Starbucks' Foray into Tea-Drinking India

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Case Details:

Case Code : BSTR435
Case Length : 17 Pages
Period : 2012-2013
Pub Date : 2013
Teaching Note :Not Available
Organization : Starbucks
Industry : Food and Beverage; Retail
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Starbucs and Globalization

Since it was set up in 1971, Starbucks had been expanding in Seattle and by 1986, it had opened 6 stores. However, after Schultz took over the company in 1987, the expansion was more rapid and Starbucks opened its first locations outside Seattle at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois. In March the same year, Starbucks ventured outside the US and established its first international store at the Seabus Skytrain Station in Vancouver, Canada. By 1989, the store numbers had increased to 46, covering the Northwest and Midwest regions. By the time the company went public in 1992, it had grown to 140 stores in North America...

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India Coffee Market

India was the sixth largest coffee producer in the world with a 4% share of global coffee production. The production was mainly confined to the southern states of the country – Karnataka, Kerala, and Tamil Nadu and it was consumed mostly in the southern parts of the country. But relatively speaking, India consumed a very tiny volume for a population of 1.2 billion. India represented only 1.4% of global coffee demand with a per capita consumption of coffee of just 85 grams, compared to 4.5 kilograms in France, 4.6 kilograms in Japan, and 6 kilograms in the US. However, coffee cultivation was beginning to be promoted in the rural areas of Andhra Pradesh and the North Eastern states of the country. The consumption of coffee too was increasing across the country...

Starbucks' Foray into India

In 2006, Starbucks announced its decision to enter India and approached the country's Foreign Investment Promotion Board (FIPB) for this. The company proposed to own equity in New Horizon Retail, (its licensee for India), a JV between Starbucks' Indonesian franchisee VP Sharma (Sharma) and Future Group CEO Kishore Biyani (Biyani). However, the application was rejected on the grounds that the combined stakes of Starbucks and Sharma (whose investment was also foreign investment due to his NRI status) breached the 51% FDI limit in single brand retail which was in operation at that time. In April 2007, the company submitted a revised application stating that it would not hold any equity. The application was rejected again in June 2007 by the Department of Industrial Policy & Promotion (DIPP), which suggested that Starbucks take the 51% FDI route rather than the franchisee route...

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