This is a case study conducted for a Strategic Management course. This plan follows Starbucks Coffee Company's decision to expand into India. Examples of Environmental Scanning, Strategy Formulation, Strategy Implementation, and Evaluation & Control are included in this document, along with an ultimate recommendation to Starbucks.

1. Starbucks Coffee Company
Expanding into India
BRENDAN CRONIN
INSIDE:
This document contains an environmental analysis of Starbucks Coffee Company,
strategic decision options, an action plan to implement those strategic decisions and
a recommendation on Starbucks expanding into India.

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Current Situation:
Starbucks is a provider of high-end coffee products and more importantly, a
relaxed experience. Starbucks as it is known today was purchased in 1987 and has
seen tremendous amounts of growth over the years. The company is known globally
and does business internationally, although it’s headquartered in the United States.
Starbucks has historically had a differentiation strategy, with prices comparably
high and uniquely high-quality products, service and environment for the consumer.
This differentiation strategy is used with a horizontal growth strategy
internationally. Starbucks currently has a market expansion strategy focused
around Asia, and has recently seen both problems and great sales figures arise from
this market in China and Japan. The objective of this strategic campaign is to
capitalize on the highly dense Asian market, with its high population and growing
wealth. In 2002, Starbucks announced that it intended on breaking into the Indian
market, however has failed to do so four years later. The problem facing Starbucks
right now is whether or not to expand into India and if the company were to expand,
how it would go about doing so. If Starbucks does decide to expand into India with a
promising strategy, there is still the problem of finding a suitable partner currently
in India to form a partnership with.
Environmental Scanning
The external factor analysis summary (Table 1) shows the external
opportunities and threats that face Starbucks. These will later be addressed in terms
of how they can be taken advantage of, or avoided. The opportunities that Starbucks

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may take advantage of are the Indian interest in Western brands, the geographic
popularity of coffee, the characteristics of the Indian population, and the market for
the product. Threats to Starbucks include the obesity and obesity related disease
rate in India, the beverage habits in India, barriers to entry, the conflict seen within
global policies, and established competition.
The internal factor analysis summary (Table 2) shows the internal strengths
and weaknesses that Starbucks has and will either use to an advantage or try to
minimize. Starbucks’ strengths include its strong company mission, vision and
values, the company’s brand awareness, the experience Starbucks has in expanding
into global markets, high buying power and high quality products. Weaknesses of
Starbucks include the lack of a presence in India, which is a highly populated
country, Starbucks’ premium priced products, small product breadth and the
company’s corporate structure.
These external and internal factors are then combined in the strategic factor
analysis summary (Table 3) to show the most influential factors of a company’s
environment. The internal factors chosen by a weighted score include the
experience in expanding into global markets, the strong company mission, vision
and values, the small product breadth and the premium priced products. The
external factors chosen based on a weighted score include the Indian population, the
geographic popularity of coffee, established competition and beverage habits in
India. These factors are also given a time range in regard to when they effect the
company, such as Starbucks’ experience in expanding into global markets will help
them in the long run rather than immediately in the short run.

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These important factors of the environment are then used in a TOWS Matrix
(Table 4) to show different business strategies that can be used based on these
factors. One SO strategy that can be used is to examine past successful global
expansions in Starbucks’ history and imitate the methods used there and the lessons
learned in these countries. An example of a ST strategy is to acquire the best Indian
ingredients for local Indian tea for use in Indian Starbucks. One WO strategy within
the TOWS Matrix is to increase product breadth by adding more varieties of coffee
beverages, snacks, etc. This is more likely to appeal to a broader range of the
population and will make it easier for Starbucks to penetrate into the Indian market.
A WT strategy that Starbucks may wish to use is to set a price penetration strategy
when first expanding into India. It has been stated that Starbucks will adjust its
prices for India, but these prices should be lower than the competitors’ in order to
gain immediate customers.
Recommendation:
It is recommended that Starbucks expand into India immediately, as to avoid
letting its current competition expand. Starbucks cannot carry over its same
business operations as it had in other countries however, and must instead adapt
and change as it did in Japan. Recommendations for the expansion of Starbucks into
India include:
Contact Pantaloon Retail in regards to forming a partnership in India. This
possible partner has over 100 stores in Indian cities, where the target market
of Starbucks lives. The partner also owns Big Bazaar, Food Bazaar, and

