the passion of the products.

• Starbucks offers all of the full and part-time employee the opportunity to receive full

healthcare benefits, stock options/discounted stock purchase plans, and other benefits.

3.2 Corporate Structure

• The Starbucks implemented matrix organizational structure

• In U.S, there are four divisions: Western/Pacific, Northwest/Mountain, Southeast/Plains,

and Northeast/Atlantic.

• The major advantages: maximize communication channel.

• With this changes, Starbucks will be able to develop products specified to market appeal

more rapidly after the appropriate adjustment have been made

3.3 Corporate Resource

• Has a strong foothold in American market.

• Strong expansion throughout the world

• Has a broad distribution channels and product line

• Has done strategic alliances with many company

• Below the line marketing strategy (word of mouth)

3.4 IFAS Table

In the IFAS Table Above, the weights are generated using Starbucks method by Expert

Choice and the rating are generated through Focused Group Discussion (FGD) between

the members of our group. The IFAS Score are 3.203

4. STRATEGIC ALTERNATIVES

4.1 Corporate Strategy

Directional Strategy

Directional strategy is a method to analyze Starbucks position in the market based on the

external environment and internal environment. The strategy is used to find the further strategy

for Starbucks in corporate level. The analysis uses directional matrix which consists of 4

quadrants of strategy. The growth strategy allows Starbucks to grow even bigger because it has

strong internal and external by using integration (concentric strategy) or diversification.

Diversification allows company to build new product on new market. Stability advises the

company to hold developments and wait for opportunity and retrenchment advises to ready for

turnaround.

The analysis uses EFAS and IFAS score to represents the external and internal environment of

Starbucks. In this case, EFAS score for Starbucks is 3.116 points while IFAS score lies on 3,203

points. Here is the directional matrix for Starbucks:

Starbucks

Concentric Diversification Strategy: Localization products: tea beverages, local food, Merchandise

products . Buat QSPMnya za

4.2 TOWS Matrix

4.3 Functional Strategy Marketing

1. Targeting youth and business market (S2, O4, O5)

2. Designing modern ambience store (S2, O4)

3. Put premium price (W1, O3, O4)

4. Focused on urban area (W2, T1, T4)

RnD1. Develop low fat coffee (W3, O3)

2. Develop product localization (S3, T2, T3)

HRM

1. Focused on product localization (S3, T2, T3)

Financial

TOWS MatrixStrenghts Weaknesses

1 Good Brand image 1 Expensive products2 Starbucks Experience 2 Aggressive Expansion3 Innovative Leader 3 Health implications4 Loyal Customer5 Strong financial

Opportunities SO strategies WO strategies1 India Economic Reform 1 Entering india market (S1, S5, O2) 1 Put premium price (W1, O4, O3)2 Permision of FDI 2 Targeting youth and business market (S2, O5 O4) 2 Increase low fat coffee (W3, O3)3 GDP Growth 3 Modern ambience (S4, O4)4 Mid Class increase5 Young People Demographic

Threats ST strategies WT strategies1 High Fiscal Defisit 1 Product localization (S3, T2, T3) 1 Focus on urban area (W2, T4, T1)2 Diff Food Habit3 Generally preferred tea4 Inadequate infrastructure aside urban

1. Entering India’s market ( S1, S5, O2)

5. PORTFOLIO ANALYSIS

The portfolio analysis is used to map the corporate strategy for each business unit based on their

competitive advantage and Market effectiveness. In this case, to calculate the elements we use

GE matrix. GE matrix is used to analyze the existing condition of Starbucks Coffee’s

competitive position. This matrix analyzes Starbucks Coffee from two perspectives, the

Starbucks Coffee internal position and the attractiveness of the market. GE matrix Starbucks

Coffee based on general attributes in market attractiveness and competitive position.

Rating Description

1 Worst

2 Poor

3 Average

4 Good

5 Excellent

Weight Rating ValueOverall Market Size 0.252 5 1.26Competitive intensity 0.109 3 0.33Historical profit margin 0.098 4 0.39Ambience store 0.068 4 0.27Pricing package 0.063 3 0.19Innovation 0.072 3 0.22Culture region 0.225 4 0.90Environmental impact 0.113 3 0.34

Total 1 3.90

Element

Market Attractiveness

Weight Rating ValueMarket share 0.239 5 1.20Share growth 0.091 4 0.36Service quality 0.279 4 1.12Brand reputation 0.139 5 0.70Performance effi ciency 0.113 4 0.45Advertising cost 0.039 2 0.08Performance productivity 0.1 3 0.30

Total 1 4.20

Element

Competitive Position

Based on the analysis, it is recommended that Starbucks Coffee should take position in strategies that

revolves around protect the position. Position of Starbucks coffee actually in strong area with high market

attractiveness and strong competitive position. The strategy includes invest to grow at maximum

digestible rate and concentrate effort on maintaining strength. This also can be done by increasing

competitive advantage of Starbucks with make new innovation about the packaging and based on habitual

and culture of country. On the other hand, for emphasizing profitability Starbucks Coffee must doing

more market penetration in overseas target that potentially gain more profit based on culture of country

that usually consuming coffee. So that the productivity will get higher and profitability will follow it.

5. CONCLUSION AND RECOMENDATION

Starbucks Underlying Reason for the Postponed In Entering Indian Market:

We can see from the years planed of Starbucks, that actually the company intend to enter Indian

Market, but there are some reason behind its postponed. Based on our discussion, the reasons

behind that were:

Suggestions:

Based on our analysis, we suggest Starbucks to enter Indian Market, because:

GDP Steady growth from 1999 to 2004

Growing of the middle class (which is Starbucks’s target market)

Regulatory

Starbucks thinks that government regulatory about FDI was unfavorable for t hem (51% max).Stability of government policy present risk to the business in the future.

Market Culture

Tea Culture

TimingToo late to enter the market because there were already player in this market.

Consumer spending rises.

Most of population in India ranges between 15-59 years old, which are the main

segmentation for the company.

Change of regulation by the government that allow FDI in 2006.

Emerging Coffee culture (The increase of coffee consumption in India from

50000 tons per year reaching 85000 tons in 2005).

Growing interest in Western consumer Brands and Luxury product.