starbucks tata case study

Tata Starbucks Joint Venture Case Study

Factors that enabled the company to deliver strong performance in the past, important issues confronting the company, actions addressing tata starbucks’ issues.

In 2012, American company Starbucks and Indian Tata Global Beverages began their joint venture in the Indian coffee market. The companies’ alliance was successful, and Tata Starbucks became a profitable business by 2019. However, the company is still far from being financially stable in the Indian market and is exploring further improvement opportunities. This paper analyzes aspects that led to the company’s past success and its actions and external factors that caused challenges. It examines issues from the CEO’s perspective and suggests how Tata Starbucks could improve in the future.

Starbucks is a globally famous company with an exceptional reputation. It is a responsible employer providing its workers with healthcare coverage and other benefits. Apart from excellent working conditions, Starbucks is recognized for hiring refugees and buying ethically-produced coffee beans only. Therefore, the company’s name and reputation are one of the primary reasons for its success in India as people recognize Starbucks’ achievements, bringing loyal customers worldwide. Another reason for the company’s strong performance is its choice of the international expansion strategy. The company chose a multi-domestic strategy characterized by “customizing products and marketing strategies to specific national conditions” (Jones & George, 2022, p. 233). Tata Starbucks customized its menu to local demands and culture. Indian population prefers drinking tea over coffee, so the company introduced “18 diverse varieties of tea to serve the Indian market” (Dess et al., 2021, p. 114). They also found that their prices are above the local average coffee prices, and citizens are not willing to pay more. Therefore, the company focused on serving clients with above-average income, selecting locations in premium places visited by tourists and wealthy, westernized part of the population.

However, Tata Starbucks faces external challenges due to high competition and the consequences of its wrong internal actions. Indians are a tea-drinking nation as “for every cup of coffee, an Indian drinks 30 cups of tea” (Dess et al., 2021, p.120). Local tea is also cheaper than Starbucks coffee and citizens are much more willing to buy tea, preventing Starbucks coffee from bringing expected revenues. The company overlooked or did not consider local preferences before coming to the region and is currently facing a challenge due to this internal action. Meanwhile, the main external threats are such competitors as Chai point or MacDonalds. Both places offer beverages for a lesser price than Tata Starbucks and have the relatively same quality, which is more appealing to the customers.

As a company CEO, I would suggest improving advertising and opening more branches in places popular among travelers and the wealthier part of the population. Currently, Tata Starbucks target middle-aged citizens, so they could invest in advertising their coffee to teenagers and young adults by using popular platforms like TikTok or Instagram. Advertising beverages to the younger population would attract more customers and allow the company to expand. However, there is a risk that younger people will not be able to afford Starbucks coffee, and money spent on advertising is wasted. Opening more outlets in premium places would allow the company to get more clients from its target audience. Tata Starbucks can open new branches in airports as many tourists and wealthy citizens visit it. The company has already announced its plan to open 40-50 more outlets (Roy & Kalra, 2021). The potential risk of this action is that the company overestimates the need for new branches, and some do not attract enough customers.

Tata Starbucks is a promising company that can continue its expansion in the future. The company was successful due to its brand name, premium locations, and Indian-specific strategy. The company is facing challenges associated with high competition and local preferences. However, these issues can be addressed by improved advertising and opening more outlets. Tata Starbucks has much potential and can succeed in the Indian market in the following years.

Dess, G. G., McNamara, G., Eisner, A. B., Lee, S.-H., & Sauerwald, S. (2021). Strategic management: Text & Cases (10th ed.). McGraw-Hill Education.

Jones, G. R., & George, J. M. (2022). Contemporary Management (12th ed.). McGraw-Hill Education.

Roy, A., & Kalra, A. (2021). Starbucks Eyes Faster India expansion with new store formats . Web.

