Table of Contents
- The Evolution of Starbucks from Seattle to the Globe ☕️
- Bean There, Done That: Why Starbucks Made India its Next Shot ⁉️
- Starbucks' Indian Infusion: A Brew-tiful Tale 🌱
- Unique Value Proposition in India
- Local Adaptation 📍
- The IKEA effect 🧑🍳
- Cultural Integration 🛕
- The Starbucks Moat: Why People Shell Out for That Fancy Cup 🥤
- Market Overview: India's Brewing Coffee Culture
- Sip Happens: The Latest Coffee Trends in India 📈
- Headwinds
- Tailwinds
- Competition Level 🥊
- 1. Café Coffee Day (CCD)
- 2. Blue Tokai Coffee Roasters
- 3. Barista
- 4. Third Wave Coffee Roasters
- Breaking Down Tata Starbucks’ FY23 Financials
- Growth Model
- ICP
- Acquisition
- Onboarding
- Engagement
- Retention
- Behind the Scenes: Starbucks India’s Cost Breakdown
- What’s Truly Working for them? ✅
- What might kill their growth in the future? ❌
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Starbucks, the iconic global coffeehouse chain, has made a name for itself in India's bustling cities. Known for its premium coffee, cozy ambiance, and global appeal, Starbucks has carved out a niche in a traditionally tea-loving market. Whether you're a business enthusiast, a Starbucks fan, or simply curious, our analysis will offer insights into how Starbucks is succeeding in India.
The Evolution of Starbucks from Seattle to the Globe ☕️
What do you get when you mix a love for coffee, a dash of literary inspiration, and a knack for misspelling names? Starbucks—a coffee empire that began in 1971 at Seattle's Pike Place Market with a trio who were friends since their University of San Francisco days, Gerald Baldwin, Gordon Bowker, and Zev Siegl. These 20-somethings were passionate about the arts, fine food, good wine and, of course, great coffee. They started Starbucks because they wanted Seattle to have access to the delicious dark-roasted coffee that they loved but had to go out of town to find it.
Investing $1,350 apiece and borrowing $5,000 from a bank, they opened their first store on March 30, 1971 on a mission to serve up more than just your average cup of joe.
Legend has it that Starbucks owes its name to a character from "Moby Dick" and its logo to a Siren. From those humble beginnings of hand-scooped beans and paper bag packaging, Starbucks brewed its way into the hearts—and wallets—of caffeine aficionados worldwide.
From Seattle’s streets to global avenues, Starbucks’ journey was fuelled by innovation and a commitment to coffee culture. Howard Schultz, who joined the company as director of operations and marketing when Starbucks had only four stores, started Il Giornale in 1985 after being inspired by Italy's espresso bars. Il Giornale's success led Schultz to acquire Starbucks in 1987, transforming it from a regional seller into a global chain.
Starbucks opened its first international store in Vancouver, Canada, in 1987. By 2023, it expanded to over 38,000 stores in 86 countries, from Chicago to Tokyo, reflecting its universal appeal and success in connecting people worldwide.
If you are interested to uncover business models of D2C brands you can check out BookMyShow Business Model, ixigo Business Model & other blogs here.
Bean There, Done That: Why Starbucks Made India its Next Shot ⁉️
Starbucks' international expansion wasn't just about coffee beans; it was about seizing new markets. India, with its rapidly growing economy and emerging coffee culture, presented a golden opportunity.
Partnering with Tata provided Starbucks not only with local sourcing capabilities but also with invaluable insights into navigating India's complex business landscape and consumer preferences.
Starbucks' Indian Infusion: A Brew-tiful Tale 🌱
Starbucks' journey into India wasn't smooth-sailing from the start. After initial setbacks in 2007, including a flirtation with an Indonesian partner and a missed connection with the Indian Future Group, Starbucks finally hit the jackpot in 2012.
The key? A strategic 50:50 joint venture with Tata Global Beverages, branded as “Starbucks – A Tata Alliance,” combining Starbucks' global branding with Tata's local expertise. Tata Starbucks Ltd. distinguished itself by roasting coffee locally for the first time outside Starbucks' own facilities, demonstrating a commitment to authenticity and local taste preferences.
