Starbucks has seen a successful journey since opening its first outlet in India in Mumbai last October. With 20 stores currently, it ended the financial year with revenues averaging almost Rs 1.5 crore per outlet. Its plans to open 100 more cafes in the next year at prime locations indicates a situation that will test competitors to the hilt. Among the major players in India is Cafe Coffee Day (CCD) with around 1,400 stores. However, as India’s coffee consumption is expected to increase by 9 per cent, we believe there is enough space in the market for several players and the entry of a major player like Starbucks will only lead to market expansion.
Targeting different consumers
Analysis reveals that the target consumer segments for CCD and Starbucks are quite different. A major percentage of the customer base for CCD is aged 17-35, mostly college-going teenagers and young professionals who are looking for a good hangout with affordable prices. On the other hand, the proposition which Starbucks is offering is of a ‘premium brand which tries to offer the best ever coffee experience’. However, Starbucks has debuted in India with extremely competitive prices and hence that could be a threat to CCD’s existing business model.
Thus CCD needs to react to the situation with a plan which is aggressive both on operational and promotional grounds. On the promotional front, one major space which has not been utilised by the coffee chains is the television arena. The company needs to come up with an integrated television and digital campaign.
Appeal to youth
As CCD is a brand which connects with youth, the campaign should emphasise the theme of friendship or of having fun together.
In continuation with the theme of having fun together, the company should introduce discounts for college students on bulk purchases – the discount should be provided on purchase of items above a certain limit on showing the college identification card. Also, there can be special discounts for occasions such as birthdays and reunions. This should be advertised using all mediums including in store promotion, digital media as well as print media.
Expand premium formats
On the operational end, the kind of strategy that CCD should adopt is to have a diversified set of offerings from its end. Thus, there is an urgent need to expand CCD’s ‘Lounge’ and ‘Square’ formats. Through the latter, CCD has to create a kind of ambience for the ultimate coffee connoisseur. The focus should be on high-end customers who would be ready to pay a premium price for the coffee and experience associated with it. As a first step, CCD can leverage the strong corporate connect it has with offices. The interior of the stores could have special cabins which could be booked for business meetings as well as private meetings. The menu offerings also should be distinctive and priced at a premium.
However, it is also necessary that CCD does not lose focus on its prime segment which is the cafe format where each outlet helps it earn Rs 30- 40 lakh yearly. Considering that the disposable income of Indians is increasing and there is a gradual increase in the coffee-drinking culture, it would be the right move for CCD to expand into Tier 2 cities more with its cafe format. This format would cater to the new segment with its positioning of ‘affordable luxury’.
Explore verticals
A good way to expand its franchisee base of cafes would be to concentrate on places of pilgrimage which are emerging as a potential vertical.
Another vertical CCD could focus on is the vending machine business which is mostly confined to the corporate office segment. This segment is highly profitable and there is huge scope of increase considering that that the target is to reach two million cups a day from all the CCD vending machines from its current count of 1.2 million cups. For the same, new segments like educational institutes or hospitals could be identified where these coffee vending machines can be installed.
(Md Aquibur Rahman and Kajori Das are pursuing PGP in management from IIM Ahmedabad.)