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The Starbucks Joint Venture in India: Making Expansion in India as Successful as It Was in China

• By: Adam Kramer , Lauren Chell , Brian Vargo , Kristy Fletcher Williams , Sharon Wilson & Amanda Bullough
• Publisher: SAGE Publications: SAGE Business Cases Originals
• Series: Global Marketing
• Publication year: 2020
• Online pub date: June 24, 2020
• Discipline: International Business & Management (general) , Cross-Cultural Leadership , International Strategic Management
• DOI: https:// doi. org/10.4135/9781529740721
• Contains: Supplementary Resources | Teaching Notes | Video Length: 2,582 words Region: Eastern Asia , Northern America , Southern Asia Country: China , India , United States of America Industry: Food and beverage service activities Type: Indirect case info Organization: Starbucks | Tata Global Beverages Organization Size: Large info Online ISBN: 9781529740721 Copyright: © Adam Kramer, Lauren Chell, Brian Vargo, Kristy Fletcher Williams, Sharon Wilson, and Amanda Bullough 2020 More information Less information

Teaching Notes

This case study examines Starbucks’ expansion into India and the new Tata-Starbucks joint venture. Because of its success in China, Starbucks leadership was excited about expansion in India. However, the company has struggled to get a foothold and quickly become profitable in India. In this case, students are first put in the position of a Starbucks executive in India. To provide helpful context, students are then provided with background information about the Starbucks expansion into China and India and then presented with the particular challenges that the leaders at Starbucks faced in India. Students are asked to consider the leadership decisions that must be made and come up with some appropriate next steps.

Learning Outcomes

By the end of this case study, student should be able to:

• evaluate an example of global expansion and the strategy chosen to implement the expansion, and compare this example to other strategies used previously;
• understand the challenges of global product and retail store expansion;
• appreciate the leadership challenges that arise from expansion into a new market and the difficulty involved in deciding the appropriate next steps.

The Leadership Challenge

James Fansdale just concluded a teleconference with the Starbucks executive team in the United States. James was feeling disheartened and pessimistic. As the country executive for Starbucks India, he took the majority of the blame for another year of disappointing performance. Four years ago, when James began in this position, he and his colleagues were extremely confident that India would be a top five global market for Starbucks. The Chinese developing country economy and population were used as somewhat of a prototype for Starbucks’ success in other international markets. The initial plan was to replicate the joint venture strategy used in China. By coupling a joint venture with a profitable product line, Starbucks India was bound for immediate success, or so they envisioned. This optimistic vision is now looking improbable, though James and his team still have a glimmer of hope. They were asked to present a recommended strategy for Starbucks India to executives in the coming weeks. But first, James and his team must revisit the path that got them to this point

Starbucks Expansion Into China and India

Starbucks was founded in 1971 and currently employs 254,000 people. They are known for being a premium roaster, marketer, and retailer of specialty coffee around the world. Starbucks currently has headquarters in Seattle, Washington, United States, and now operates in 75 countries. In 2017, its revenues were USD 22.4 billion, a 5% increase on its 2016 revenues of USD 21.3 billion. A large part of this increase is due to the addition of 1.4 million active rewards members, bringing the total to 14.2 million—an 11% increase. In 2018, revenues are expected to climb to USD 24 billion (Jurevicius, 2018).

As competition from high- and low-end rivals intensifies, there has been decreased foot traffic in larger U.S. chains, which should cause the large chain to be cautious about opening too many stores (Franck, 2017). As a result, Starbucks may be reaching saturation point in the United States, to the point where future growth in the company lies in its growing international presence.

Starbucks’ expansion into China has been the fastest growing market outside the United States. Company leadership has deemed this a tremendous success and used the same model to expand into other emerging markets (Ramakrishnan, 2017). Starbucks owns an estimated 1,300 stores in Shanghai, Jiangsu, and Zhejiang provinces, and is projected to nearly quadruple to 5,000 stores by 2021 (Ramakrishnan, 2017). Starbucks was able to leverage success in China to charge a 20% premium in those stores compared to the rest of the world (Whitten, 2018). Much of the favorable consumer perception of the brand and acceptance of the price premium in China is due to an interest among Chinese consumers in Western goods, services, cultural icons, and status symbols (DeVault, 2018).

Given the success in China, India was naturally a good expansion opportunity to explore in Asia by Starbucks. Starbucks entered the India market through a partnership with Tata Global Beverages in 2012. The two companies formed a 50:50 joint venture known as Tata Starbucks Private Limited (TSPL). The focus of this joint venture originally was to expand retail café distribution across India and source Indian-grown coffee (Associated Press, 2012).

Starbucks experienced its slowest sales growth and a net loss of USD 4.9 million in India during 2017 (Malviya, 2017). Despite this, Starbucks is confident that India will be a top five global market (The Basis Point, 2018). Because of the economic and population similarities between China and India, Starbucks believes its China joint venture strategy will successfully translate to the Indian market. To turn these optimistic viewpoints into reality, there must be a shift in strategy for Starbucks to become profitable in India.

