Can Starbucks Lead in Pakistans Market

Sumbitted to:
Sir Fahad Laber
Submitted by:
Shujat Hussain MBKM-14-16
Muhammad Waqas MBKM-14-26

Bahauddin Zakriya University Multan

STARBUCKS COFFEE AT A GLANCE

Type Public Company

Traded as NASDAQ: SBUX

NASDAQ-100 Component

Industry Restaurants

Retail coffee and tea

Retail beverages

Entertainment

Founded Pike Place Market in Seattle

Washington (March 30, 1971)

Founders Jerry Baldwin

Gordon Bowker

Zev Siegl

Headquarter Seattle, Washington, U.S.A

Number of 18,009 (FY 2015)

Locations

Key People Howard Sschultz

(Chairman, President and CEO)

Products Whole bean coffee, Boxed tea, Bottled beverages

Baked goods, Frappuccino beverages, Smoothies

HISTORY OF STARBUCKS

Starbucks Corporation is an international coffee and coffeehouse Chain based in Seattle, Washington.
Starbucks is the largest coffeehouse company in the world, with 17,009 stores in 50 countries, including
over 11,000 in the United States, over 1,000 in Canada, over 700 in the United Kingdom, and over 150
in Turkey. Starbucks sells drip brewed coffee, espresso-based hot drinks, other hot and cold drinks,
coffee beans, salads, hot and cold sandwiches and Panini, pastries, snacks, and items such as mugs and
tumblers. Through the Starbucks Entertainment division and Hear Music brand, the company also
markets books, music, and film. Many of the company's products are seasonal or specific to the locality
of the store. Starbucks-brand ice cream and coffee are also offered at grocery stores. From Starbucks'
founding in later forms in Seattle as a local coffee bean roaster and retailer, the company has expanded
rapidly. In the1990s, Starbucks was opening a new store every workday, a pace that continued into the
2000s. The first store outside the United States or Canada opened in the mid-1990s, and overseas
stores now constitute almost one third of Starbucks' stores. The company planned to open a net of 900
new stores outside of the United States in 2009, but has announced 900 store closures in the United
States since 2008.Starbucks has been a target of protests on issues such as fair-trade policies, labor
relations, environmental impact, political views, and andante-competitive practices.

The first Starbucks was opened in Seattle, Washington, on March 30, 1971 by a three partners: English
teacher Jerry Baldwin, history teacher Zev Siegel, and writer Gordon Bowker. The three were inspired
by entrepreneur Alfred Peet (whom they knew personally) to sell high-quality coffee beans and
equipment. The name is taken from Moby-Dick; after Pequod was rejected by one of the cofounders,
the company was named for the first mate on the Pequod, Starbuck. From 19711975, the first
Starbucks was at 2000 Western Avenue; it then was relocated to 1912 Pike Place, where it remains to
this day. During their first year of operation, they purchased green coffee Beans from Peet's, then
began buying directly from growers. Entrepreneur Howard Schultz joined the company in 1982 as
Director of Retail Operations and Marketing, and after a trip to Milan, advised that the company should
sell coffee and espresso drinks as well as beans. Seattle had become home to a thriving countercultural
coffeehouse scene since the opening of the Last Exit on Brooklyn in 1967, the owners rejected this idea,
believing that getting into the beverage business would distract the company from its primary focus. To
them, coffee was something to be prepared in the home, but they did give away free samples of pre-
made drinks. Certain that there was money to be made selling pre-made drinks, Schultz started the Il
Giornale coffee bar chain in April 1986. According to George Garza in his article, the history of Starbucks
the following product lines were added:

Offering Starbucks coffee on United Airlines flights.

Selling premium teas through Starbucks own Tazo Tea Company.
Using the Internet to offer people the option to purchase Starbucks coffee online.
Distributing whole bean and ground coffee to supermarkets.
Producing premium coffee ice cream with Dreyers.
Selling CDs in Starbucks retail stores.
Starbucks uses minimal advertising and has grown on word of mouth and brand recognition.

Updated history and Current Status

Today, according to the Starbucks website, they have 16,706 stores (as of Dec. 27, 2015) in 50
Countries. In 2009 they made strives socially as they opened the Farmer Support Center in Kigali,
Rwanda and became the worlds largest buyer of Fair Trade Certified TM coffee.
Their mission statement from the company profile is as follows:
Our mission is to inspire and nurture the human spirit one person, one cup, and one
Neighborhood at a time.
Their core competencies can be defined as high quality coffee and products at accessible locations and
affordable prices, provided a community to share in the coffee drinking experience and variety of
choices. The also value ethics and good business practices and are a leader being voted one of 2010s
most ethical businesses by Ethisphere magazine for the 4th year running. Starbucks is facing its own
struggles however as it saw sales start slipping before other companies did in the recent recession.
According to Melissa Allison in her article Starbucks has a new growth strategy more revenue with
lower costs, Starbucks has closed 900 stores and eliminated 34,000 jobs. Starbucks new strategy is to
refocus on some of the areas that decrease risk and upfront investment. This includes expanding
foreign stores, with aid of partnerships that share risk and costs, selling VIA instant coffee and other
products in retail and convenience stores, and reinvigorating the Seattles Best Brand coffee.
A statement from CFO Troy Alstead this March paints this picture:
We clearly hit a wall and didnt do very well in the 2007/2008 time period. From here
Forward, when we grow Via, Seattles Best Coffee and consumer products, theres less
Investment for each dollar of revenue.

