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Researching Overseas - Dissertation Sample

16 Mar 2017Dissertation Samples

Marketing and Research

Overseas Opportunities of Starbucks Coffee

Starbucks, the Company

In this project, I have selected the marketing and research opportunities of Starbucks Coffee in the Asian region, especially in India. Starbucks Coffee Company is the leading retailer, roaster and brand of specialty coffee in the world, and has more than 6,000 retail locations in North America, Latin America, Europe, the Middle East and the Pacific region. Starbucks is one of the largest retailers of whole bean coffee and opened its first shop in Seattle, USA in 1971. By the 1980s, Starbucks quickly took on the culture of espresso bars in Italy and began producing and selling lattes and mochas.

The demand for coffee quickly caught up in America and Starbucks expanded beyond Seattle to also become one of the first publicly traded coffee companies by 1990 (starbucks.com, 2005). Its inclusion in the stock exchange made it possible for the employees to own shares and stock options of the company. By the end of the 20th century, Starbucks has not only expanded beyond Americas and made its presence in Europe and other parts of the world, but has also changed the whole idea of coffee roasting, brewing and serving, bringing in new flavours of coffees and espresso drinks, and people now enjoy Tazo tea and Frappuccino ice blended beverages along with the regular cappuccino, mocha and latte varieties (starbucks, 2005). 

Market research reports that ‘the hot beverages market - defined as instant and ground coffees, leaf teas, fruit and herb teas, and chocolate and malted drinks - grew in value terms in the year ending August 2004 by 1.1% over the same period in 2003’ and that ‘the market is dominated by instant coffee (representing 41.2% of total value) and leaf tea in bags (at 37.1%)’ (market research.com, 2005). 

Aims and Objectives of Expansion

The products that could be launched in the Asian, particularly Indian market include the regular white and black coffee, espresso, mocha, latte, Tazo Tea and Ice Blended Frappuccino as well as hot/ cold chocolate drinks. What I suggest is not launching of any one specific product but expansion of Starbucks across the Indian region with its unique selling point and concept of famous coffee blends. In Asia, Starbucks has expanded to Hong Kong, Malaysia, Singapore, South Korea, Japan and China. Thus Starbucks seems to have a major presence in all major countries of Asia, except India. India is selected here as a developing and rapidly transforming economy that has recently opened up to globalisation policies to attract foreign investment. I will deal with the opportunities of the coffee market in India in a later section. 

Starbucks has made its entry into major markets and cities in Asia as in case of Shanghai, Beijing, Singapore and Tokyo but has not yet opened its retail stores across the largely unexplored Indian region. The Indian cities of Bombay, Goa, Delhi and Bangalore are fast developing global centres for business and IT transactions and have recently developed a large market for tourism, software and consumer industries. India being a country of one billion people has a potentially large market for coffee consumption especially in the major cities where the fast paced economy and an urban, youthful and upwardly mobile culture show a definite preference for drinks and beverages. The success of soft drinks such as Coca cola and Pepsi in the Indian market may be considered as definitive examples of the changing Indian mindset. The aims and objectives of the expansion are as follows: 

1. Making a foray into the large Indian market with specially brewed and flavoured coffee and tea
2. Targeting upwardly mobile young population of India who have a strong liking for soft drinks and beverages
3. Promoting a stronger coffee culture within India by selling ice-blended Frappuccino coffees suitable for the Indian tropical climate and tea, an already favourite Indian beverage.
4. Assessing the market competition if any and the other major coffee companies in India
5. Making the presence of Starbuck cafes a strong brand statement in major Indian cities
6. Using a very effective marketing campaign to spread awareness for developing a taste for good coffee
7. Using strategic advantages of very few competitors, unavailability of coffee and a large consumer base
8. Working on the opportunities, threats, strengths and weaknesses of promoting Starbucks cafes in the region
9. Using the pricing policy adequately to attract the Indian consumer
10. Promoting specially flavoured coffee and tea along with food such as cakes and croissants for the largely unexplored Indian market.
11. Identifying the advantages and disadvantages of introducing the coffee culture in India, including an analysis of climatic factors, economic factors, social and cultural factors.
12. Delineating the profit and growth factors using business models and analysis of the consumerist approach in a new market.
13. Frequently reviewing the factors affecting the marketing, advertising and consumption of newly introduced beverages and the consumerist attitudes of the region 