Starbucks Problems in India

There are some Indian market characteristics that are making it difficult for Starbucks to be as successful as they wish to be. For one, Starbucks is currently very expensive in the price-sensitive Indian market (Jain, 2014). As a result, coffee and cafés in general are an urban, middle-class niche. When coupling this with costly retail space, it is hard to become profitable (Singh, 2017).

Tea and Coffee

Traditionally India is a tea-drinking culture, and while the number of coffee drinkers is increasing, coffee drinkers are still vastly outnumbered by tea drinkers. In the past 10 years, per capita consumption of coffee in India has increased 40%. Per capita, Indians still drink more than eight times as much tea as coffee. Although the consumption of coffee is increasing, the more common cultural custom for citizens is to start their day with tea, like that of their ancestors (Ahuja, 2016). In 2017, Tata Starbucks introduced 18 different varieties of tea across its outlets in India through the Starbucks new tea brand, Teavana, including the India Spice Majesty Blend, which was specifically developed for the Indian market (Tata Global Beverages, 2017).

Channel Opportunities

The preferred method of purchasing and consuming hot beverages in the Indian market is either at home or in a café (Jain, 2014). While quick-service restaurants in India are not as traditional or preferred, they are expected to grow at a compound annual growth rate (CAGR) of 22% between 2016 and 2021 (Singh, 2017). Essentially, this means that the quick-service industry will have an average rate of growth of 22% during the five-year period mentioned. Other opportunities, by way of the joint-venture partnership with Tata, would be to look at market distribution as well as different packaging options to fulfill the spectrum of price points.

Competition

Starbucks did not have first mover advantage in the Indian market (Aiyer, 2014). Cafe Coffee Day (CCD) and Barista Lavazza are big players in the middle-class market. In the premium space, Starbucks competes with Costa Coffee as well as with Coffee Bean and Tea Leaf (CBTL). In a 2017 study of the top 10 coffee brands in India, Starbucks was ranked as number six. Nescafe (#1) and Bru (#2) topped the list, mainly due to their instant coffee offerings (Dhiman, 2018) (see Figure 1 ). In addition to these competitive brands, Tata also owns several other coffee and tea brands including Eight O’Clock Coffee. Although Tata owns the bulk of the market share for tea and coffee brands in India, there is a conflict of interest by entering a joint venture with Starbucks. The Starbucks brand in India is now faced with competing against their own joint venture partner.

The text on the top of the image reads:

“Tata Focus on Starbucks

Starbucks not a priority for Tata?”

On the text’s right is a logo of TATA, which is followed by a logo of Starbucks. Below the text is a pie chart labeled “Tata Global Beverages Brand – 2017.” Data shown by the pie chart are as follows:

• Indian Tea Brands (45%)
• Tetley Tea (29%)
• 8 O’Clock Coffee (14%)
• Others (12%)

On right of the pie chart is a list titled “Top Coffee Brands in India.” Data shown by the list are as follows:

• 3. Tata Coffee
• 5. Cafe Coffee Day
• 6. Starbucks Coffee
• 7. Blue Tokai
• 8. Barista Coffee
• 9. Narasu’s Coffee
• 10. Indian Coffee House

Figure 1. Top Coffee Brands in India

Source : http://www.tataglobalbeverages.com/docs/default-source/default-document-library/analyst-ppt-roadshow_final---september-2017-v2.pdf?sfvrsn=0 and https://scoophub.in/top-8-best-coffee-brands-in-india/

To combat similar challenges in the Chinese market, Starbucks performed diligent market research. This enabled a deeper understanding of the Chinese markets. Starbucks employed a strategy to address dominant Chinese markets and was designed to be as respectful to the Chinese culture as possible. Instead of taking the conventional approach to advertising and promotions, which may have been seen by potential Chinese consumers as attacking their culture of drinking tea, they positioned stores in high-traffic and high-visibility locations. Furthermore, Starbucks deliberately began to bridge the gap between the tea-drinking and coffee-drinking cultures by introducing beverages in Chinese stores that included local tea-based ingredients (DeVault, 2018).

Store Format

Many of Starbucks’ competitors diversify the format of their stores based on location. Also, competitors have begun installing kiosk and vending machine technology. In contrast, Starbucks has decided to maintain its same store format approach regardless of location, in order to give customers the comfort of receiving the same ‘Starbucks’ ambience wherever they are in the world, creating customer pull, and creating economies of scale with its suppliers (Aiyer, 2014). However, this approach may pose challenges in the wave of Indian consumers who are looking for product innovation (Singh, 2017).