This new strategy has inspired some optimistic feedback. Morningstar investment research firm
Has increased estimate of Starbucks shares from $4 a share to $24 after the statement of revamping
the brand.
Morningstar analyst had this to say R.J. Hottovy:
Im surprised it wasnt ramped up in earlier years. Product innovations and international
Expansion not only make the business potentially more profitable, but defend them
Against competition.
International partnerships increase challenges but also create new ideas in new markets that can then
be translated back to US markets.
Starbucks Lifecycle

Starbucks in a mature stage of its lifecycle. It was founded over 20 years ago and it has experienced
rapid growth in the last 2 decades. However within the last few years its growth has slowed and has
even had to close locations. They are now focusing efforts on previous endeavors and international
expansion.
Bean and

Selection
Product
Development
Product
Distribution Storefront
The above is the value chain for Starbucks. The upstream portion of the value chain shows the
Product development from adding teas and international influences, to the research that took
Place to develop the VIA instant coffee line. They also search the globe for Fair Trade suppliers
Of high quality beans. These products are then distributed to corporate storefronts, franchise
Locations, airport terminals, grocery stores and more, and finally offer ground coffee and gift
Cards to take home.

Mobile Apps
The above is a new value chain with international development added upstream to allow for
international markets to develop new products that better suit their cultures that could potential add
value to the US market as well such as the Green Tea Latte developed in Japans Starbucks. Added
downstream is Online Storefront customization that would allow you to create a profile online, order
online, create new drinks etc. Also added is a mobile app that could locate Starbucks locations, put in
drink orders etc.

Business strategy

According to Starbuck's website, The Starbuck's business strategy applying three generic strategies
model: cost leadership, differentiation, and focus.

Differentiation Strategy

Looking at three generic strategies, Starbuck's company can match with differentiation strategy due to
this strategy offers "unique attributes that are valued by customers. Customers can perceive the
product or service different from the competition".

Similarly, a cup of coffee was produced from Starbuck coffeehouse; the company can guarantee that
both of taste, and value can contribute difference from competitors. According to Starbuck's online
resources stated that Starbuck was directly concerned with each step of operation process such as
seeking coffee-growing areas in East Africa, Latin America, and Southeast Asia to choose the beans
used in its beverages. Moreover, Starbucks strived to select high-quality coffee beans by providing
practices and the treatment of farm workforce to improve the product. In addition, the company
controlled processing of roasted coffee bean by itself and Starbucks experts make sure the resulting
brews satisfied company standard by tasted about 1,000 cups of coffee per day. Moving to Starbuck's
house coffee, the organization has to train staffs to concentrate on service mind with the customer by
using human relation because they believe that smile, small talk and remembering name or taste of
customer can enhance the product value in customer's eye. What is more, in the part of valuable, some
revenue of the company has to pay back to farmers who offered the coffee bean, tea and coco bean to
the industry due to the company realize that this money can help farmer workers to improve the
quality of life by supporting education and personal finance. Moving to the part of environment, the
company strives to use friendly environmental products and recycle product such as paper cups to
decrease environmental issue. Therefore, the customers can be confident that they are a part of the
company's corporate social responsibility and helping to decrease global warming when they consume
Starbuck's coffee. It is not surprising why Starbuck's firm can charge a premium price for the products
that full of the value of uniqueness. Refer to all of the reasons that make Starbuck's company succeed
in a differentiation strategy.

Focus Strategy: differentiation

Refer to differentiation strategy; Starbuck's firm has to create differentiation of the product to rival
with competitor. Consequence, it can affect to the price of product that may be higher than competitor
due to the firm has to charge premium price to cover all of investment cost. Therefore, Starbuck's
company can apply focus strategy that focuses on a narrow segment and endeavor that segment to
reach unique product. For example, Originally when Starbucks began they targeted the young college
students, with slightly higher than average income levels. After this initial target market Starbucks has
since realized that they could target specific neighborhoods and social classes. Different customers are
more willing to pay for luxury good now more than ever. With that in mind, through Starbucks
aggressive expansion techniques they have begun targeting almost every demographic".

Moreover, customer loyalty can be the most important that Starbuck's firm has to recognize due to
building up brand loyalty can be a strong point to use for future competition of Starbuck. Thus, the firm
has to create some programs to attach the customer and pursuit them becoming the loyalty customer.
For instance, Starbucks is rolling out its free Wi-Fi for frequent customers Tuesday, along with a host of
other membership benefits designed to encourage customer loyalty. The company also is unveiling
more opportunities for free coffee: Customers who join the card rewards program between Tuesday
and July 14 get a free drink". Although, Starbuck's can use focusing strategy effectively, there are some
risks that used to mention such as imitation and changing the target segments that can threat with the
firm. Starbucks has also followed a shrewd strategy of strategic alliance and making smart acquisitions.