Partnering with Tata Coffee, the coffee giant opened its first Indian store on October 19, 2012, in Mumbai’s Elphinstone Building. The following year saw the establishment of Starbucks' first Indian roasting and packaging plant in Kodagu, Karnataka.
Already a trillion-dollar economy, India stands at a pivotal moment, projected to become the world's third-largest economy by 2030. This significant economic growth positions India as a key focus area for Starbucks' expansion.
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Currently, Tata Starbucks has established over 421 stores across 61 cities, employing approximately 4,300 partners (employees) who proudly wear the green apron and serve around 4,00,000 customers every week.
With ambitious plans to reach 1,000 stores by 2028, Starbucks aims to double its workforce to approximately 8,600 partners (employees). This growth strategy includes:
- Expanding into Tier 2 and Tier 3 cities 🏙️
- Enhancing its drive-thru offerings 🚙
- Increasing its presence in airports ✈️
- Introducing more 24-hour stores to cater to customers' evolving needs. 🏪
GrowthX is an invite-only club for ambitious founder & growth leaders.
Our members are top founders, product & marketing leaders from 2,400+ internet companies like Google, Canva, CRED & Netflix.
The GrowthX Membership is built on 3 core pillars:
First, learning experience
Learn the science of revenue-led growth with frameworks actionable the next Monday morning.
Second, curated community
access to a safe space for you to soundboard anything that is stressing you at work.
Third, professional outcomes
Over 35% of members are founders & are able to hire growth teams to scale revenue for their companies while operators are able to get into breakout leadership roles.
Unique Value Proposition in India
Local Adaptation 📍
In 2021 Starbucks took the help of BCG who recommended three things to appeal to budget-conscious consumers:
(i) lower-priced menus
(ii) localised & bite-sized food varieties and
(iii) smaller-sized beverages.
The result? in July, Starbucks launched its smallest-sized drink, Picco (180 ml) starting at ₹180 ($2). Until then, the smallest size had been Short (237 ml) at a starting price of ₹205 ($2.4).
The IKEA effect 🧑🍳
The "IKEA effect" is a psychological phenomenon where people assign greater value to products they've had a hand in creating or customising. Starbucks capitalises on this effect by involving customers in the creation of their drinks. Consequently, customers develop a stronger attachment to their Starbucks beverages, increasing their perceived value and enhancing brand loyalty. You see the coffee chains in India, at least when Starbucks entered the market, didn’t give their customers so many options. This provided them with that first mover advantage as well.
Cultural Integration 🛕
Not all Starbucks stores look alike. Contrary to typical coffee chains with their modern interiors, Starbucks creates unique stores that blend sustainability with local charm. They make sure to incorporate the culture of that city into their store design be it in the form of inspiration from the surroundings of the store or the city itself.
Whether it is paying an homage to Pune’s heritage by incorporating copper accents (a primary resource traced to the earliest history of this city) or Varanasi’s stunning royal-themed design store rooting from it’s culture. This attention to local detail fosters a sense of belonging, encouraging customers to return frequently.
The Starbucks Moat: Why People Shell Out for That Fancy Cup 🥤
A normal cup of coffee, typically brewed at home or from a local café, is straightforward and utilitarian, serving primarily to deliver caffeine. In contrast, Starbucks coffee offers a curated experience with a diverse range of options, customisable flavours, and a distinctive store ambiance. Starbucks elevates coffee drinking into a lifestyle choice, emphasising consistency, quality, and an aspirational brand image that extends beyond the beverage itself.
1. Brand Perception & Status Symbol 💰
Let’s talk economics for a second. If you ever took an economics class you probably know what Giffen’s paradox means. Giffen’s Paradox, for the uninitiated, describes a situation where, contrary to normal market behaviour, higher prices lead to higher demand for a staple good. This happens because the good seems more valuable to those with limited budgets, despite being less affordable.