Analysis - Market Factors

Rahman and Bhattacharya (2003) have suggested that India could be defined as a globally emerging market capable of attracting foreign investments. Their paper highlights how the infrastructure condition and consumer orientation in an emerging market favour a first mover. The consumer orientation in India if analysed definitely gives a positive picture for the coffee consumer. The strategies that could be followed for a first mover of investment in a particular industry could be highlighted as sustainable competitive advantages. As Hewitt (2002) has claimed there is a fundamental restructuring of developed–world social and trade policies and this shifts the locus of global dynamism to India, China and other emerging market countries. 

India, China and other economies in Asia have already been marked as major economies with emerging opportunities following implementation of globalisation policies in the 1990s. The Internationalisation of technological activity and IT revolution has shifted the focus on these countries as important in the contribution of highly skilled labour, technology, software and services (Rao, 2001). India and China are considered not only emerging contributors to IT development and technology transfer but are also emerging markets having a large urban population and a potential huge consumer base. With Starbucks making a successful entry into the Chinese cities of Shanghai and Beijing, I propose that introducing a coffee/ tea culture that will be international in its brand presence yet geared to meet local needs could be very successful in the largely cosmopolitan cities of India such as Goa, Delhi, Bombay and Bangalore. 

The Indian Beverage Market report given by the Beverage Marketing Corporation can be seen as emphasizing the consumption of Milk and Tea in India (beverage marketing, 2005). Considering this trend our policies would be focused on marketing tea and milk shakes at the initial phase moving on to infusing a widespread coffee culture at a later stage of our products launch. Till recently, the coffee board directed the sale of coffee in India. Coffee growers within India had to sell 100% of their production to the board till 1994. Thereafter, it was brought down to 30% (market research.com, 2005). This quota system has now been abolished completely since 1997 and since the massive influences of foreign investments and exports trough globalisation. Domestic demand has stagnated over the last few years. However the report suggests that there is an increase in production, purchasing power and enlargement of the beverage market. The Beverage consumption chart is given below. (Source: Beverage Marketing)

The chart shows a general low consumption of coffee in India which seems to be dominated by Tea, Milk and Soft drinks. Some of the factors for this are analysed here. One of the reasons for low popularity of coffee may be its considerable unavailability in the Indian market. Very few competitors such as Barista and Coffee day that have begun the coffee culture do not produce the wide variety of coffee selection as Starbucks. The concept of cold ice blended Frappuccinos are not promoted or advertised aggressively in the Indian market.

Considering the tropical climate and economic factors in the region, I suggest that coffee consumption could increase with the entry of Starbucks in a potentially huge market. Thus the marketing approach is to increase the demand for great coffee by promoting a coffee culture along with taking advantage of the popularity of already existing beverages such as tea and milk. The socio cultural factors are considered here and include the market for coffee, the popularity of tea, the climate, financial capabilities of the consumer and the nature of the economy. My analysis is based on several factors:

