Coffee chains to pre-empt Starbucks success strategy

Written by Soma Das | Rasul Bailay | New Delhi | Updated: Jun 5 2012, 08:13am hrs
Besides loads of coffee brewed at their own shops, guess one factor that could be keeping the reigning coffee chains Caf Coffee Day, Barista Lavazza, Costa Coffee, Coffee World, The Coffee Bean & Tea Leaf awake at night. The onslaught of Starbucks.

Although the big players who have grown deep roots here are not fretting and sweating over the arrival of Starbucks, they are intensely studying the models Starbucks adopted in different geographies, anticipating and pre-empting some of the strategies that the US coffee behemoth may employ here. Of special interest to these companies is Starbucks explosive success in China, primarily a nation of tea drinkers like India, which is all set to become the companys second-largest market outside of the US.

How else do you explain Caf Coffee Day (CCD) and Barista Lavazza betting big on membership loyalty cards, one of three key strategies Starbucks used to crack the Chinese market We plan to introduce pre-paid cards through which the consumer can avail products at a discounted price of up to 10%. This would help us build on customer loyalty, said K Ramakrishnan, president, marketing, CCD.

Barista Lavazza also launched its loyalty card, called Bean o Holic, this month. It would help customers collect redeemable points on every bill. It has also tied up with Jet Airways and Visa credit card to enable flyers and card users to redeem points at Barista Lavazza.

In China, Starbucks ensures stickiness by sealing customer loyalty with Xinxiang cards, a strategy, experts think, it will reproduce in India. Cardholders get loads of extra goodies, promotional offers such as free coffee, other drinks and a promise to try out new products. These cards also enable Starbucks to get feedback to improve products and services. Consumption through Starbucks cards accounts for 18% of the companys total revenue, according to international reports.

CCD has upped the ante in the domestic market in more ways than one. It roped in Sanjiv Mendiratta in December 2011 as group advisor to help in strategy and lead the core vertical of food and beverages.

Mendiratta, an industry veteran who helped McDonalds set up shop here, is known to have a keen knowledge of Indian palette and is credited with his deep association with Mc Aloo Tikki burger a cult product from McDonalds stable which went global after its popularity in India.

Incidentally, the second of innovative strategies that led to Starbucks unexpectedly roaring success in China was this instead of sticking to its standard hit offerings in the US, it adapted the flavours of its menu to what was locally popular. For instance, it started serving a green tea-flavoured coffee in China. Thirdly, Starbucks promoted more dine-in services in China vis--vis its take-away offers that are more popular in the US, besides redoing the ambience and dcor to Chinese taste.

Mendiratta is engaged in devising a much more expansive menu for CCD, a person in the know said. He added that besides sprucing up its products, CCD is weighing possible means that would help it deliver products at places where its dense network of over 1,300 outlets may not have reached.

The idea is to home-deliver products on a pan-India basis and, in the process, create brand presence in places where physical presence may not be economically feasible at this point in time, the person said.

At least one of the existing coffee-chain firms has set up a dedicated team to study the Starbucks model in select geographies and one of them is contemplating a tie-up with Ferns N Petals to reach out to non-metro markets.

The top managements of most of these firms appear unfazed when asked if the entry of Starbucks has forced them to rethink their strategies.

Ramakrishnan said CCD plans to up the number of stores from 1,320 outlets to 2,000 by the end of 2014. Denying that any of CCDs marketing initiative has been conceived with Starbucks arrival in mind, he said, Our strategies revolve around customers and not competition.

Barista Lavazzas COO Nilanjan Bhattacharya said that like any retail business, Starbucks would also take time to expand its reach and business especially in a complex market like India. He further added that Starbucks presence will help grow the whole culture of coffee through coffee bars. Indias per capita consumption of coffee at around 80 gm has a long way to go before it can match the statistics of hard-core coffee drinking countries.

A few analysts second managements voice. It is too early to worry about Starbucks for the two big players CCD and Barista Lavazza, at least till the mystery around pricing strategy and product offerings of Starbucks is unveiled. The number of stores and the investment figures of Starbucks seem quite conservative for big daddy of coffee chain CCD, which is way ahead in the race with 1,200 plus outlets and a vertically integrated system. Even Barista Lavazza has had a fairly long and rich experience in India and have placed their outlets at great locations, said Arvind Singhal, chairman, Technopak. Tweaking strategies would only come when the competition arrives and succeeds, not so much in anticipation, he added.

Top executive of a smaller coffee chain said that in their case, they have to get their internal formula right instead of worrying about external factors. Starbucks, which has tied up with Tata Coffee in a 50:50 JV for its India foray, had said that it will initially start from Tata-owned hotel properties, but now coffee industry officials say there is a strong market buzz indicating that Starbucks may make its India debut from Connaught Place or a popular mall in New Delhi taking competition directly into the bastion of the established players like CCD and Costa Coffee.

Winning mantra

* In China, Starbucks ensures stickiness by sealing customer loyalty with Xinxiang cards

* It promoted more dine-in services in China vis--vis its take-away offers in US

* Starbucks adapted locally popular flavours to its menu resulting in roaring success in China

* The chain also redesigned the ambience and dcor to Chinese taste