Starbucks mirrors this paradox as well. Higher prices boost its allure plus the brand's exclusivity makes it more desirable. Whether you’re posting it on Instagram or using it as a prop in your Zoom meetings, that cup is your golden ticket to the elite caffeine club.
2. Third Places: The Living Room You Pay For 👩🏻💻
Starbucks has cracked the code on creating the perfect "third place"—the spot between home and work where life happens. It’s your personal office when working from home gets too lonely or your living room when your actual living room is too chaotic. The ambiance is just right: mellow enough to focus on your laptop, but lively enough to feel like you’re part of the urban hustle. Plus, there’s always that subtle scent of freshly brewed coffee making you feel like a writer finishing their novel—even if you're just catching up on emails.
3. Customisation: Your Drink, Your Way ✨
Starbucks is the only place where your coffee order sounds like a Harry Potter spell. “I’ll have a Venti Caramel Macchiato with a shot of espresso. please!!”. At Starbucks, customisation is an art form. Want your latte with half almond milk, a sprinkle of cinnamon, and a dash of unicorn tears? You got it! This level of personalisation turns an ordinary coffee into a unique masterpiece, perfect for showcasing on social media.
Market Overview: India's Brewing Coffee Culture
Coffee: The World's Second Favourite Beverage ❤️
Globally, coffee sits proudly as the second most consumed beverage after water. In India, though, it's like the new kid in school, still trying to make friends. Imagine this: the average Indian gulps down about 30 cups of coffee a year. The global average? A whopping 200 cups! and not just that, an average Indian consumes about 3-4 cups of tea per day and in 2022 alone we consumed 1.2 billion kilograms of tea (that’s a huge number!). But change is brewing, my friend. The Indian coffee scene is bubbling with promise, thanks to a surge in cafes and coffee brands.
From Chai to Coffee: Bridging the Gap 🫖🤝☕
India's coffee innovation is on the rise, perking up with a modest yet significant 1% growth from last year. This nudge puts India in the top 10 global markets for coffee innovation. But let’s be real: chai is the reigning champion here. Tea isn’t just a drink in India; it’s a lifestyle. 62% of Indians choose hot tea and only 43% of Indians prefer hot coffee, with this gap, coffee brands have some serious wooing to do.
The love affair with tea leaves coffee trailing behind in India. Over a third of non-coffee drinkers cite their tea preference as the reason they skip coffee. This gap presents an opportunity for coffee brands to charm their way into more Indian hearts (and cups).
A Historical Blend: Baba Budan's Beans 🇾🇪
India’s coffee tale began in the late 1600s with a bold pilgrim named Baba Budan. Defying the odds (and the law), he smuggled seven coffee beans from Yemen and planted them in Karnataka's Chandragiri hills. Fast forward to today, and India is the sixth-largest coffee producer globally. Karnataka alone churns out over 70% of the nation’s beans. India’s robusta coffee is the world’s best, and its arabica ranks second only to Colombia’s.
Coffee Production in India
Karnataka is undeniably the coffee powerhouse of India, producing a staggering 71% of the country’s coffee. The Kodagu (Coorg) district is the crown jewel, contributing 33% of the total coffee produced in India. Other notable regions in Karnataka include Chikmagalur, Hassan, Shimoga, and Mysore.
Following Karnataka, Kerala takes the second spot, accounting for about 21% of India’s coffee production. Together, these two states produce around 90% of the country’s coffee. Tamil Nadu comes in third, with 5% of the total production. Additionally, coffee cultivation is on the rise in Northeastern India, Odisha, and Andhra Pradesh.
The most well-known species of coffee grown in India are Robusta and Arabica. Arabica, introduced to the Baba Budan Giri hill ranges in the 17th century, has since flourished alongside Robusta in the Indian coffee landscape.
For the uninitiated, here’s a quick bean breakdown: arabica beans have less caffeine and a smoother, sweeter taste, while robusta packs a bitter, robust punch. India excels in both varieties, making its mark on the global coffee map.