1. The importance of tea in the Indian market should not be deterrent for introducing Starbucks as Tazo tea; flavoured tea blends can be easily promoted
2. Milk shakes and Ice-blended Frappuccinos as well as chocolate based drink could be promoted in the major cities
3. Cold coffee and iced drinks can be as popular as soft drinks for the tropical climate of India
4. The coffee culture may need to be promoted, as it does not exist to the same extent as in the west, yet as Starbucks could enter the Chinese market that is dominated by tea as the most popular beverage, the Indian market could also be successfully explored. 
5. The marketing approach could thus be focused on promoting tea and flavoured milk shakes initially along with hot and cold coffee for Indian consumers
6. Using the case of China, Malaysia and other Asian countries, introducing Starbucks in places dominated by tourism industry such as Goa and Bombay could be a very successful enterprise.
7. The Indian youth has been catching up with a culture of drinks and beverage consumption and with a growing population of employed youth, the beverage industry could be one of the most profitable in the coming years. 
8. I consider that the Indian Beverage industry is growing and the full potential of the industry has not been explored. Considering this factor, an expansion of Starbucks into the rapidly transforming Indian society is feasible
9. In contrast to certain countries in the Middle East such as Afghanistan or Saudi Arabia, where religious, political or socio-economic factors may play a huge role in stopping the introduction of a western beverage at a large scale, India seems to be a potentially open, emerging and changing market 
10. A case in point would be the presence of Costa coffee company in Dubai, where Starbucks hasn't yet made an entry and can again be successful with the rise of tourism and an international culture in the city of Dubai.
11. I suggest that market opportunities for Starbucks are strong in Dubai as in Goa, Bombay but considering the fact that other international players such as Costa have not yet entered the Indian market but have made an entry into Dubai, can give a strategic advantage to Starbucks for being the first international mover within the emerging Indian market.
12. An analysis of the advantages and disadvantages of the plan can be done using a SWOT analysis chart.

Strengths –

Introduction of a novel coffee culture

Strong International Presence of Starbucks
Already existing record and experience in the beverage industry
A household name in the west - strong brand name
Reputation and Credibility
A strong marketing and management team dealing with overseas opportunities
Strong professionalism and major beverage company

Weaknesses –

Underdeveloped beverage industry in India
Greater demand of tea and milk shakes
A possible lack of understanding of the Indian consumerist perspective and mindset
Coffee culture not too strong
Climatic conditions may not be suitable for regular coffee preference
Low tourism or cosmopolitan culture when compared with Dubai, or Singapore

Opportunities –

Rapidly developing economy
Emerging market for consumerism
Open markets and recent shifts to globalisation policies
Attracting foreign investments 
Large urban population
Youthful culture and high beverage consumption in major cities
Change in outlook - from traditional Indian values to a more modern and transforming society 
Strong presence of International companies and IT hubs bringing in a change of culture
The urban population can increasingly afford higher prices according to international standards
Complete lack of major competitors as advantage
Being the first major International mover in promoting coffee culture - Strategic opportunity
Already existing high beverage consumption such as tea and milk shakes
Largely unexplored market

Threats –

Some competition from local markets
Pricing factors - high priced coffee may not suit the Indian consumer
Threats/ political obstacles from local brands

For more information see SWOT Analysis  

Socio-cultural Considerations

Some of the socio cultural factors I have already pointed out include a lack of a coffee culture and traditional Indian preferences for tea and milk, as also explained in the case for China. The beverage Marketing reports already claim that the Asian market is huge and growing. Other potential markets include Russia. A Euro monitor report claims that "Instant coffee dominates the Russian coffee market”, but new research from Euro monitor International suggests that “growing consumer awareness and a burgeoning coffee culture could lead to strong future growth in fresh coffee. Instant coffee has gained popularity in the Russian market primarily due to its convenience.

Euro monitor International’s new report "Hot Drinks in Russia" shows that instant coffee accounts for an impressive 90% share of the market in value terms. In 2004 sales of instant coffee reached almost US$2 billion, with the market growing by some 13% on the previousyear" (euro monitor report, 2004). This report definitely shows the strong international presence of a 'coffee culture' and the emerging markets that can be explored even within Europe. Despite Russia's strong market growth in recent years we do not predict any major success for Starbucks within the Russian market considering that there are strong competitors such as May Tea and Mellagro food Industries. Any entry of Starbucks, an American company may also have political implications, considering the rudiments of the Cold war era.

In contrast, American companies and major international brands for beverages such as Pepsi and Coca Cola have successfully entered the Indian market and have completely outperformed all local competitors in the soft drink industry. The success of Pepsi and Coca cola in the Asian, especially Chinese and Indian markets also suggest that coffee and tea can be successfully promoted as a hot and trendy drink in Asian markets. As I have shown, Starbucks has already entered the coffee market in Chinese cities but has not yet entered the potentially large Indian market.