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Pantaloon, which have comparably high sales and would be good start-off
locations for Starbucks outlets. The group has revenues of $10.73 billion, as
of 2005.
Advertise heavily in urban areas. This is where Starbucks’ target market
lives, so this should be where the Starbucks’ brand is recognized the most.
Use the challenges faced when expanding into China and Japan as examples
to adapt quickly to the customer need. Certain needs can be met to satisfy the
new customer base while still maintaining the same vision, mission and
values.
Adjust Starbucks positioning’ to reflect its differentiation strategy. The local
competition already has a dominating amount of market share and provides
the service in India that Starbucks is known for in the U.S., onlybetter than
Starbucks does. Instead of being known as the place to get gourmet coffee in
India, position Starbucks to be the place to relax in style with a coffee.
Continuously analyze the competition’s expansion methods. Starbucks has
vast experience expanding and can capitalize on any mistakes made by the
competition.
Consider expanding product breadth in the future to include a larger variety
of tea-based products, primarily iced teas, and preferably using Indian-grown
ingredients. This larger product line should also include spices that may mix
well with tea, coffee, or other Starbucks products.

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It is believed that if Starbucks uses this strategy with these guidelines, then it will be
able to effectively expand into India.
Strategy Implementation Plan:
Starbucks must contact Pantaloon Retail to form a partnership with this
company. In doing so, Starbucks will have its foot in the door in India. Pantaloon
Retail also operates several chains of retail stores, which Starbucks could set up
small outlets inside of, or in cooperation with. It is also likely that the experience
this partner has with the food industry (Food Bazaar) in India will be beneficial to
the initial Starbucks development team. It can only be assumed through the
company’s current fiscal situation and its projected sales that Pantaloon Retail has
high brand name recognition and a good reputation in its field, which is essential in
a partnership with Starbucks. Starbucks will be implementing a market expansion
strategy, focused around horizontal growth through differentiation.
Action Plan:
CEO, Howard Schultz, must contact CEO of Pantaloon Retail about forming a
partnership in India. This is the first step in forming a partnership with the
firm, so this action must be taken immediately. In three months, plans for the
installation of Starbucks outlets in Pantaloon Retail owned centers must be
underway. If partnership is agreed upon, nine months is the cut off date in
which one Starbucks outlet is to begin construction within a Pantaloon Retail

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store. As a precaution, Howard Schultz should remain in contact with
another possible partner, the K Raheja Group.
Operations managers should inquire with third party manufactures in India
about the local supply of raw materials, and focusing on acquiring locally
grown ingredients for spices and teas. This action must start immediately, at
least six months prior to the first opening of a Starbucks branch in Mumbai,
India. The CEO will be directly responsible for overseeing the timeliness and
effectiveness of this action. This is expected to lower variable costs due to
non-international shipping, with a contingency plan of shipping raw
materials from Starbucks’ prior roasting facility in Kent.
An international advertising team will be sent to Mumbai, India, two months
prior to the installation of the new Starbucks branch to ensure proper
advertisements are in place for the incoming store. This team will stay
abroad for one year until a localized advertising team can be trained in India.
The CMO will be responsible for overseeing the timeliness and effectiveness
of this team. This action is in an attempt to increase sales, but requires a high
rate of fixed costs in terms of advertising expenses and salaries. The
contingency plan for this action is to hire a local advertising consultant firm
located in India. This may drastically modify the general message of the
marketing mix of Starbucks in India, and may be more expensive, but may be
more effective in reaching the target audience due to cultural familiarity.
Evaluation and Control:

