Starbucks Coffee Company

Business Development
P.O. Box 3078
New York City, NY 99087-4574-00

8th April 2016

Good afternoon everyone,

Starbucks Coffee Company has come across a significant dilemma in its
business planning and future outlook, and is looking to you for professional
advice as a newly commissioned management consultant. We require you to
analyse existing data and given resources in order to develop a business plan
that is in line with Starbucks visions and goals in 2016.
Starbucks was established in 1971, in a small marketplace of Seattle, where it
began its humble story of serving the worlds finest fresh-roasted whole bean
coffees. The cultivation of an atmosphere of relaxation and enjoyment ,
coupled with with the delicate aroma of premium coffee, made Starbucks truly
one of a kind: a company that not only celebrated coffees rich tradition, but
also brought a feeling of connection with friends, family and colleagues.
With immense success in the United States, founder Howard Schultz believed
that globalization was inevitable; and sure enough, in 1996, Starbucks opened its
first international retail store in Tokyo. Over the next 15 years, Starbucks
expanded at a phenomenal pace to the tune of over 20,000 stores in 65
countries and showed no signs of slowing down. Such an incredible rate of
development was unrivalled by even food industry giants such as McDonalds,
KFC and Subway. This simple yet astonishing fact reveals that Starbucks is, and
will continue to be for the years to come, the worlds #1 distributor and retailer
of coffee.
Today, with its largest consumer crowds in the US, China, Japan and the UK,
Starbucks has finally begun operations to penetrate a long-awaited market:
India. With the second-largest population in the world and a relatively
uncommercialised food/drink industry, Starbucks believes that India has the
potential to eventually become one of its main headquarters and strongholds.
However, given its current circumstances, India poses various uncertainties in
terms of public interest, finance, media and channels of promotion. If Starbucks


is to truly tap into the Indian market, it needs to clear any doubt pertraining to
such issues, by establishing a creative and suitable business model.
Attached to this letter are documents detailing the globalisation of Starbucks
and its visions for the future. Please read and analyse the given data carefully. In
combination with your own knowledge, reading and further research, your task
is to prepare a unique, formal business plan outlining the best course of action
Starbucks that should take over the next 2-3 years regarding the Indian market,
with suitable justification and specific reference to Starbucks values. ONLY
written submissions will be accepted.
Wishing you the best of luck.
Regards,

Sharron van Niekerk

Starbucks Coffee Company NZ Director and CEO

PART A HISTORY AND BEGINNINGS

Starbucks History
In 1987, previous Starbucks employee Howard Schultz and a group of
local investors bought the company, including its six retail stores and coffee
roasting facility, for $3.8 million. He immediately began to open espresso bars in
cities such as Seattle, Portland and Vancouver, where a strong coffee culture
existed. Our strategy was to gain a foothold in each market and create a
strong presence there before we moved to another city, Schultz explained.
Starbucks initial philosophy was to become the third place, where
customers could go to relax, meet friends, and enjoy a special cup of coffee
outside of their homes or work. As Starbucks expanded into new cities and
regions like San Francisco and Chicago in the Midwest, it opened stores in highvisibility locations with high foot traffic, near work places, shopping areas, and
movie theatres; and it opened take-out kiosks in heavily congested areas. It also
often opened several stores in close proximity to one another, which its
executives felt helped build customer loyalty and deter competitors from
entering. In the early 1990s, the company began opening cafs within large
bookstore and department store chains like Barnes & Noble and Nordstrom.
Starbucks did not advertise. Instead, it relied on superior customer service
and word-of-mouth to attract customers. It encouraged its caf staff to greet
regulars by their first name and remember their favourite drinks; and instituted a
just say yes policy to any complaint, including replacing drinks or offering free
drink certificates. The company also set high standards for its store ambience,
and provided convenient venues for meetings, phone calls, and work. By the
mid-1990s, Starbucks had a loyal customer base that included professionals,
students, taxi drivers, artists, and shoppers. By the end of 1996, Starbucks was the
most widely recognized brand of specialty coffee in the United States.
The notion of upholding a personalised and intimate approach in serving
coffee remains paramount today: if you ask any regular Starbucks customer
how many of its commercials they have seen in their lifetimes, the answer is
almost always one or none.

