Coffee Wars in India - Cafe Coffee Day Takes on the Global Brands by Yoffie and Bijlani - Article Example

Analysis & Evaluation of “Coffee Wars in India: Café Coffee Day Takes on the Global Brands” by Yoffie and Bijlani (2014) Introduction This essay is an analysis of the case titled ‘Coffee Wars in India: Café Coffee Day Takes on the Global Brands’ by Yoffie and Bijlani (2014). The case is a about Café Coffee Day (CCD), a successful coffee retail chain in India that is faced with the threat of competition from another well established and global brand, Starbucks. The analysis is focused on answering two questions based on the article by Yoffie and Bijlani (2014). The first question is about CCD’s most important competitive advantages and challenges. Answering this question will involve evaluating CCD’s critical competitive advantages and challenges based on the case study. The second question is about how CCD’s executives should respond to the challenge that is posed by the entry of Starbucks in India. In answering this question, recommendations will also be provided on the type of corporate social responsibility (CSR) that CCD should undertake. CCD’s most important competitive advantages and challenges CCD’s competitive advantages Competitive advantage can be described as a distinctive position that an organisation develops in comparison to its competitors (Hyvonen & Kola 1998, p. 262). Competitive advantage is however a relative term and its meaning varies depending on the environment that surrounds each firm (Bredrup 1995, p. 43). For instance, according to Porter (1985, cited by Bredrup 1995, p. 43), competitive advantage arises out of the value that an organisation is capable of creating for its customers that go beyond the organisation’s cost of creating the value. It is also indicated that value is what consumers are willing to pay, and better value emanates from providing lower prices in comparison to what competitors are offering for similar benefits or offering distinctive advantages that more than compensate for a higher price (Porter 1985, cited by Bredrup 1995, p. 43). Porter’s definition of competitive advantage focuses mainly on aspects such as customers and the difference between the value that is offered by two firms as well as product differentiation and cost leadership (Bredrup 1995, p. 43). However, there are other elements that characterise competitive advantage. These features include the niche in which the firm is operating (Gitman & McDaniel 2008, p. 377). Therefore, according to Gitman and McDaniel (2008, p. 377), there are three types of competitive advantage: product or service differentiation, cost differentiation, and niche. Looking at CCD and its operations, the competitive advantages of the company can be identified in regard to how it differentiates its product pricing, how it differentiates its product and service offering, and the niche in which the company operates. In regard to cost differentiation, CCD has a competitive advantage because it is able to offer low prices for its various products. This is connected to the fact that CCD produces its own coffee and is therefore able to offer the lowest price for its coffee varieties because of the low cost of the raw materials. The company also manufactured its own coffee-vending machines as well as furniture and bought equipment such as ovens, air conditioners, and pastry coolers locally instead of importing them. As noted by Yoffie and Bijlani (2014, p. 6), CCD’s goal is “to source at prices at least 20 percent lower than our competitors”. Combined with the sourcing of coffee from its own farms, this meant that the company was able to significantly reduce operating costs, which enabled it to offer the lowest possible price for its different products. This is reflected in the fact that there is a significant gap in pricing between CCD and most of its competitors as noted by Yoffie and Bijlani (2014, p. 5). All the elements of CCD’s cost strategy and thus cost advantage can be related to a point from Lamb, Hair and McDaniel (2009, p. 39). According to these authors, cost leadership can be attained by obtaining less costly raw materials, designing products that make manufacturing easy, developing an efficient scale of plant operations, reducing overhead costs, and avoiding marginal customers. It can be said that CCD has attained cost leadership by not only reducing operational and raw material costs but also focusing on its main customers – the young population. With regard to product or service differentiation, CCD has a competitive advantage because of the manner in which it packages its product offering. According to Lamb, Hair and McDaniel (2009, p. 40), service or product differentiation competitive advantage is said to exist when a company offers something that is distinct and valuable to consumers beyond merely offering low prices. The uniqueness of a product or service may be related to the features of the product, such as reliability or quality, or it may be embedded in the product’s appeal to buyers (Hill & Jones 2012, pp. 119-120). The uniqueness of CCD’s product and service offering is seen in terms of product offerings such as classic coffees, cold and iced coffee drinks were liked by young