Considering strong competitive factors in Russia and other European countries, I have selected India as a growing economy and a promising emerging consumerist market as the best possible investment for Starbucks coffee. However the marketing plan could be influenced by certain cultural, social and economic factors, such as the consumption of coffee, existence or growth of cafe culture, demand for coffee and hot drinks, financial conditions of the economy in general and the consumers, price factors and the dominance of home made coffee.

According to business reports by Euro monitor on coffee consumption in India, the emergence of the café drinking culture in India has had a positive impact on the imagery and occasion of coffee consumption. There has been tremendous expansion in coffee drinking experiences and this has stimulated associated rise in coffee consumption at home (Euro monitor, 2005).

Considering commercial implications of this trend, the report also states that coffee volume sales will reach some 13,000 tonnes in 2004, representing growth of 5%. That said, while coffee parlours are increasingly found throughout the country, it is South India that accounts for an overwhelming proportion of home consumption of coffee brewing and drinking (Euro monitor, 2005). Thus the choice of Goa, Bombay and Bangalore in South India as major cities for coffee consumption may be a successful move. Home brewing and making of coffee and a home culture of coffee consumption rather than a cafe culture may be changing for the increased emphasis on coffee consumption at the cafes.

Yet the urban markets continue to grow in the Indian subcontinent mainly due to a large population base. The Euro monitor report suggests 'hot drinks still derive most of their volumes and value from urban India, although a discernible trend towards greater rural involvement is visible. Urban India still remains the core that will adopt value-added hot drinks much faster than rural India' (Euro monitor, 2005). The analysis can be concluded with the euro monitor forecasts that suggest that coffee is expected to grow at a larger scale than tea in the next few years. This is stated as follows: Building on a small base and positively impacted by increasing sophistication and product knowledge, coffee sales are expected to performance of all hot drinks over the forecast period. By contrast, tea and other hot drinks will see extremely watered down as consumers seek to explore with other drink alternatives (Euro monitor, report, Indian Coffee market, 2005). 

Conclusions:

Using the Euro monitor reports and data and considering the potential growth of the coffee and beverage market in India as well as presence of fewer competitors than the European markets, I will put forth the argument that Starbucks can make a successful entry into a potentially large consumer base and emerging market of India taking advantages of a growing cafe culture. 

Bibliography

  • Promising future for fresh coffee in Russia http://www.euromonitor.com/
  • Market Summaries - Report http://www.euromonitor.com/Hot_Drinks_in_India
  • for beverage marketing reports, see http://www.beveragemarketing.com/http://www.beveragemarketing.com/coffeeindustryLms.htm
  • For Starbucks news and reports:www.starbucks.com
  • BRAMMER, NATASHA; BEECH, JOHN USE AND ABUSE OF TOURISM: THE GOAN EXPERIENCETourism Culture & Communication, Volume 5, Number 1, 2003, pp. 23-35(13) Cognizant Communication Corporation
  • Zillur Rahman; S.K. BhattacharyyaSources of first mover advantages in emerging markets - an Indian perspectiveEuropean Business Review, Volume 15, Number 6, October 2003, pp. 359-369(11) Emerald Group Publishing Limited
  • Bowonder B.; Satish N.G.Is economic liberalisation stimulating innovation in India?Interdisciplinary Science Reviews, Volume 28, Number 1, March 2003, pp. 44-53(10)  Maney Publishing
  • Hewitt P.S. Global Aging and the Rise of the Developing World  The Geneva Papers, Volume 27, Number 4, October 2002, pp. 477-485(9)  Blackwell Publishing
  • Rao P.M. The ICT revolution, internationalization of technological activity, and the emerging economies: implications for global marketing 
  • See marketresearch – Indian coffee section  http://www.marketresearch.com/browse.asp?categoryid=471&sortby=d&g=1&page=3

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