Expansion strategy
In 1992 and 1993, Starbucks developed an expansion strategy based on targeting areas with favorable
demographic profiles together with the companys infrastructure to support and service them. For
each region, a large city was selected to serve as a hub where a team would support the goal of
opening 20 or more stores in the first two years.
One of the key success factors in this operation was to recruit professionals with extensive operating
and marketing experience in chain-store retailing as new zones vice presidents.
This strategy was also built upon the growing reputation of the Starbucks brand, which, in some
instances, had reached new markets even before stores opened.
Another key success factor in the expansion strategy was the real estate team which had a
sophisticated system allowing Starbucks to identify the most attractive individual city block and the
exact target store location.
In 1991, the company had formed a group to create a store development process based on a six-month
opening schedule. Each store was to be different in shape and size, but would convey the appropriate
image and character, contributing to strengthen the companys reputation and image throughout the
regions being expanded into.
Cost reduction was achieved by centralized buying, by standard contracts development and fixed fees
for certain items, and by consolidated work under contractors with good cost-control practices.
Starbucks product supply was also a key in a successful expansion. As another differentiating factor,
the company purchased coffee on a negotiated basis at a substantial premium above commodity
coffees; this allowed for Starbucks to build trust with producers and obtain top-notch coffee beans
from producing countries. In order to secure an adequate supply, the company entered into fixed-price
purchase commitments when available, and purchased coffee futures contracts in other cases to
provide price protection. By this approach, Starbucks intent was to contain costs and avoid price hikes
in the stores that would have a devastating effect on the companys image.
Starbucks expansion strategy also relied on a limited number of licensing agreements for areas where it
did not have the ability to open its own outlets. Licensees such as Marriot Host International and
Aramark allowed opening of Starbucks stores respectively in airports and university campuses.
Others like Horizon Airlines and United Airlines had Starbucks coffees served on commercial flights,
while agreements with Nordstroms, Barnes and Noble and Well Fargo opened even more
opportunities.
In 1997, the specialty sales division of Starbucks generated sales equal to 12.2% of total revenues. The
companys international expansion started in 1995, and was based on two strategies: to provide
licenses or to create a joint venture with a reputable and capable local company with retailing know-
how in the target host country.
Starbucks Coffee International (SCI) was created in 1995 to coordinate the international expansion,
which started in Japan, Hawaii, Singapore, Philippines, Taiwan and Korea.
Starbucks expansion strategy was well thought: the offensive was to take place in the Pacific Rim in
order to gain momentum and strength, far away from Europe and Latin America where coffee shops
competition is very strong.
INTERNATIONAL PRESENCE OF STARBUCKS COFFEE

The first Starbucks location outside North America opened in Tokyo, Japan, in 1996. Starbucks entered
the U.K. market in 1998 with the $83 million acquisition of the then 60-outlet, UK-based Seattle Coffee
Company, rebranding all the stores as Starbucks. In September 2002 Starbucks opened its first store in
Latin America, in Mexico City. In August 2003 Starbucks opened its first store in South America in Lima,
Peru. In November 2010, Starbucks opened the first Central American store in El Salvador's capital, San
Salvador. On March 17, 2011 Starbucks opened its third restaurant in Central America and its first in
Guatemala City, Guatemala.

Objective of Starbucks Corporation in Pakistan

To tap huge emerging market of Pakistan.

Help increase its profitability due to its declining market and over dependence on US market.
To have access to the high quality Arabica coffee.
WHAT ARE ENTRY MODES
According to Root, an international market entry mode is to create the possibility by arranging
company products, technology, human skills, management or other resources to enter into a foreign
country. He regards that entry modes help companies to determine goals, resources and policy in order
to channel their international activities toward a sustainable international expansion. When a firm is
going to explore a foreign market, the choice of the best mode of entry will arise in the firms expansion
strategy. There are six essentially different entry modes, generally named as exporting, turnkey
projects, and licensing, franchising, joint venture with a host country firm, and setting up a wholly-
owned subsidiary in the host country. All of them have their advantages for the firm to explore as well
as disadvantages which must be considered by the firms top management. In other words, the
managers should make the choice carefully because it directly affects whether the firm will succeed or
not in its foreign expansion. Regarding the choice of entry for a service company, licensing, franchising,
joint venture with a host country firm or setting up a wholly-owned subsidiary are more suitable for
these types of firms.