Starbucks Coffee Company Timeline

v In 1982, Howard Schultz started to work in Starbucks as director of retail
operations and marketing. One year later, in 1983 Schulz travels to Italy.
v In 1984, Howard convinces the founders to test the coffeehouse concept.
The first Starbucks Caffe Latte is served.

v In 1985, Schultz found the store II Giornale where he sold coffee and
espresso beverages using Starbucks coffee beans.

v In 1987, Starbucks was sold to Howard Schultz, who had worked for
Starbucks before. Schultz had been in Italy four years before and fell in
love with the uniqueness the Italian coffeehouses had: a place where
people gather for talking and sharing experiences. He wanted to
reproduce that place in the United States. Schultz rebranded other stores
he had as Starbucks and started to expand rapidly, having stores in
Vancouver, British Columbia, and Chicago. The revenue for that year was
of U$ 1.3 million. Two years later he had 46 stores and roasted over
2,000.000 pounds of coffee.

v By 1991, Starbucks become the first privately owned U.S. company to offer
a stock option program that includes part-time employees.

v By 1992, Starbucks had 140 outlets with revenues of U$ 73.5 million and a
company value of U$ 271 million. That year Starbucks had its initial public
offering and sold 12% of the company, facilitating the expansion of the
stores to nearly double number.

v In 1994, Starbucks opened the first drive-thru location. Total stores 425.

v In 1996, Starbucks began selling bottled Frapuccino and opened first store
outside of North America in Japan. Total stores: 1,015.

v In 1999, Starbucks acquired Tazo Tea and Hear Music. Total stores: 2,498. In
2001, Starbucks introduced the Starbucks card.In 2003, Starbucks
acquired Seattle Coffee Trading Company.In 2004, Starbucks acquired
Ethos Water. Total stores: 10,241.

v In 2008, Starbucks acquired Coffee Equipment Company and its Clover

brewing system. Launches the first Starbucks online community and joins
Twitter and Facebook. Total stores: 16,680.

v In 2013, Starbucks opened 1,000th stores in China and Japan.

v In 2014, Starbucks revenues have increased 11% earnings per share surge
22% to a record $0.67, and it has 20,519 stores across 64 countries.
Starbucks opened stores in Brunei and Colombia.

PART B GLOBAL EXPANSION

In 1996, Starbucks opened its first international stores in Japan, followed a
few years later by China, the U.K. and Switzerland, and other European and
Asian markets where the coffee drinking culture was less entrenched. Later it
moved to mature coffee drinking markets like France and Latin America. Schultz
explained:
The decision was made to go to Asia first because we felt that the
maturity of the coffee market in Europe was very strong, and was not
going to change much over the years. The Asian market was in its
developmental stage, and we had an opportunity to position Starbucks
as a leader in a new industry, and in a sense, educate a market about the
quality of coffee, the experience, and the idea of Starbucks becoming
the third place between home and work in those countries.
In most of its international markets, Starbucks worked with local business
partners to help it set up supplier relationships, recruit talent, and understand
market conditions. For instance, in Japan, it entered into a joint venture with
national food, apparel and lifestyle retailer Sazaby. Starbucks often ended up
buying out its local partner when a joint venture was successful and the market
had demonstrated potential for growth.
In most new countries, Starbucks tailored its offerings to local preferences.
For instance, it offered local teas in Japan and China, Turkish coffee in Turkey,
and freshly squeezed orange juice in Spain. Its leading international markets,
apart from Canada, were Japan, the U.K. and China (See Appendix 1) for
Starbucks global store count.) (See Appendix 2) for Starbucks financial data.)
(See Appendix 3) for Starbucks revenue breakdown.)