However, Starbucks uses 100% Arabica beans. Aaron Robinson, the Coffee Engagement Manager of Starbucks, explained that arabica coffee beans are chosen because they can be elegant, complex, and have an interesting body and acidity. He mentioned that these qualities make arabica beans versatile for creating new and interesting blends.
Brewing Opportunities 🤩
Currently, coffee penetration in India stands at 3.9% and is projected to reach 6% by 2029. While these figures may seem modest compared to global standards, they highlight a significant untapped potential. The coffee market in India is growing at a rate of 10.15% year on year, outpacing the global average growth of 2.5% - 3%. This rapid growth is partly due to India's smaller market base, which has room to expand.
To gain a deeper understanding of the coffee market in India, don't miss this GrowthX Inner Circle episode where Arman, the co-founder of Sleepy Owl, shares invaluable insights on scaling a business in India, tips on building a D2C brand, and more.
Sip Happens: The Latest Coffee Trends in India 📈
Looking ahead, India’s coffee market is set to generate ₹252 crores in revenue in 2024. With an annual growth rate of 11.19%, this figure is expected to brew up to ₹420 crores by 2029. And not just that with Indians consuming an estimated ₹4,30,000 crores of coffee every year, it is easy to see why international coffee chains see huge opportunities in the country.
So what’s fuelling this growth?
- Café Culture Caffeine Fix: The Indian café retail market was valued at around ₹5,000 crores ($600 million) in 2023, reflecting a vibrant and expanding coffee culture in urban areas. With an anticipated CAGR of 10-12% over the next five years, the market is set to flourish, driven by an increasing appetite for café experiences and premium coffee products.
- Ready-to-Drink Revolution: Abhinav Mathur, CEO of Something’s Brewing & Kaapi Machines, predicts that ready-to-drink (RTD) canned or bottled cold brew will be a major trend. Mathur explains that the popularity of RTD cold brew is due to its easy availability in convenience stores, supermarkets, and online.
Flavoured and ready-to-drink (RTD) coffees are on the rise, with 25% of consumers ready to splurge for that protein-packed pick-me-up. Who knew coffee could be both delicious and nutritious?. India's RTD coffee market will grow at a compound annual growth rate (CAGR) of 3.3% from 2022 to 2027.
- Urbanisation and Lifestyle Changes: The share of urban population in 2023 was at 36.36% and approximately a third of the total population in India lived in cities. The trend shows an increase of urbanisation by more than 4% in the last decade, meaning people have moved away from rural areas to find work and make a living in the cities.With more people moving to cities and wallets getting thicker, the appetite for specialty and premium coffee is skyrocketing.
- Young and Curious: Apparently, the pandemic changed coffee-drinking habits, with 85% of coffee drinkers now enjoying one to two cups at home. With more specialty cafés, people are used to high-quality coffee and want the same experience at home. This has led to a surge in home brewing using methods like brew bags, French presses, and moka pots. The market for coffee machines is also valued at $332.8 Million in 2024 with a CAGR of 6.1%
- Milk Alternatives on the Rise: India is seeing increased demand for plant-based dairy substitutes due to lactose intolerance, dairy allergies, and environmental concerns. Despite challenges like low awareness and higher costs, the affluent middle class and eco-conscious youth are driving this trend.
The market for milk alternatives in India is projected to grow at a 6-8% CAGR from 2023 to 2027. Around 60% of Indians suffer from lactose intolerance or dairy allergies, though many remain unaware. The pandemic has also boosted vegetarian, vegan, and flexitarian diets.
Concerns about milk adulteration and antibiotics in cattle farming are pushing consumers towards ethical, low-carbon non-dairy options like coconut, almond, and cashew milk. Apparently, 79% of Indian consumers value "plant-based" attributes in products. With more people going plant-based, non-dairy milk is taking over. From almond to oat—and yes, even potato milk—is making its debut. It’s like a dairy-free revolution in your cup!