LICENSING
Licensing involves a licensee and licensor tied together by a certain agreement which stands to benefit
both sides. The licensor will sell its know-how right to the licensee, usually for a period of time. The
knowhow refers to intangible properties such as patents, inventions, formulas, processes, designs,
copyrights and trademarks. The licensee needs to pay the royalty fee in order to have the agreement
with the licensor.
FRANCHISING
Franchising is a similar entry mode to licensing. By the payment of a royalty fee, the franchisee will
obtain the major business know-how via an agreement with the franchiser. The know-how also includes
such intangible properties as patents, trademarks and so on. The difference from the licensing mode of
entry is that the franchisee must obey certain rules given by franchiser. Franchising is most commonly
used in service industries, such as McDonalds to cite an example. However the licensing entry mode is
frequently used by manufacturing firms.
JOINT VENTURE
A joint venture is a typical entry mode used world-wide. Literally, it means two or more individual and
independent firms join together in an alliance in order to achieve better position in the market. Often
the joint ventures are a 50/50 venture. It is a method that both sides hold relatively the same
percentage of shares in the venture. The joint ventures operation is separate from both companies,
and often the same role is shared by both managerial teams. It could be possible that one firm invests
more in order to gain the larger percentage of shares and hold tighter control of the joint ventures
operations. Likewise, a lower investment percentage will usually lead to less control.
WHOLLY OWNED SUBSIDIARY
The entry mode of wholly-owned subsidiaries means the firm owns 100% of the overseas entity. There
are two major ways to establish foreign wholly-owned subsidiaries. First is a Greenfield venture. That
means the firm will enter the new international market by establishing a completely new operation and
legal entity. The second method is acquisition; whereby the firm acquires another firm in that
international market in order to directly enter. The other firm could be an established and well-built
firm in that particular industry. Thus the firm could gain a lot of advantages and promote its own
products by using the acquisition strategy.
THE ADVANTAGES AND DISADVANTAGES OF THESE MODES OF ENTRY

From a quick analysis, it can be seen that from all of these above mentioned entry mode options,
Wholly Owned Subsidiaries seems to be a feasible and constructive option, as such; Starbucks Coffee
should opt for this method for entering Pakistan. In fact, Starbucks Coffee has suitable modes to enter
Pakistan market.

WHY WHOLLY OWNED SUSIDRIES

Wholly owned subsidries normally tend to work out fine because of many reasons. Basically when an
international company enters a new country, it has many apprehensions and tensions as well as a
complete uncertain future. Many companies might enter a new country with a very positive and
optimistic attitude but fail at the end. Besides, each and every country is different and dynamic
demographics, mobile classes of people and ever changing world trade makes it even more prone to
undetermined changes.

Wholly owned subsidiaries offer some advantages to the parent company. Companies that must rely
upon suppliers and service providers can take control of their supply chain by use of wholly owned
subsidiaries. This is a means of vertical integration where companies in a supply chain are under the
control of a common owner.

Wholly owned subsidiaries also offer an opportunity for companies to diversify and manage risk.
Diversification is a means for a company to reduce risk by developing different types of businesses so
that if one business or industry isn't doing well, its other businesses may be able to pick up the slack
and keep the company profitable.

Similarly, a company can reduce its risk in entering into a new market or industry by using subsidiaries,
which help minimize the parent company's exposure. As Starbucks wants to enter into an emerging
market like Pakistan that hasn't been established, it is more suitable for Starbucks to form a subsidiary
to enter the Pakistans market leaving much of the risk of loss on the subsidiary's shoulders.

It is beneficial for Starbucks to create wholly owned subsidiaries for conducting business in Pakistan.
Sometimes a parent company will create a subsidiary in a foreign country because it will receive
favorable tax treatment from the foreign government. Alternatively, a parent company may be
required to form a local subsidiary in order to conduct business in the country. The subsidiary may even
have to be formed with a local business partner.

The future outlook of any company is not complete without an analysis of the industry in which it
operates.

SWOT ANALYSIS IN PAKISTAN

STRENGTH
Several new entrants
Foreign drinks companies continue to target Pakistan market. New Entrants! Not necessarily a
threat in fact the entry of chains like Starbucks and DunkinDonuts help generate demand.it will
boost the investment in this sector.
Enormous, young and still growing population
Pakistan has enormous, young and still growing population of 71 percent of the total
population, with a rapidly expanding middle class.
Coffee continues to be the most popular non- alcoholic beverage amongst Pakistan youth and
cafes are popular place to socialize.
Premiumisation:a viable growth option, particularly among younger consumers in major urban
center.
Low consumption per capita
Per capita consumption of premium beverages such as Starbucks Coffee and soft drinks is low as
by global standards. This indicates plenty of room for growth.
Market Development
Pakistan known as one of the fastest growing economies with increasing disposable income,
supporting infrastructure, malls high roads etc. Coffee consumption witnessed a steady rise.
Agricultural resources
Pakistan has abundance of natural agricultural resources makes the market attractive to
investors from all beverage sub-sector.

WEAKNESSES
State- by- state legislation, bereaucracy and culture
Transparency on how to enter across the nation can be a time consuming and cumbersome
process.
Coffee and soft drinks considered a luxury
Premium coffee and soft drinks are still considered a luxury by a large percentage of the
population. Inflation has driven prices by 10% in 2013.
Poor infrastructure
Poor infrastructure remains a significant deterrent to investment from multinational companies.
 Poor roads, poor roads networks, poor communication and frequent energy dropouts. Making
logistics costly at complex.
Relatively poor country
Despite rapid economic growth Pakistan remains a very poor country. Companies have to invest
very large amounts in advertising, marketing and distribution along with each new product
launch.