Starbucks in China
China had historically been a tea-drinking nation. Not surprisingly, when
Starbucks entered the country in 1999, many were sceptical. The company
partnered with three different firms in Northern, Eastern and Southern China to
obtain local expertise about consumer tastes in each region. It introduced
beverages using popular local ingredients like green tea and soy, offered locally
inspired food, and gave each of its Chinese outlets the flexibility to choose from
a variety of options based on local tastes.
Starbucks also educated its Chinese consumers about coffee. A media
report described the opening of Starbucks first store in the city of Nanchang, in
an agricultural province of China, in 2012:
The grand opening kicked off with coffee education for local media. An
ultra-perky barista named September told the packed room that latte
means milk in Italian, so a latte is a coffee with milk. American- style
coffee is black coffee, she explained, so if you order one in the morning
youll be awake and alert all day! By early afternoon, the caf was
buzzing and packed with customers.
Service was another factor based on which Starbucks China distinguished
itself. Starbucks service is on par if not higher than many five star hotels, Shaun
Rein, managing director of CMR, a strategic market intelligence firm,
elaborated. In interviews with several hundred consumers in Shanghai, the
majority of them told my firm they actually preferred the taste of products from
competitors but continued to go to Starbucks because of the service.
As Starbucks expanded across China, the company opened a design
centre to ensure that the look and feel of its stores was in keeping with local arts
and culture. An article elaborated:
While a Starbucks in Shanghai or Beijing may look like one in New York, the
new Starbucks for Fuzhou1 has the style of a local courtyard home. It has
sliding doors, soaring ceilings and a screen inspired by the black and
white playing pieces of the chess-like Chinese game Weiqi. ... Thats a big
investment in effort and design for one store, but Starbucks sees it as
serving as a flagship in a hub location with major growth potential and as
an inspiration for future stores.
To offset the higher costs of dine-in services, Starbucks positioned itself as a
premium brand in China. Starbucks China also adapted its talent strategy to


local conditions. For instance, Chinese parents had significant influence over
their childrens career decisions, and many had reservations about their children
working at a coffee bar. To counter such apprehensions, the company
launched its first family forum in 2012, wherein it invited the parents of its store
employees to hear testimonies from those who had worked their way into
management positions. Later that year, it held an annual meeting of parents in
Beijing and Shanghai, in which it registered 90% participation.
Starbucks China focused initially on high-visibility, high-traffic locations in
international hubs like Beijing, Shanghai and Guangzhou, before moving into
smaller cities. By October 2012, the company had grown to over 570 stores in 48
cities across the country. Starbucks expected China to become its second
largest market by 2014, and planned to have 1,500 stores by 2015.

Starbucks in India
Starbucks had considered entering the Indian market since 2007, with
reports suggesting that the company had explored partnerships with numerous
Indian firms. None of the deals materialized. Schultz explained:
What a lot of people have asked is what took us so long to come to India.
...Without finding the right partner, getting into a complex market like
India would be very difficult. I have visited lots of coffee storesour
competitors, who are doing lots of business. What encourages me is that
they are doing lots of business but there is a big, big gap. I am not trying
to be disparaging in any way. But there is a big gap between execution
and what they are doing in their stores compared to what we do.
In January 2012, Starbucks and Tata Global Beverages, the worlds
second largest branded tea company, owned by the Tata Group, one of Indias
most well-known and trusted groups, announced a 50-50 joint venture, Tata
Starbucks, to own and operate Starbucks cafs across the country. (See
Appendix 4) for details on Tata Groups Hotel and retail properties in India.)
Starbucks association with the Tata Group dated back to 2011, when it signed
a pact with Tata Coffee, a listed subsidiary of Tata Global Beverages to supply
coffee beans, the first time Starbucks decided to buy from India. The cafs
would be branded Starbucks Coffee-A Tata Alliance. This partnership aimed
to combine Starbucks expertise in creating the unique Starbucks experience,
product formulations and consumer insights with Tata Groups prowess in
managing Indias supply chain and procuring retail locations. The challenges of
opening a new retail chain in India were numerous, ranging from the difficulties
in finding great locations to building a reliable supply chain. But Bhat explained