Tata Starbucks has created the STRIVE program, which combines job skills training and Starbucks expertise in retail operations. Over the next five years, Tata Starbucks has committed to training 3,000 young people who are lacking sufficient labor skills and facing barriers to employment. Tata Starbucks therefore plans to focus particular attention on women, by boosting the proportion of women in its workforce to 40% by 2022, up from 25% today (BW Online Bureau, 2017).

Since Tata Starbucks launched in 2014, it has been difficult for them to turn a profit. Much of this is due to the heavy up-front cost of expensive store fronts (Singh, 2017). In 2017 there were revenues of INR 2.72 billion and expenses of more than INR 3.04 billion (Malviya, 2017). In US dollars, this equates to USD 42 million in revenue, but a USD 5 million net loss. In looking at the projected financials, it is not until 2020 when Tata Starbucks will start to see a net profit—Starbucks projects INR 4.82 billion in revenue and INR 4.66 billion in expenses, which equates to USD 2.5 million of profit (see Figure 2 ). It is important to note that with all of the success in China with Starbucks’ expansion there, they too did not see net profits for many years after the launch (DeVault, 2018).

In the graph, the x-axis is scaled from 2014 to 2020 with an interval of 1 year and y-axis is scaled from 0 to 500 with an interval of 100 units and labeled as “INR (in billions).” Data shown on the graph are tabulated as follows:

A dialog box on the 2017 bar reads “FY 2017; Revenue: USD 42 MM; Net Loss: (USD 5 MM).” Another dialog box on the 2017 bar also reads: “FY 2017; Revenue: $42 MM USD; Net Loss: $5 MM USD.” A dialog box on the 2020 bar reads “2020 Projected; Revenue: USD 74 MM; Net Profit: USD 2.5 MM.”

Figure 2. Starbucks Profitability in India

Source : Malviya (2017): https://economictimes.indiatimes.com/industry/cons-products/food/starbucks-posts-slowest-sales-growth-in-india-in-last-fiscal/articleshow/60916606.cms

Video 1. Author Lauren Chell on Key Takeaways

Download transcript

What should James Fansdale do now? Starbucks believes there is opportunity in the Indian market and they invested heavily in this opportunity. Despite this opportunity, Starbucks has not been successful in its venture thus far. Consider the following three options available to James Fansdale:

• 1. Should James and his team devise a new, more open-minded strategy to capitalize on the Indian market? If they should adopt a new, tailored strategy, what might it look like?
• 2. Should he double down on their current strategy and hope it turns around?
• 3. Should he propose that Starbucks pulls out of the Indian market altogether, to avoid continued losses?

This case was originally developed by graduate students in a fully online global leadership course at the University of Delaware. Under the direction of their professor, Dr. Amanda Bullough, the student team worked to revise the case after the semester was over, and develop the teaching note.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Home > Faculty Works > Departments > School of Business > 126

School of Business

Tata starbucks: how to brew a sustainable blend for india.

Dev Das , Pace University Alan B. Eisner , Pace University Follow Helaine J. Korn , Baruch College

Document Type

This case is primarily intended for use in the corporate strategy section of a business policy or competitive strategy course. It can be used as an overview of the many decisions and actions that an organization has to undertake to sustain a competitive advantage. This case can also be used to augment discussions of strategic analysis, specifically both internal and external environmental analysis and strategic formulation. The case is rich enough for advanced and graduate students, and has been developed in a manner that will allow students to diagnose the root(s) of the company’s issue(s) as detailed in the case, and then form opinions and suggestions for any strategy that the company should pursue. In doing this, students should consider the activities, history, and goals of the company as presented. It would be effective at the business strategy level, especially, to discuss the implications of industry life cycles, and at the corporate strategy level to discuss implications of diversification. The case also lends itself to discussions of strategic implementation and the effect of leadership on innovation, especially when trying to maintain a mature brand.

Publication Title

Journal of the International Academy for Case Studies

Publication Date

business strategy, competitiveness, competitive advantage, Starbucks, Tata

Repository Citation

Das, Dev; Eisner, Alan B.; and Korn, Helaine J., "Tata starbucks: How to brew a sustainable blend for India" (2015). School of Business . 126. https://commons.clarku.edu/faculty_school_of_management/126

Since April 27, 2023

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