OPPORTUNITIES
Rising disposable income and urbanization
Increasing urbanization mean higher value beverages are likely to experience strong growth
rates, especially with the level of investment being committed by many multinational
corporation. A number of drinks sector offers a substantial potential in Pakistan for further
growth, including bottled water, beer and soft drinks.
Immense size of Pakistan ensure that market maturity is a distinct prospect.
Premiumisation gaining popularity among younger population
Although non-essential consumers goods are barely established at the mass market
level,premiumisation is already becoming a viable growth option, particularly among younger
consumers in major urban areas.
Coffee gains popularity in Pakistan
Coffee expected to grow by a 7.4 % between 2013 and 2017, and per capita volume of sales of
tea predicted to grow by 4.7% in the same period.
As a Cafs culture is being established in the main urban centers, the Pakistan coffee sector is
fast developing. Especially among the aspirational young middle class.

THREAT
The division between urban rich and rural poor is as great as ever
The division between urban rich and rural poor is as great as ever, meaning drink manufacturers
do not have access to the entire population-in fact not even the majority of it.
Recent terrorists attacks have had negative effect on tourism
Pakistan has experienced terrorists attacks, which have had a negative impact on tourism levels
and drinks sales. Any future attacks would exacerbate the problem.

SCANING ENVIRONMENT:PESTEL ANALYSIS

Political Factors
Pakistanss young are becoming world-class consumers, and multinationals are taking note,
Government designs Pro-Investment Policies to Attract Foreign Direct Investment. Pakistan over the
last few years has developed itself as a potential market for foreign investors with its liberal investment
policy 2013, cheap labor, tax incentives and good return on investment of about 30 percent which is far
better as compared to other South Asian countries. The investment policy 2013 has provided various
incentives to foreign investors such as tax concessions and exemptions to various businesses. The
Federal Board of Revenue (FBR) does not question about the source of investment; however, the FBR
only inquires whether the investor has paid requisite income tax on that specific investment. Moreover,
there is no requirement for a No Objection Certificate (NOC) from the provincial government.
According to investment policy 2013, Board of Investment (BOI) approval is not required for foreign
companies to open a bank account.
Economic Factors
The factors like inadequate infrastructure, bureaucracy, regulatory and foreign investment controls, the
reservation of key products for small-scale industries, and high fiscal deficits are constraining economic
growth of Pakistan. However, the recent measures taken opened the economy to foreign investment
and trade: it dismantled important controls, lowered customs duties, and devalued the currency: it
virtually abolished licensing controls on private investment, dropped tax rates, and broke public sector
monopolies. Further, reforms have been seen in retail industry with Pakistan government's approval on
FDI up to 51% on multi brand retail. The country has also gaining expertise in software services and
software workers, and the information technology sector leads the strong growth pattern. With a world
changing from an industrial to an informational economy, Pakistan is bound to play a monumental role
in the future of the global industry.
Socio-Cultural Factors
As job opportunities increase in Pakistan, money stays in the palms of the Pakistani consumers enabling
them to reinvest in the Pakistan economy. Attitudes towards money are also changing. The mantra for
the average Pakistani family, as in most of Asia, has always been saving, but young peoples today,
inspired by job opportunities, have switched to spending extravagantly. The attitude of the young
generation is to enjoy life and spend money.
However, Pakistan is a tea-based culture. Most of the Pakistani consumed tea at least twice a day, in
the morning and in the afternoon. According to market research studies, coffee was
mainly consumed in the urban areas (71%) and to a much lesser extent in the rural areas (29%). The
people in urban areas largely consumed coffee. The people in the urban areas were generally not
coffee drinkers, but drank coffee and experimented with various flavors as a fashion statement. The
consumption of instant coffee and filter coffee was almost equal on the
national level. But region-wise, filter coffee was more popular in the south and the proportion of
instant coffee was very high in the non-south regions.
Technological Factors
The coffee beans and tea need be bought from local Subcontinent farmers in order to support the local
agricultural economy, save money in transportation and tariffs, and gain tax benefits. Pakistani tend to
take more cream in their coffee. Further, the skim milk option need not be offered in Pakistan because
dieting is not a commonly accepted practice in the country. Pakistani will feel that they are being
cheated out of their money if skim milk is put in their beverages. Peoples of Pakistan also like spices in
their tea and coffee, especially ginger and black clove. One of Pakistans favorite fruit flavors is mango,
and in fact the mango is Pakistans national fruit. The food segment needs to take care of vegetarians
segment as they form the good proportion of the target market. However, Pakistani specially the
affluent and young class will be delighted to have fast and efficient Wi-Fi services at the cafe plus;
people here love to be associated with their traditional and rich heritage as well as its blending with
modernity and this may be reflected in the stores' ambience. The awareness about how varieties of
coffee are sourced, roasted, brewed, etc needed to make people more loyal to coffee specially the
Starbuck's.
The inventory policy requires keeping the stores stocked but not overstocked to ensure freshness of
products. Better gauges of the numerical figures in the inventory policies can be made after observing
consumer trends. To begin with policies can be formulated assuming an average of five hundred
consumers per day.
Environmental Factors
Starbucks believe in the importance of caring for our planet and working with and encouraging others
to do the same. As a company that relies on an agricultural product, it makes good business sense. It
engages itself in recycling, energy management, water conservation, green building, and in reducing
carbon footprints wherever possible. With these integrated environmental responsibilities, the
company will obviously build its image in the eyes of
Pakistan Consumers as well. The ecological concerns regarding the farming of Arabica coffee must also
be addressed in order to ensure consistency in productivity.
Legal Factors
Companies may be public or private but the common public is not allowed to buy shares of the
company and there can only be up to fifty shareholders. Import duties are applied to almost all goods
entering Pakistan. The tariff system is based on the Harmonized System (HS) and tariffs are in the 40 to
60 percent range for basic raw materials, 60 to 100 percent for semi-processed goods, and 100 percent
and above on finished and consumer goods. Shipments to Pakistan require a commercial invoice, a
packing list and bill of lading. A certificate of origin is not required on imports originating in the United
States. FDI approval though has come to relaxation.