that Tata could help evolve solutions for many of these problems: Tata has
been distinguished by its principled approach on building business foundations
and a commitment to community.
Once the joint venture was formed, Starbucks worked with Tata Coffee to
create an espresso roast for the Indian market, and set up a roasting plant in the
country. The company spent several months working with Taj SATS, a catering
business owned by the Tata Group, to create offerings for Indian consumers,
which included locally-inspired dishes like the tandoori chicken sandwich, as
well as a unique food item for each city. The plan was to deliver fresh supplies to
every store, seven days a week.
Next, it turned its attention to hiring and training talent. For its stores, it
preferred to hire a blend of talent, including some with experience from the fast
food industry as well as recent graduates from hospitality colleges who were
eager to learn. The most critical thing was to hire the right kind of people. Ketan
Raikar, director, Partner Resources, Tata Starbucks Tata explained, If you dont
hire the right talent, leadership and development will not help. In parallel, it
invested heavily in training its partners. It sent store managers to train in
Singapore, Malaysia and Thailand, and set up training centres in Mumbai, Delhi
and Bengaluru, where it trained caf staff to prepare its beverages. At these
trainings, a key focus area was to train partners in the art of building a personal
connection with customers. To enable new hires in India to deliver the Starbucks
Experience, new Indian staff would receive roughly twice the U.S. average in
training days.
In October 2012, Starbucks opened its first store in India, an approximately
4,500 square-foot retail outlet with plush wood and leather interiors, in an old
gothic building in upscale South Mumbai. Unlike other U.S. chains, such as
McDonalds, Starbucks added a distinct Indian motif to the interiors by engaging
local artisans to help design its store furniture and fittings. (See Appendix 5 for
pictures of Starbucks first store in India.) Schultz revealed:
Unlike any of the existing competitors, the stores that we will open and
design will create a destination because of the elegance and the style of
the store and its size. ...We want to create a coffee experience that is a
stunning experience in terms of quality. We want to create a physical
environment that does not exist, and when people see it, it will become
the third place [third most popular place after home and work].
Starbucks flagship stores were designed to attract 20-50 year old,
upwardly mobile people who had been exposed to global brands. Avani
Davda, CEO of Tata Starbucks explained, We want people to come to
Starbucks to enjoy the experience of drinking a handcrafted, high quality


beverage and not just to buy a cup of coffee. Deepa Hall, director,
Operations, Tata Starbucks added, People should feel a sense of belonging at
our stores. Accordingly, the coffee and other products were priced to achieve
a balance between the needs of the business and value for the customer.
When the first store opened, a small cappuccino could be purchased for only
99 Indian Rupees ($1.55). Hall stated, We were determined not to price our
products out of reach of Indian consumers. Hence, a family of four need pay
roughly 400 Rupees ($6.30) for four cups of coffee.

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PART C VISIONS
Starbucks Vision for India
Starbucks had big plans for India. Everyone on the management team
agreed. To achieve this goal, it planned to first build flagship stores to educate
the customer about the brand and the experience, and then expand. However,
it decided to build stores only in locations where it was certain of customer
demand. It was critical that each store become profitable quickly on a
standalone basis. As a rule, the plan was to build big stores with the theatre and
the ambience necessary to create the special Starbucks Experience.
At the same time, management was also clear that growth had to be
calibrated, in the words of Harish Bhat. Success would be measured, not
necessarily by store count, commented Hall, but by establishing ourselves as
the leader in coffee and creating the best coffee experience. Ultimately, that
speaks for itself. Hall continued, Our aspiration is to generate repeat, loyal
customers. We are trying to create an emotional attachment.
We ultimately want to give the aspiration of a global brand to consumers in
India, emphasized Davda. Schultz concluded, We think over time India will be
one of the largest markets in the world for Starbucks.

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PART D APPENDICES
Appendix 1: Global Store Count, Starbucks

Appendix 2: Financial Highlights, Starbucks (in $ millions, except

per share data)

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Appendix 3: Revenue breakdown, Starbucks 2012

Appendix 4: Key Statistics, Tata Groups Hotel and Retail

Properties in India

Appendix 5: First Starbucks store in India

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PART E REFERENCES
1 Starbucks,

Starbucks Opens Spectacular Flagship Store in Mumbai, Honoring the Dynamic

Culture of India, press release, October 19, 2012,
http://globalassets.starbucks.com/assets/0bdfb4ffac9b4721ad0e21d4d4f81df4.pdf, accessed
December 2014.
2 Howard Schultz and Dori Jones Yang, Pour Your Heart Into It: How Starbucks Built a Company, One Cup at a
Time, (Hyperion, 1997), p. 115.
3 Nancy F. Koehn, Howard Schultz and the Starbucks Coffee Company, HBS No. 9-801-361
(Boston: Harvard Business School Publishing, 2005), p. 21.
4 Sarah