- Coffee Meets Wellness: India is going to become $30 billion market for healthy foods by 2026 and the average per capita spending on healthy foods is expected to become 2X by then. Health-conscious consumers are now mixing their coffee with everything from protein powder to CBD. If you thought your coffee couldn’t get any cooler, think again! Brands like Rage Coffee and Itshemp are already tapping into this wellness trend. To understand more about how brands are leveraging the wellness trend in India, watch this GrowthX Wireframe video about The Whole Truth, one of India's rare "clean-label" brands with a valuation of ₹600 Crores and is poised to be a major disruptor in the healthy food market of India which growing at the world's highest rate of 20%.
Headwinds
- Changing Climatic Conditions Unpredictable weather disrupts coffee harvests, jeopardising bean supply and quality.
- Competition from Tea India's deep-rooted love for tea hinders coffee market growth. Innovation in the tea market keeps it the preferred beverage choice.
- Taste Concerns Unpleasant taste is the top turn-off for 23% of non-coffee drinkers in India - a hurdle brands need to overcome.
- Lower Adoption in Rural Areas and Northern India: Coffee struggles to gain a foothold in tea-loving regions like rural areas and North India.
- Market Instability Financial struggles of major players like Café Coffee Day led to store closures, impacting India's coffee market during the pandemic.
Tailwinds
- Urbanisation and Rising Disposable Incomes Urbanisation, a booming middle class, and rising disposable incomes are driving demand for specialty and premium coffee varieties.
- Evolving Consumer Preferences Changing consumer tastes, particularly among the younger generation, are favouring specialty coffee and the café culture, fuelling market growth.
- Growth of Café Scene The rise of a dynamic café scene, with both international and domestic coffee chains expanding rapidly, is boosting out-of-home coffee consumption.
- Product Innovation: Coffee companies are brewing up innovation with flavours, protein-packed RTDs, and new brewing methods to cater to evolving consumer preferences.
- Government Support India strengthens the coffee scene with subsidies, export initiatives, and the 2023 World Coffee Conference.
Competition Level 🥊
In India’s thriving coffee market, Starbucks navigates a competitive terrain marked by diverse players. It faces strong competition from Third Wave Coffee Roasters and Blue Tokai, known for their premium and artisanal offerings. Additionally, established brands like Cafe Coffee Day and Barista continue to attract a wide customer base with their extensive reach and diverse menus. This diverse competitive landscape ensures that coffee enthusiasts have a rich array of choices.
Metric | Starbucks | CCD | Barista | Third Wave Coffee | Blue Tokai |
Revenue | 1086.5 cr | 924 Cr | 190 Cr | 144 Cr | 127 Cr |
Net Profit | -25 Cr | -380 Cr | 3.46 Cr | -54 Cr | -42Cr |
No. of stores (Cities) | 421 (61) | 469 (154) | 425 (120) | 107 (9) | 100 (12) |
Price | High | Medium | Medium | Medium-High | Medium-High |
Brag worthiness | High | Low | Low | Medium | Medium |
1. Café Coffee Day (CCD)
Café Coffee Day (CCD), founded in 1996 by V.G. Siddhartha in Bengaluru, was once India's largest coffee chain with 1,752 outlets in 2019. It now operates around 469 stores due to financial troubles and Siddhartha's tragic death.
To address its challenges, CCD has restructured by partnering with Ola, integrating CCD outlets into the Ola app for convenient coffee orders. The chain is also introducing smaller kiosk-format outlets in high-traffic areas like metro stations and corporate parks. Additionally, CCD has expanded its presence through nearly 50,000 vending machines in corporate offices. These strategies aim to enhance sales and operational efficiency while managing debt.
- Pricing: Beverages and snacks typically range from ₹200 to ₹350
- Revenue sources: Retail outlets, Sales of packaged coffee beans and merchandise, Franchising, Corporate partnerships and vending machines
- Vibe: Casual and cosy with comfortable seating and free Wi-Fi, making it a popular spot for meetings and casual hangouts
2. Blue Tokai Coffee Roasters
Founded in 2012 by Matt Chitharanjan and Namrata Asthana, Blue Tokai is a leader in India's specialty coffee scene. The company has enhanced customer engagement with virtual brewing masterclasses and a "Coffee Subscription Box" offering curated monthly selections.