INDUSTRY ANALYSIS PORTERS FIVE FORCES FRAMEWORK

One of the widely held assessment tools of an industrys competitive forces is the five forces model of
competition created by Michael Porter. These five forces are: the competitive force of rivalry among
sellers, the competitive force of potential new entrants, the competitive force of substitute product,
the competitive force of supplier bargaining power, and the competitive force of buyer bargaining
power.
Industry Rivalry
Major competition for Starbucks in Pakistan comes from that of NESTLE NESCAFFE. The Nescafe
coffee is known to most of the people in urban and rural parts of Pakistan. Their positioning is
same as what Starbucks have in US. The other competitors include ESPRESSO, GLORIA JEANS,
NEW YORK COFFEE and BUTLERS Coffee, which are also the multinational brands, and widely
recognized. Apart from them, secondary competitors include the Georgia Coffee, served in fast
food joints like that of Mc Donalds and KFC, etc.
Potential for New Entrants
The entry barriers in the coffee retail industry are relatively low in Pakistan, particularly for the
foreign players. This is possible owing to the fact that 51 % FDI is allowed in Pakistan in retail
sector. Any large or well-funded company having the thorough understanding of the market
can enter into retail sector in Pakistan. Given the fact that Starbucks is a global, it is having its
own advantages when it comes to achieving the economies of scale. Starbucks being the global
coffee retail chain, they are not going to have any particular capital related problems.
Customer or Supplier Loyalty - Pakistani market is already being captured by the long
established brands like Nescafe, Gloria Jeans and Espresso. Thus, it is going to be pretty much
difficult for any of the new entrant to establish its brand name in the Pakistani market.
However, Starbucks being the international brand will definitely help in attracting the educated
Pakistani crowd.
Market Experience - The existing players in the Pakistan coffee retail industry have been here in
the market from last 10 years. Thus, their management must be having greater understanding
of the Pakistani markets and Pallets. Therefore, for Starbucks, it is going to be important to first
understand the Pakistan preferences, before making any major move.
Differentiation - Coffee is not the product where there is a great scope for product
differentiation. However, it depends on most of the cases on the store ambience, which can act
as the point of differentiation.
Threat of Substitute Products
Pakistan has predominantly tea-based culture thus; awareness about coffee need to be created
more and more. Besides tea, other product substitutes, here, will include other beverages, for
example, soda, fruit juices, water, beer or other liquid and/or carbonated beverages. Since
Starbucks also sells fast foods, other fast food beverages like burgers and KFC etc. The lower
end local coffee houses or other snack shops which are less luxurious will also act as substitutes
to Starbucks. These are places which provide people with the place to sit, chat and relax at
more affordable rates.
Bargaining Power of Suppliers
In the case of coffee retail, the suppliers, supplying the retailer with the coffee beans are not
having much of the bargaining power. This is particularly because of the fact that coffee
retailers like that of Starbucks tend to be very big buyers for any of the supplier to lose as a
whole. This also gives the Starbucks to dictate terms to the supplier. However, this sourcing
would be done on ethical norms of Starbucks. Similarly, suppliers of other resources like that of
paper products etc., will not be having much of the bargaining power as there are many sources
from which the company can source them. However, this is not valid in the case of the suppliers
supplying the technological machinery and equipments as there are not many suppliers here.
Bargaining Power of Buyers
In the past, buyers in Pakistan were not having much of the bargaining power as there were not
many food retail giants which were present in the country. However, with the advent of
multinational food retail giants in Pakistan, like that of Mc Donalds, KFC, Gloria Jeans and
Espresso, consumer is faced with lots of choices. Thus, it will be difficult for Starbucks to
influence the Pakistani buyers to pay premium for their products. As also the per capita income
of Pakistani Customers is low and their mindset is not so affirmative with coffee culture,
however it is catching up among youths, the prices need to be highly competitive and on zonal
basis.
MARKET ANALYSIS - DAVID AAKER'S 7 DIMENSIONS OF MARKET FORCES
Market Size
The recent past has witnessed an upward shift in the per capita consumption of coffee in
Pakistan, with growing preference amongst the young population. With a young population of
about 40% below the age group of 40 spending most of their time at work or outside home, the
out of home consumption of coffee is spreading rapidly. Moreover, the increasing spending
propensity of the young Pakistani and their changing lifestyle has increased the demand for
coffee in Pakistan. As compared to FY2016 a clear growth can be witnessed in FY2015 in per
capita consumption. The per capita consumption in FY2016 increased to 92.43 grams as
compared to 88.76 grams in FY2015 due to presence of a strong preference towards instant
coffee.
Market Growth Rate
The consumption of coffee in Pakistan has grown steadily at a historical CAGR of 6.3% during
FY2015-FY2016 and is expected to pace at a CAGR of 4.9% in the near future. In FY2016, the
per capita consumption has increased to 92 grams from 88 grams in 2015 at a growth rate of
4%. The Pakistans coffee market has witnessed a steady growth in the past 5 years due to the
growing preference for instant and organic coffee amongst the coffee drinkers. Moreover,