customers and teenagers in particular, as well as a wide range of food items such as burgers, sandwiches, ice creams, samosas and tika. CCD also had distinctive products and services being offered at its cafés, Lounges and Squares, which had different levels of specialisation in terms of the products and services offered. With regard to niche competitive advantage, it can be said that CCD has an advantage with its focus on the young people through cafés. Niche competitive advantage or a focus advantage refers to targeting and effectively serving a single segment of the market (Lamb et al. 2012, p. 29). Although CCD focuses on various market segments through its cafés, Lounges and Squares, its main focus is cafés. The company also has the advantage of having been a pioneer in the development of the café culture in India (Yoffie & Bijlani, 2014, p. 1). This popularity in the café segment of the market makes CCD a natural leader in India, even with the entry of established competitors such as Starbucks. CCD’s challenges The challenges that CCD faces are as follows. First is the high price of rent in India (Yoffie & Bijlani, 2014, p. 7). With the growth of the retail industry in the country, it has become more and more difficult to get cheap properties to rent. High rental prices have an impact of reducing the company’s profitability. Secondly, attracting and retaining talent has become more difficult for companies like CCD as job opportunities increase in India (Yoffie & Bijlani, 2014, p. 7). This makes it costly not only to attract people but also maintain those who are selected, since they are likely to be lured by other companies that offer better salaries. CCD also finds it difficult to keep consumers engaged. The café market, which is CCD’s mainstay, is highly dynamic and requires the company to constantly update its product offering (Yoffie & Bijlani, 2014, p. 7) – which obviously comes at a cost. Another challenge that CCD faces is with regard to its levels of service (Yoffie & Bijlani, 2014, p. 13). With increasing competition in terms of customer service from rivals such as Starbucks, CCD needs to improve its service levels in order to remain competitive. Last but not least, CCD has the challenge of keeping its stores busy all through the day. This is because most cafés start getting a significant number of customers at 11 am (Yoffie & Bijlani, 2014, p. 8). This means that the café is likely to lie idle during some hours of the day – which has cost implications in terms of labour. How CCD’s executives should best respond to the challenge of Starbucks in India The best approach that Siddhartha and Madhav should take to respond to the challenge of Starbucks in India is to develop a sustainable competitive advantage. A sustainable competitive advantage is an advantage that competitors to a given organisation (in this case CCD) cannot easily copy (Lamb et al. 2012, p. 29). What this means is that CCD needs to have an advantage, sustain it and ensure that competitors such as Starbucks cannot easily copy that advantage. As summed up by Rogers (2009, p. 2), having a sustainable competitive advantage means having something that is unique, superior to competitors, applicable in many aspects of businesses, and difficult to imitate. Therefore, in order for a firm to be said to be having a sustainable competitive advantage, the firm has to develop a position that is unique in some way relative to its competitors (Lamb et al. 2012, p. 29). Such a firm does not have to imitate its competitors, since imitating others points to a deficit of competitive advantage and almost guarantees second-rate performance (Lamb, Hair & McDaniel 2009, p. 39). The sources of competitive advantages for tomorrow (which CCD needs) are the assets and skills that an organisation has. Assets take into account things like location, equipment, copyrights, patents, and technology that are superior compared to those of competitors. Skills refer to functions like customer service and promotions that a firm executes in a better way than its rivals (Lamb et al. 2012, p. 29). According to the article by Yoffie and Bijlani (2014), CCD has two options to deal with the challenge posed by Starbucks. First is to take a ‘slight course correction’ by improving both the scope and quality of its product offering, upgrading interiors, and improving service quality through better training. Second is to make a bigger and daring response by converting many of the company’s cafés into Lounges and Squares so as to offer a more premium product, building more Lounges and Squares, upgrading more stores per year, and spending more in advertising. The first option of taking ‘slight course correction’ seems more plausible. This is because by taking this approach, the company will be able to improve its product and service delivery but still maintain its identity and image as an authentic Indian brand. In particular, since CCD’s main source of competitive advantage has been targeting young people through its cafés, it should continue with this approach. The alternative, which is to be more aggressive and to develop more Lounges and Squares, would be appear to be copying Starbucks’s premium product offering. Therefore, CCD should focus on a strategy that