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Starbucks encountered several problems when expanding into China and Japan, as
seen below, which need to be avoided when expanding into India.
Japan:
Starbucks locations too close in proximity
Lacked enough food options for Japanese culture
No-smoking policy conflicts with Japanese societal habits
High rent, High cost of labor
Starbucks didn’t have a roasting facility in Japan
China:
Many opposed a Western coffee chain in China- traditionally a tea country
Dominance of instant coffee
Intense competition
These concerns will be assessed and adjusted if needed, every quarter, using the
balanced scorecard approach as follows:
Financial:
How are Starbucks sales figures progressing compared to the projected sales
for the year in India?
Are any locations of Starbucks gaining/losing profitability? Is this due to
close proximity to another Starbucks?
Is Starbucks in India keeping up with the growing market trends towards
coffee in India? If not, compare to competition and instant coffee
manufacturers.

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How does the contribution margin of Starbucks in India compare to other
international markets? Is there a higher fixed cost/variable cost rate that
needs to be allocated for and if need be, used to readjust pricing?
Customer:
Conduct in-store surveys bi-annually to get customer feedback and
suggestions. This will give insight into any problems like lack of variety in
food or problems with Starbucks policy like the no-smoking policy.
Conduct geographical surveys to see if any region is less likely to have
Starbucks consumers in it. This may be due to cultural opinions towards
Western business expansion.
Internal Business Perspective:
Examine weak points within the new Starbucks outlets in India on an
individual basis. Are there any outlets that do not reflect the differentiation
strategy used by Starbucks? How can this be adjusted?
Innovation and Learning:
Are sales and brand awareness increasing at a rate in India that would
warrant further expansion?
Are there opportunities that are not being taken advantage of?
After these evaluations are assessed, control can be implemented on an
organizational level. After every financial quarter, these factors must be recognized
and adjusted to maximize Starbucks’ market expansion growth strategy and ensure
a solid future for Starbucks in India.

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Appendix:
Table 1.)
External Factor Analysis Summary
Weighted
External Factors Weight Rating Comments
Score
Opportunities
There is a growing curiosity
Indian Interest in
0.08 3.1 0.25 and interest in Western
Western Brands
Brands in India
Coffee is popular in urban
Geographic Popularity
0.14 3.7 0.52 areas, where Starbucks
of Coffee
usually targets first
Immense, rapidly growing,
Indian Population 0.11 5.0 0.55 highly condensed, young
population
Well-defined in India and
Market for Product 0.11 3.2 0.35
growing
Threats
Increasing rate, and which
Obesity and Obesity
Starbucks is already a
Related Diseases in 0.09 3.4 0.31
critic of aiding the growth
India
of in other cultures
Beverage Habits in Coffee is a secondary drink
0.13 4.1 0.53
India next to tea
High in India, Starbucks
Barriers to Entry 0.07 2.7 0.19
must acquire joint ventures
Starbucks has strong
policies that often do not
Global Policy Conflicts 0.11 2.9 0.32 work in other areas (non-
smoking, lack of enough
food products)
Large competition already
Established
0.16 3.6 0.58 established in same market
Competition
in India
Total 1.00 3.59

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Table 2.)
Internal Factor Analysis Summary
Weighted
Internal Factors Weight Rating Comments
Score
Strengths
Strong Company Starbucks has a consistent
Mission, Vision, 0.13 5.0 0.65 global policy in terms of
Values how it operates
Brand Awareness 0.11 4.3 0.47 High globally
Starbucks has already
Experience
expanded into several
Expanding into 0.14 4.7 0.66
global markets including
Global Markets
China and Japan
Starbucks can afford to be
High Buying Power 0.09 3.4 0.31 specific about who it does
joint ventures with
Starbucks products are
High quality considered of higher quality
0.07 3.0 0.21
products than other big brand coffee
houses
Weaknesses
Starbucks currently has no
Zero Presence in presence in one of the
0.08 5.0 0.40
India biggest markets in the
world
Premium Priced Starbucks is recognized for
0.12 3.5 0.42
Products its high prices
Small Product Starbucks offers few things
0.17 2.9 0.49
Breadth of interests besides coffee
Large, has hindered the
Corporate
0.09 4.2 0.38 expansion into India for
Structure
several years already
Total 1.00 3.99