rising consumer expenditure and export promotion schemes implemented by government has
influenced the growth of the market in Pakistan. The coffee market in Pakistan has also
witnessed a growth in the demand for out-of-home consumption of coffee because to the
majority of time spent by the young adults at work or out-of-home. This potential of the market
and the preference of the young population have led many global players to foray into the
domestic market.
Market Profitability
The revolution in the Pakistan coffee market has changed the tastes of the consumers and
overwhelmed them with variety of new options. Thus, a change is witnessed in the coffee
drinking habits amongst Pakistans consumer. Today people prefer instant coffee over the
traditional coffee,
Because of the busy lifestyle and changes in their tastes and preference towards instant coffee.
The Pakistan coffee market is dominated by big players such as Nescafe who has a share of
68.8% followed by Gloria jeans and Espresso Coffee with 13.5% and 3.2% respectively.
Marketers today see a lot of potential in the instant coffee segment, which is one of the reason
many big companies are adopting various strategies to capture it. The out-of-home coffee
drinking culture is also gaining pace.
Keeping all these in mind that the costs for the coming operating years will reduce and
revenues will increase, profit is expected to escalate. After the end of the first fiscal year, the
company may determine whether or not it should expand in the country of Pakistan. If the first
year proves to be a success, Starbucks Coffee can open over 100 location in Pakistan, taking
advantage of their international partnerships with Sheraton (Starwood) Inn, and Hyatt Inn.
Starbucks will also try to win accounts with local airlines companies, so that they may serve
Starbucks drink on flight. In three years profits are expected to exceed one million dollars per
annum as per the research conducted.
Industry Cost Structure
Competitive pricing is necessary for the success of the venture; hence Starbucks must take
various costs into consideration. Because of the costs involved in startup, transportation and
imported goods, the price need to be set at about USD 2 per drink using the concept of zone
pricing to make the coffee affordable to the target audience. Exchanges need to be done in
rupees so that would be about 200 rupees. The prices for all goods need to be relative to the
others. With the use of this pricing policy, Starbucks prices would be 20% lower than those of
the other Companies. This use of penetration pricing will ease the companys slide into the
market place. Though, it is possible to get a cup of coffee for merely 20 rupees in small stalls on
the street, the success of the Gloria jeans Coffee Company show that the customers are willing
to pay for better quality, service, and environment.
Distribution Channel
As its distribution strategy, the Starbucks must started its operation and opened first store at
Lahore. This flagship store is located at the historic Emporium Mall, Johar Town Lahore and
marks the beginning of the iconic brands Pakistan journey. In addition to the flagship store at
Emporium Mall, Starbucks Limited will launch two more stores in near future at Dolmen Mall
Clifton Tariq Road Karachi and the Centaurus shopping Mall Islamabad. Then the other stores
will be opened at other metropolitan areas. The urban areas are thus the first choice of
Starbucks as its both primary market of youths and secondary market of tourists from other
countries are catered here.
Market Trends
A major part of the countrys foreign exchange earnings come from the foreign remittances.
Since the inception of coffee in Pakistan, the production has been rising along with changes
experienced in the consumption pattern over the years.
Increasing Per Capita Consumption - Due to the constant increase in population over the
period, the per capita consumption has also increased from 88 grams in 2015 to 92 grams in
2016.This increase in the per capita consumption has influenced the overall growth of the
Pakistan coffee market.
Evolving Coffee Retail Chain Concept - The Pakistans coffee market has been experiencing
activities in form of increasing coffee retail shops. This has been the result of the growing trend
of out-of-home consumption and increasing propensity of young population to spend. Many
coffee parlors or cafes such as Gloria jeans, Nescafe and Butler Coffee are spreading their
distribution network to cater to coffee drinkers across Pakistan. There are 200 coffee retail
outlets across Pakistan to serve the out-of-home coffee drinkers across Pakistan.
Global players foraying into the Pakistan market - The increasing disposable income of young
Pakistani and their changing preference towards coffee consumption have led many global
players to foray into the domestic market. For example, Gloria jeans Coffee entered the
Pakistan coffee market in 2006. Moreover, Starbucks, one of the leading global players is
planning to enter Indian market in the near future.
Increasing preference towards Instant Coffee - After Nestle launched their product in the
Pakistan coffee market, the popularity of instant coffee has increased gradually. Today, people
prefer instant coffee over the traditional coffee because of their changing life style and variety
of options available in the instant coffee market. About 23.1% of the market is
captured by instant coffee and is expected to increase further in the near future with a strong
preference among the age group of 20-45years.
Growing preference towards organic coffee - Organic Coffee is usually considered to be normal
coffee beans that are produced without the use of pesticides or herbicides. The growing health
concerns and the preference of consumers to consume healthy beverage have led the
marketers and producers adapt to organically grown coffee.

