Starbucks’ entry in to the Indian market is not a good news for Café Coffee Day. Starbucks is known for selling coffee at the premium price and is targeted at a completely different set of customers. This valid for Starbucks outlets in developed countries such as the US and the EU, but this might not true in the Indian context. The price range offered by Starbucks in India is very low. Starbucks coffee started at the price of Rs 80. This is not a premium price in metropolitan cities such as New Delhi and Mumbai. Starbucks products are priced 25-45 per cent higher than Café Coffee Day, but it's not that much to make Starbucks unaffordable to the Café coffee day customers.
In the US, Starbucks is mainly the place for affluent people with white collar jobs, but this might not be the case in India. Even in India’s highly commercial and business centre (such as Connaught place Delhi), you find more families, youngsters, than businessman. Youngsters are more fascinated by Starbucks than the any other segment of the society. Starbucks is also targeting the youth, by offering coffee at low prices. This is not a good sign for Café Coffee Day, because CCD’s main target are also the youngsters.
More than half the CCDs are in the Tier-1 cities in India. Starbucks is also targeting the metro cities of India. Starbucks opened 22 outlets in 3 cities (Delhi, Mumbai and Pune). In these cities, the stores are mainly located in malls, metro stations, airports and the like.
CCD’s vision to make its outlets as the perfect hangout for youth and corporates coincides with that of Starbucks’ vision. In the US, Starbucks is known as the “Third Place” for customers. Starbucks not only provides us the best quality coffee but also the ambience, service and environment.
India is traditionally a tea-drinking country, but the trend is changing
1. Coffee consumption is growing at 6.3 per cent a year, almost double as compared with Tea. With the shifting consumer habit, Starbucks’ entry is a cherry on the cake. Throughout the world, Starbucks has changed the Coffee habits of the customers. Starbucks is known for its specialty coffee, but this is not very common in India. Starbucks will first develop the coffee taste among Indian consumers and then force the consumers to shift towards the specialty coffee, as it fetches premium prices. Starbucks followed the same strategy in a major tea drinking country such as China and succeeded. China is the major market of Starbucks andopened 500 stores there in the last year.
What should CCD do?
CCD cannot sit idle and wait for things to happen. CCD can decrease its focus from Tier-1 cities, and refocus on Tier-2 cities in India. Starbucks entered India though metro cities and it is very unlikely that it will shift towards Tier-2 cities. In next 10-20 years, these cities will not have the kind of customers that Starbucks want.
CCD can reduce the prices its products and make it more attractive for teenagers and college students. For reducing prices, the number of offerings should be reduced to the most selling ones. CCD should focus on providing more standard products (around 20-25 products), and therefore reduce the operating cost. This is similar to the McDonalds business model. By reducing the cost, CCD can attract far more customers from the Tier-2 cities. The main products should include coffee, other beverages and ice-creams. Other food products such as sweets and snacks should be dropped from the menu, as it does not gel up with the “Name of the brand” and “positioning in the customer mind.” CCD can customise their food products based on the geographical location. Few of the products can be made standardised based on the part of the country. For example, Samosa in the North; and Idli, Dosa in the South. In this way, CCD can save itself from the storm of Starbucks.
(Atul Chauhan is pursuing PGP-ABM from IIM Ahmedabad.)