capitalises on its strengths and cements its position as a leader in the café market segment. For instance, to build a sustainable competitive advantage, CCD should make use of its assets such as location, equipment, and established value chain technology to improve and maintain its grasp on the young population segment of the Indian market. It was noted that this segment prefers CCD stores because of affordability, and thus the company needs to maintain its hold on the segment. Since Starbucks markets itself as a premium brand, it will not be easy for it to copy CCD’s long-established low cost strategy. As well, CCD should improve its service quality by improving the manner in which it produces and delivers various products and services, how it manages its employees, and how it develops strong brand reputation and identity (Roberts 2001, p. 121). This should involve activities such as training employees to improve their skills, being more responsive to the needs of employees, and enhancing the responsiveness of service and consistency of service to attract and maintain more customers. In future, CCD should also engage in a CSR practice that helps it build a sustainable competitive advantage. This is because CSR is regarded a driver of competitive advantage and sustainable competitive advantage (Keinert, 2008, p. 89; Thiel 2016, p. 47). One example of a CSR initiative that CCD can undertake is the reuse of waste materials. For instance, the since company mills its own coffee, it can use the resultant organic waste products to produce biogas, which it can then use for boiling water that is used in the preparation of coffee drinks. Some of the biogas can also be supplied to neighbouring communities to be used for heating. The reuse of materials is not only beneficial to the company in terms of cost savings, but is also useful to the community and the environment since it would help avoid the hazards that result from the accumulation of organic waste in landfills. Moreover, the distribution of biogas to neighbouring communities will provide economic and social benefits to the people. The benefit of such an initiative is that it covers the three areas that are critical to CSR: social performance, economic performance and environmental performance (Said et al. 2008, p. 106). More importantly, the strategy is aligned with the needs of different stakeholders of the company, which is critical for the success of any CSR strategy (Coombs & Holladay 2012). Conclusion CCD has competitive advantages in terms of how it differentiates its product/service pricing, how it differentiates its products and services, and the niche in which the company operates. These advantages can be used to deal with the company’s challenges. To deal with challenge posed by Starbucks, CCD needs to build a sustainable competitive advantage by making use of its existing skills and assets to differentiate itself from the competition. For CSR, CCD needs to adopt an initiative that addresses the needs of the company, the community and environmental objectives, such as reusing waste materials. References Bredrup, H 1995, ‘Competitiveness and competitive advantage’ in A Rolstadås (ed), Performance management: a business process benchmarking approach, Chapman & Hall, London, pp. 43-60. Coombs, WT & Holladay, SJ 2012, Managing corporate social responsibility: a communication approach, Wiley-Blackwell & Sons Ltd, West Sussex. Gitman, LJ & McDaniel, C 2008, The future of business: the essentials, 3rd edn, Thomson Higher Education, Mason, OH. Hill, CWL & Jones, GR 2012, Essentials of strategic management, 3rd edn, South-Western, Mason, OH. Hyvonen, S & Kola, J 1998, ‘New policies, new opportunities, new threats: the Finnish food industry in the EU’, in WB Traill & E Pitt (eds), Competitiveness food industry, Thomson Science, London, pp. 253-285. Keinert, C 2008, Corporate social responsibility as an international strategy, Physica-Verlag, Heidelberg. Lamb, CW, Hair, JF & McDaniel, C 2009, Essentials of marketing, 6th edn, South-Western Cengage Learning, Mason, OH. Lamb, CW, Hair, JF, McDaniel, C, Faria, AJ & Wellington, WJ 2012, Marketing, 5th Canadian edition, Nelson Education Ltd, Scarborough. Roberts, C 2001, ‘Competitive advantages of service quality in hospitality, tourism, and leisure services’, in J Kadampully, C Mok & B Sparks (eds), Service quality management in hospitality, tourism, and leisure, The Haworth Hospitality Press, New York, pp. 111-121. Rogers, SC 2009, The supply-based advantage: how to link suppliers to your organization's corporate strategy, American Management Association, New York. Said, R, Haron, H, Zainuddin, YH, & Nasir, D 2008, ‘Corporate governance and corporate social responsibility of public listed companies in Malaysia’, in G Aras, & D Crowther (eds), Culture and corporate governance, Social Responsibility Research Network, Leicester, pp. 90-123. Thiel, M 2016, The social domain in CSR and sustainability: a critical study of social responsibility among governments, local communities and corporations, Routledge, Oxon. Yoffie, DB & Bijlani, T 2014, ‘Coffee wars in India: Café Coffee Day takes on the global brands’, Harvard Business School case study, Harvard Business School Publishing, Boston, MA. Read More