RECOMMENDATIONS

Starbucks should grow in the emerging market of Pakistan by winning locally, Starbucks
must remain relevant to the customer in order to grow in these markets, and its
management teams should have the freedom to operate within their overall framework
to tailor store format, introduce local product mix and price points to the needs,
lifestyles and tastes of each individual market/community.
In my personal opinion I believe Starbucks operates a predominantly differentiated
business level strategy in Pakistan concerned with high product development and
offering a 'premium' product. However a slow move towards hybrid strategy as
increased globalization occurs and the concerns with global effects (climate, culture,
demographics etc.) is also an option.

As Pakistans consumer tastes and lifestyle shift towards more snacks and beverages
options, Starbucks should tailor its menus and expand to give healthier product
offerings in its mix.

Under Starbucks international strategy, it should transfer its core competencies and
capabilities country to country and then gradually build profit drivers in several
countries as it continues its global expansion in an organic way.

The Starbucks Coffee Co. in Pakistan should primarily target the young both male and
female from the ages of 16-38. This market is well educated and comes from middle
class to upper middle class population and out-of-home coffee drinking culture is
catching up. The international appeal of Starbucks will add up to the promotion of this
culture. The highly trained baristas of Starbucks, its technologies and processes by which
it sources high quality coffee, roasts, brews and serves to its customers will surely act as
Key Success Factors of the Company.

Starbucks should create a more business and technology friendly atmosphere in its
stores. The availability of meeting space with free wireless Internet access would
encourage those consumers working from their homes to engage in business activities
at local Starbucks
.
 Extend the contracts with coffee suppliers, and promote the commitments to origins
program. As subcontinent especially India is famous for high quality coffee beans and 3 rd
largest exporters of coffee, they are willing to supply premium coffee beans for
Starbucks in Pakistan.
To avoid competitors in Pakistan such as McDonalds and other coffee chains, they will
need to create new value innovation by enhancing the customer experience by investing
in online content and interactivity. Rather than creating more new products, I think their
strength lies in their brand and by enhancing the connection to their loyal customers,
they will separate themselves from McDonalds and others.

After conquering big cities Starbucks must also concentrate on tier 2 and tier 3 cities.
For example, major part of population of cities likes Gujrat, Faisalabad, Multan,
Bahawalpur, Peshawar, Haiderabad, and Jhelum can afford to visit such cafes and enjoy
their favorite coffee brands. They should also take heart from the fact that other famous
and elite brands from different industries like Chen One, Junaid Jamshed, Borjan and
Service are operating profitably in these cities.

EXECUTIVE SUMMARY
Starbucks is another industry stalwart to enter the Pakistan markets due to vast potential and
the huge untapped market. Pakistan market is always influenced by the traditions followed in
the Western counterparts hence the success of Mc Donalds, KFC, etc to name a few. With
access to Hollywood movies where these brands are flashed quite often, the aura surrounding
brands such as Starbucks scale new heights.
Pakistan consumers have always welcomed change when it comes to their taste buds.
Cappuccinos, Latte have eclipsed the traditional Espresso filter coffee. Filter coffee seems like
an archaic notion, only restricted to the elderly people. In fact the coffee shops have itself
undergone a tremendous transformation, with them replacing a hang-out joint for the
teenagers.
The timing of their entry could not have been better. With Gloria jeans, Nescafe and Butler
coffee almost losing their sheen, Starbucks comes in like a breath of fresh air. The future
outlook of any company is not complete without an analysis of the industry in which it
operates. In advanced countries and bigger markets like United States and Austria, the per
capita coffee consumption exceeds 5 kilograms and 10 kilograms respectively. In Pakistan, the
per capita consumption is less than 0.8 kilogram. However, people are drinking more coffee
than ever before and there is plenty of room for Starbucks to capitalize on this trend and start
their new business with a bang. Therefore, there is nothing wrong in saying that rise of cafe
culture incorporates huge potential for anyone who is willing to invest in this thriving industry.

Coffee sales in Pakistan are expected to grow at exponential rate over next few years. Analytics
and market experts argue that such a growth is impossible without the contribution of our
young generation. Coffee cafes have done a marvelous job of attracting teenagers and young
adults to their outlets as they also offer them a chance to socialize with each other on regular
basis. This will also prompt them to consume more tea at home, practically helping coffee
industry to achieve its sale targets. Some experts are of the opinion that consumers will
particularly benefit from arrival of Starbucks because they will have more options to choose
from. It should also be an exciting competition because Pakistani brands will have an edge over
famous international brands as they have better understanding of local market and its unique
needs. However, we should not underestimate international companies like Starbucks as they
are well equipped with global best practices. Many people strongly believe that there is also a
chance for all of them to coexist profitably.

Last but not the least, certain growth is imminent for all the coffee vendors, especially for high
profile cafes like Starbucks. Coffee consumption in Pakistan will increase in coming years which
will ensure sustainable growth. On-trade consumption will enjoy massive growth thanks to
growing trend of socializing with friends, relatives and colleagues at cafes. All these factors
combine to portray a very positive future for this already extremely lucrative industry.