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Will Starbucks Win in India?

Starbucks has now been in India about 18 months, with 36 stores across 4 cities, including Bangalore, the home ground of the category leader, Coffee Café Day. By most reports on the Starbucks entry, it seems to have got off to a good start. Tata Starbucks CEO, Ms. Avani Davda has stated that they have been quite overwhelmed by the way customers have embraced them and how the India business continues to exceed their expectations.

India’s promise and potential for multinational corporations is well known, as is the fact that winning in India is central to any multinational seeking  global success. McKinsey’s  2012 article “ How multinationals can win in India,” (http://www.mckinsey.com/insights/winning_in_emerging_markets/how_multinationals_can_win_in_india)  in saying this, stresses the need for multinationals to raise their game in India without which they risk remaining niche businesses, failing to profit from its high growth potential. To help the entry thinking and the execution process, McKinsey, in this article, presents  the critical success factors, a comprehensive “checklist “, if you will, for winning in India.

Starbucks’ recent entry, presents an excellent opportunity to broadly assess its India entry against the McKinsey framework, to understand what it might have done “right” and what its entry strategy and in market practices might suggest about the business and brand success in the longer term.

From information gathered from several secondary reports on its India entry , the following is what Starbucks seems to have actioned and achieved against each of the factors on McKinsey’s “checklist”

1.  Ensuring top-leadership support and commitment 

Top leadership commitment from both sides of the partnership, Tata and Starbucks has been amply evident. Starbucks took its time to enter the market ( 6 years) acknowledging that India was a complex market , and needed careful entry planning. Both sides have talked at length about their commitment and shared sense of purpose to the new venture.

2.  Customize offerings to suit Indian market and customer needs

Being aligned to Indian culture, tastes and preferences delivered at an appropriate “value“ is what helps ensure consumer relevance, build and sustain consumption. Starbucks product offerings reflect this understanding – as seen through a mix of western staples, a wide range of interesting Indian snacks as well as localized beverages on offer at the stores.

However, as a service brand, since its experience ( and product too, though to a lesser extent)  is its brand promise, its challenge lies in delivering  a globally consistent , yet locally relevant brand experience . The  stores, or the “third place “ as Starbucks calls them, have been customized accordingly. The stores do not follow the global template, but instead, seem to have been designed with care, with local touches incorporated. Stores in different cities have been designed differently, reflecting the local culture – for e.g New Delhi’s store has ropes and chatai on the walls and henna patterns on the floor, whereas the Pune store has a rich display of antiques and copper. There seems to also be ample use of colour – something quite absent in the US market.  The stores have been designed to deliver a distinctive, premium coffee house experience , consistent and in sync with the one delivered across the rest of the world.

 3.  Create innovative and localized business model

Starbucks seems to have created a localized business model, aimed at delivering a globally consistent product and experience at locally competitive prices. The Tata partnership delivers a big sourcing advantage ( owing to its presence across the production chain, growing, roasting and trading coffee ), but they have already gone beyond that to cultivate and nurture relationships with local coffee growers – investing in building sustainable farming practices. All its coffee is sourced locally, in a first-ever for the company.

4.  Scale up via deals and partnerships

The Tata partnership is the real coup in the Starbucks entry story. Having the Tata’s as a partner is hugely advantageous , not just because of the credibility and stability it offers , or because it matches the scale and stature of Starbucks as a company. It offers multiple strategic benefits catalyzing almost every market entry success variable -e.g. The Tata’s have experience in the retail business, a strong track record in promoting new ventures, provide a sourcing advantage through Tata coffee, offer access to high traffic locations via its hotels and other retail outlets, can ensure high quality food and beverage supply through its F&B business etc.

In addition the potential for a successful partnership is extremely high because of their shared values – they both have a strong social conscience and are committed to “give back “ to the society and community.

5.  Leverage India for global products

Shortly after it completed its first year in India, Starbucks announced that they were serving top quality Indian Arabica coffee as “ Indian espresso” in other markets.  A new world class facility for roasting and packaging has already been inaugurated in Coorg, Karnataka – products of which are to be used for consumption in India and abroad.

 6. Manage perception and regulations

 This aspect is about building a strong positive perception and image for the business and brand across key external stakeholders and audiences – which includes the government, corporate partners, communities within the eco-system and consumers at large. Given what Starbucks has managed to achieve in 18 months since launch, it seems fairly clear that their disciplined planning coupled with the Tata advantage ( significant reach and influence) has helped in cultivating strong relationships and a positive image with key external stakeholders and constituencies.

7.  Empower local organization; offer a compelling people proposition

Starbucks seems to be building a country specific operation with local people at the helm and across all visible consumer-connect points, giving them the required authority to orchestrate and operate. There seems to be heavy investment  in hiring the right people and providing the necessary training  – to embed and inculcate the company culture and service standards.

So, how has Starbucks fared against the McKinsey laid out factors for long term India success ?  Its achievements  against the scorecard look impressive. With rigorous, robust entry planning, smart and swift execution, the 18 month old venture seems to have considerable momentum, making consumer and community centric investments  and committed to nurturing its core business and brand . It seems very well placed to “win” in India.

Whether Starbucks will garner a significant market share, achieve its goal of India being among its top 5 markets in the long run, remains to be seen. It’s still early days , but for the moment, this seems like a great start and an excellent globalization example for multinationals seeking an India entry.