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Table 3.)
Strategic Factor Analysis
Summary
Strategic Weighted
Weight Rating Short Intermediate Long Comments
Factors Score
Starbucks has
Experience
already expanded
Expanding
0.13 4.7 0.61 X into several global
into Global
markets including
Markets
China and Japan
Strong
Starbucks has a
Company
consistent global
Mission, 0.13 5.0 0.65 X
policy in terms of
Vision,
how it operates
Values
Small Starbucks offers few
Product 0.12 2.9 0.35 X things of interests
Breadth besides coffee
Premium Starbucks is
Priced 0.08 3.5 0.28 X recognized for its
Products high prices
Immense, rapidly
Indian growing, highly
0.14 5.0 0.70 X
Population condensed, young
population
Coffee is popular in
Geographic
urban areas, where
Popularity of 0.11 3.7 0.41 X
Starbucks usually
Coffee
targets first
Large competition
Established already established
0.17 3.6 0.61 X
Competition in same market in
India
Beverage Coffee is a
Habits in 0.12 4.1 0.49 X secondary drink
India next to tea
Total 1.00 4.1

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Table 4.)
TOWS Matrix Internal
Strengths- Experience
Weaknesses- Small Product
Expanding into Global
Breadth, Premium Priced
Markets, Strong Company
Products
Vision, Mission, Values
1.) Examine past successful 1.) Increase product breadth
global expansions in by adding more varieties of
Starbucks' history (China, coffee beverages, snacks, etc.
Japan) and imitate the This is more likely to appeal to
methods used there and the a broader range of the
lessons learned in these population, and will make it
countries. India is a country easier for Starbucks to
similar to China in population penetrate into the Indian
size and to Japan in market.
Opportunities- population density, so these 2.) Adjust prices of products
Indian two experiences should be based on geographic location.
Population, imitated in order to grow in Areas of high-traffic like the
Geographic India's population. urban areas, which are
Popularity of 2.) Advertise Starbucks' interested in companies like
Coffee vision, mission, and values Starbucks, can pay marginally
heavily in urban areas of less for products than rural
India. This will help to reach communities. This will
the dense population that encourage the majority of
Starbucks is trying to market users to perceive Starbucks as
to and will also build brand a lower priced company while
awareness in India alongside allowing rural areas to still see
External
a friendly rapport. this as an exclusive brand,
which should warrant their
business.
1.) Use Starbucks' 1.) Set a price penetration
experience expanding into strategy when first expanding
global markets to analyze the into India. It has been stated
competition and find any that Starbucks will adjust its
faults with their expansion prices for India, but they
methods. This strategy is should be lower than the
focused on capitalizing on competitors in order to gain
the successful aspects of immediate customers. Coffee is
Threats- expansion that the less a instinct purchase, which
Established experienced companies may means the price is elastic.
Competition, be missing. People will be willing to buy
Beverage 2.) Starbucks is dedicated to Starbucks coffee over the
Habits in serving the highest quality competitions' if the premium
India products to its customers, so prices are reduced.
acquire the best Indian 2.) Increase product breadth to
ingredients for local Indian include different types of tea
tea for use in Indian and cold tea beverages. These
Starbucks. This reflects the beverages may not work in
company's vision and other markets, but India is
satisfies the population's concerned with tea, so
need for tea along with Starbucks should meet that
coffee. need.

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