Theodore, Expanding the coffee experience: Starbucks keeps sales brewing with new
products, innovation and global expansion, Beverage Industry, October 01, 2002,
http://www.accessmylibrary.com/article-1G1-93658732/ expanding-coffee-experiencestarbucks.html, accessed June 10, 2013.
5 Rob

Alkema, Mario Koster and Christopher Williams, Resuming Internationalization at

Starbucks, 910M73, (Ontario: Ivey Publishing, 2010), p. 5
6 Richard

Honack Growing Big While Staying Small: Starbucks Harvests International

Growth, Kellogg School of Management case no. KEL447, (Kellogg School of Management,
2009), via Harvard Business Publishing, http:// hbsp.harvard.edu, accessed June 2013.
7 Richard

Honack Growing Big While Staying Small: Starbucks Harvests International

Growth, Kellogg School of Management case no. KEL447, p.13. (Kellogg School of
Management, 2009), via Harvard Business Publishing, http://hbsp.harvard.edu, accessed June
2013
8 Laurie Burkitt, Starbucks Plays to Local Chinese Tastes, The Wall Street Journal, November
26, 2012, http:// online.wsj.com/article/SB10001424127887324784404578142931427720970.html,
accessed June 10, 2013.
9 Anita Chang Beattie, Can Starbucks Make China Love Joe? ADAge China, November 5, 2012,
http://adage.com/ china/article/china-news/can-starbucks-make-china-love-coffee/238101/,
accessed June 10, 2013.
10 Shaun

Rein, Why Starbucks succeeds in China and others haven't, USA Today, February 10,
2012, http:// usatoday30.usatoday.com/money/industries/food/story/2012-02-12/cnbcstarbucks-secrets-of-china-success/ 53040820/1, accessed June 10, 2013.
11 Laurel Wentz, Starbucks Delves Deeply into Local Culture to Reach Chinese Consumers,
AdAge Global, September 07, 2012, http://adage.com/article/global-news/starbucks-delveslocal-culture-reach-chinese/237036/, accessed June 10, 2013.
12 Max Nisen, Starbucks Has A Brilliant Strategy For Dominating The Chinese Market, Business Insider, Oct. 31,
2012, http:// www.businessinsider.com/starbucks-strategy-in-china-2012-10 , accessed June

2013.

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13 Helen

H. Wang, Five Things Starbucks Did to Get China Right, Forbes, August 10, 2012,
http:// www.forbes.com/sites/helenwang/2012/08/10/five-things-starbucks-did-to-getchina-right/, accessed June 2013.
14 Anita Chang Beattie, Can Starbucks Make China Love Joe? AAge China, November 5, 2012,
http://adage.com/ china/article/china-news/can-starbucks-make-china-love-coffee/238101/,
accessed June 10, 2013.
15 Starbucks

Opens First Caf in India, The Wall Street Journal India Edition, October 20, 2012,
http:// online.wsj.com/article/SB10000872396390444734804578066323962597316.html, accessed
December 2012.
16 Sapna

Agarwal, We are Not Coming to India with Arrogance, Mint, January 14, 2011,
http:// www.livemint.com/Companies/wJcfMhZv0k89U9MSjkgR8O/Howard-Schultz--Weare-not-coming-to-India-with- arrogance.html, accessed January 2015.
17 Indias

coffee market competition is ferocious: Howard Schultz, Starbucks, Economic Times,

October 25, 2012, http://articles.economictimes.indiatimes.com/2012-1025/news/34729911_1_starbucks-howard-schultz-tatas, accessed June 10, 2013.
18 Indias

coffee market competition is ferocious: Howard Schultz, Starbucks, Economic Times,

October 25, 2012, http://articles.economictimes.indiatimes.com/2012-1025/news/34729911_1_starbucks-howard-schultz-tatas, accessed June 10, 2013.

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