Starbucks - Problems Analysis and Strategic Alternatives - Case Study Example

Table of contents

Executive summary3

Situational analysis3

Firm analysis3

Environmental analysis4

Industry analysis4

Industry attractiveness5

Problems analysis5

Primary problems5

Secondary problems6

Strategic alternatives6

International strategy6

Localization strategy6

Postponing entry7

Selection of strategic alternative7

Statement7

Justification7

Description of implementation7

Conclusion and recommendations8

Recommendations8

Rationale8

Write-up8

Executive summary

Asian market holds many benefits for Starbucks and the latter has partially entered it, opening its stores in Japan and China. However, there has not been representation in India yet. The entry was postponed several times. At the present moment the country in question experiences economic revival, but the coffee industry in its emerging state.

Several strategic alternatives exist for Starbucks in this case: enter the market, bringing the world-known quality and experience, tailor the product of the company to the Indian reality, and wait until the industry moves onto the next stage. The last one is the best option since it allows Starbucks to capture leadership instead of creating the industry from the very beginning.

Situation analysis

Firm analysis

The contemporary companies pay a considerable amount of attention to the mission of their business (Gaspar, 2016). That is why it may be important to examine Starbucks mission first. It is suggested that the company is dedicated to creating an experience that will make people perceive coffee shops as the third place, other than home or work. The goal of Starbucks is to spread the appreciation of coffee culture all over the world. The main product lines that the company offers include hot coffee beverages made of whole beans served in various sizes, and cold coffee beverages, with Frappuccino being the best-selling one. The business model of the company is quite simple: it owns all the stores, rejecting franchising as such; it cooperates with a handful of selected suppliers; opens numerous stores to stimulate demand, and relies on word of mouth as its major promotional tool. The core and distinctive competency of Starbucks are the quality of its coffee and the unique experience that a person gains in the coffee shop.

Environmental analysis

The economy of India is currently improving with GDP showing growth every year. In addition to that, the middle class has grown almost in half throughout the decade and is likely to double in the next five years. This is important since, as Polyakov (2009) notes, the middle class is the most active economic class in the society. In addition to that, there was a series of reforms that positively influenced the market. Thus, foreign invested was allowed, the tariffs were reduced, and the governmental policies adjusted. Speaking of the competition, one should note that India features a handful of home-grown brands that operate independently in various parts of the country; there is a small number of foreign brands, like Costa Coffee, but their market share is insignificant. India is the second most populous country in the world and the percentage of people, aged 15-59 is likely to grow in the future years. Moreover, this category features the highest rates of consumption of coffee. In addition to that, there is a growing trend of experimenting with coffee as a fashion statement.

Industry analysis

The coffee industry used to stagnate in India, but now it is gradually growing. Companies are expected to satisfy the taste of the consumers to be successful and Starbucks has every opportunity to do so. Rao, Rao & Sivaramakrishna (2008) identify several stages of industry lifecycle. According to this framework, the coffee industry in India is at the emerging stage as there are few players and low demand. In addition to that, it must be noted that it is multi-domestic as coffee companies that operate in different parts of the country differ much and this is conditioned by the patterns of consumption. This leads to the fact that the industry is fragmented and there are no strong ties between the regions as each strong player prefers to operate in its niche and there is no consolidation whatsoever.

Industry attractiveness

The analysis which engaged Porter's Five Force is largely considered to be one of the most effective (Ahlstrom & Bruton, 2010). Thus, the power of suppliers is medium, the power of buyers is low, the threat of entry is high, the threat of substitution is extremely high, and rivalry is high. The fact that the threat of substitution is the highest can be explained in several ways. First of all, it must be noted that India is a country where tea is traditionally consumed in large quantities. Secondly, the statistic shows that milk is the second most popular beverage and coffee is only the third. Speaking of competitive rivalry, one should note that there are several players to be taken into account. Thus, Café Coffee Day is one of the largest and most diverse. Qwiky's is less diverse and more targeted at the youth. Barista, in its turn, features a lot of elements of Starbucks business model, including the idea of "home away from home". The obvious strengths of Starbucks, though, is its distinct image and recognition. However, the major strength is the focus on the beverage that is not traditionally popular in India. The major opportunity is produced by the growing interest towards Western brands and coffee; nevertheless, the threat lies in the competition from local brands and passiveness of consumers. Overall, the strategic position is positive.

Problems analysis

Primary problems

The primary problems include the obvious clash with the tea culture and the difficulties in the pricing strategy. Thus, the number of coffee gourmets is extraordinarily small and the traditional prices of Starbucks may not be competitive in India, even if they are adjusted to the local realities.

Secondary problems

India features a wide spread of obesity and heart diseases. The problem here lies in that coffee will have a positive impact on people with the above-mentioned health conditions. Moreover, Starbucks has already been the target of criticism from various health groups and compliance with their demands might require several changes, for example putting the nutritional value on the menu instead of the website.

Strategic alternatives

International strategy

The obvious advantage of this approach lies in the fact that Starbucks will be able to retain its distinct brand and coffee shop experience. Moreover, it will not require making many changes to the existing plans concerning the expansion. However, despite the interest towards Western brands, lack of localization might detour the target audience. Moreover, failure in India might cast a shadow on the entire company, resulting in significant damages to the reputation.

Localization strategy

The positive side of this strategy is the ability to align the business processes with the demand of the consumers. In other words, it will allow Starbucks to design the marketing mix in the best way possible, making sure that every element of it is conditioned by the local reality. On the other hand, by doing so, the company risks diluting the brand. Keeping in mind the important of integrity and corporate culture for Starbucks, this might be a significant challenge.

Postponing entry

The advantage of refraining from entering the Indian market now lies in the fact that this strategic move will not jeopardize the success that the company is facing right now. In other words, it has penetrated the Asian market relatively successfully and addition yet another country will not do much. On the other hand, the longer Starbucks waits, the higher are the chances that it will lose the suitable moment when the industry moves from the first to the second stage in its development.

Selection of strategic alternative

Statement

The best option for Starbucks at the present moment would be to refrain from entering the Indian market. Indeed, the company has expressed its desire and postponed the entry several times; so, this action will not be seen as something extraordinary.

Justification

Starbucks is the leader of the market in many countries. It usually enters the mature market and gradually dominates it. The situation in India is completely different: the market as such as not present. Therefore, it would be logical to wait until it is fully formed and take over it instead of building it from the scratch.

Description of implementation

It will be highly beneficial for Starbucks to focus on the Japanese and the Chinese market for the time being since when they become successful, the news about them will spread to India and will encourage the people to buy more coffee. This will contribute to the growth of the market and when it reaches the critical mass, Starbucks will enter and head the competition.

Conclusion and Recommendations

Recommendations

As of now, entering the Indian market will not be beneficial for Starbucks; that is why the latter should refrain from doing so. However, the presence in other Asian markets should be improved as this will positively influence further expansion plans.

Rationale

The evidence shows that Starbucks was able to become the leader of markets that are mature, not emerging. That is why it would not be rational to enter India since instead of dominating, the company will be creating the market.

Write-up

It is obvious that the further penetration of the Indian market is postponed, the higher is the chance that Starbuck will face severe competition. However, this risk is insignificant if compared to the risk of entering the immature market and damaging the brand through failure in a certain country.