Blue Tokai emphasises transparency and quality by sourcing directly from Indian farms and roasting in small batches. Their roastery cafes provide insights into coffee production, and their focus on educational content and community events distinguishes them in the market.
- Price: Speciality Coffee beverages typically range from ₹200 to ₹350
- Revenue sources: Retail outlets, Online sales of freshly roasted coffee beans, Ready To Drink Coffee and brewing equipment, Monthly Coffee subscription, hosting coffee brewing workshops and events
- Vibe: Minimalistic and modern with an emphasis on transparency and the coffee brewing process, often featuring open cafe bars and roasting areas
To gain a deeper perspective on Blue Tokai's rise as a major competitor and how it cultivated a dedicated customer base and grown into a ₹650 Crore business, check out this GrowthX Wireframe video.
3. Barista
Established in 2000, Barista was one of the pioneers of the Indian café culture. Initially a joint venture with Tata Group and Italian company Lavazza, Barista is now fully owned by Lavazza. Barista is rebranding itself to attract younger customers, including collaborating with vibrant, contemporary decor designed by local artists, modernising its image while supporting local talent.
Despite these updates, Barista’s core strength remains its authentic Italian coffee and gourmet menu. The new store designs and wellness beverages reflect Barista’s adaptability and commitment to staying relevant in the evolving market.
- Price: Typically ranges from ₹250 to ₹350
- Revenue sources: Retail cafes selling a variety of coffee beverages and snacks, Franchising, Coffee Vending, Merchandise, ready to consume products, brewing equipments
- Vibe: Cozy and inviting with a focus on creating a comfortable and familiar environment for regular customers
4. Third Wave Coffee Roasters
Founded in 2016 in Bengaluru by Sushant Goel, Anirudh Sharma, and Ayush Bathwal, Third Wave Coffee Roasters stands out in specialty coffee. Their "Wave Coins" loyalty program offers 10% cashback as virtual coins, redeemable for rewards, encouraging repeat visits. Customers earn coins by scanning a QR code in-store. The company combines specialty coffee with precision roasting and innovative brewing, and fosters community through educational workshops and engaging spaces.
- Price: Typically ranges from ₹250 to ₹400
- Revenue sources: Retail Outlets, Franchising, Coffee subscription and membership, online sales of coffee beans & brewing bags.
- Vibes: Chic and sophisticated with an emphasis on creating unique coffee experience through expertly brewed coffee and a deep focus on the origin and quality of beans.
Breaking Down Tata Starbucks’ FY23 Financials
Let's dive into the financial cappuccino that is Tata Starbucks' FY23 performance. We know, numbers can be a drag, but we promise to sprinkle in some wit to keep you awake.
1. Revenue
Tata Starbucks pulled in a whopping ₹1086.9 crores in revenue. That's a lot of lattes! If you lined up that amount in cups of coffee, you’d probably circle the globe…twice.
2. Raw Material Cost
The cost of all those coffee beans and fancy ingredients? ₹315.7 crore. That’s 29% of their sales, or as we like to call it, the price of making sure your morning brew is top-notch.
3. Gross Profit
Gross profit stands tall at ₹771.2 crores. This is what’s left after Tata Starbucks has bought all those coffee beans but before paying the baristas and keeping the lights on. It's like getting your paycheque before the bills hit.
4. Employee Expense
With ₹159.1 crores spent on employee expenses, Tata Starbucks knows that happy baristas make for happy customers. That’s 15% of their sales going into the pockets of the folks who spell your name hilariously wrong on your cup.
5. Other Expenses
"Other expenses" might as well be code for everything from store rent to the little green straws. This hefty sum clocks in at ₹416.4 crores, or 38% of sales. It’s like that miscellaneous drawer in your kitchen, but way more expensive.
6. EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortisation, or EBITDA, sounds fancy but it’s really just business speak for "we made ₹195.7 crores before paying off our debts and wearing out our coffee machines." That’s an 18% margin, so they’re making a decent profit off every cup sold.
7. Interest
Interest costs are at ₹76.3 crores, because even Starbucks has to pay its creditors. That's 7% of sales, or as we like to say, the price of keeping those beans financed.
8. Depreciation
Depreciation, at ₹172.8 crores (16% of sales), is the cost of all those shiny espresso machines and cozy chairs wearing out. Think of it as the wear and tear of your favourite coffee hangout.
9. Profit Before Tax
Other income brought in ₹16.6 crores and with all expenses accounted for, they hit a Profit Before Tax of -₹36.8 crores. Yes, that's a minus sign, meaning they spent more than they earned.
10. Tax: -₹118 million
Taxes added a further -₹11.8 crores to the bill.
11. Profit After Tax: -₹250 million
Finally, the bottom line: Tata Starbucks ended the year with a Profit After Tax of -₹25 crores. It’s a loss, but hey, not every year can be a win. They’re still brewing up strategies to turn things around.
From Store to Screen: The Rise of Starbucks' Omni-Channel Experience
In today's fast-paced world, Starbucks is brewing up more than just coffee in its iconic stores. With around 20-25% of its revenue coming from sources beyond traditional in-store sales, the company is adapting to evolving consumer preferences. Notably, approximately 11% of this revenue stems from convenient delivery services like Swiggy and Zomato, alongside orders placed through the Starbucks app. Additionally, Starbucks is tapping into e-commerce by offering branded merchandise on popular marketplaces such as Flipkart, Myntra, and Tata Cliq. This multi-channel approach not only enhances accessibility for customers but also positions Starbucks as a forward-thinking leader in the competitive coffee landscape.
GrowthX is an invite-only club for ambitious founder & growth leaders.
Our members are top founders, product & marketing leaders from 2,400+ internet companies like Google, Canva, CRED & Netflix.
The GrowthX Membership is built on 3 core pillars:
First, learning experience
Learn the science of revenue-led growth with frameworks actionable the next Monday morning.
Second, curated community
access to a safe space for you to soundboard anything that is stressing you at work.
Third, professional outcomes
Over 35% of members are founders & are able to hire growth teams to scale revenue for their companies while operators are able to get into breakout leadership roles.
Growth Model
A bunch of our members from GX19 picked Blue Tokai as their capstone project. Their goal was to create a growth strategy for Blue Tokai and increase it’s revenue from 250CR to 500CR in 12 months.
You can do the same by joining the GrowthX membership to solve growth challenges organically, connect with professionals in business, marketing, product, and more.
Scale your revenue and expand market share with our structured approach.
We’ve leveraged the insights from this project to inform our approach and will be using the ICPs created for Blue Tokai to define the ICPs for Starbucks.
Analysis of Blue Tokai’s ICP Attributes for Starbucks India
- Serious Cafe Goer:
- Blue Tokai: Customers who visit cafes regularly.
- Starbucks: Starbucks also targets frequent cafe visitors who enjoy the cafe atmosphere. Both brands emphasise creating a welcoming environment for regular customers.
- Cafes are a great place to get work done:
- Blue Tokai: Caters to individuals who see cafes as workspaces.
- Starbucks: Known for being a popular spot for remote work and meetings. Starbucks offers amenities like Wi-Fi and comfortable seating, making it conducive for work.
- Customer Segment: High:
- Blue Tokai: Targets an affluent customer base.
- Starbucks: Starbucks positions itself as a premium brand in India, attracting a similar affluent demographic willing to pay for a premium coffee experience.
- Location Preference: At-Cafes; Order Online; At-Home:
- Blue Tokai: Customers enjoy various modes of coffee consumption.
- Starbucks: Starbucks has a strong presence both in cafes and online. They offer a similar multi-channel approach with physical stores, online ordering, and home delivery options.
- Spending Capacity: High (INR 5,000):
- Blue Tokai: Targets customers with a significant budget for coffee.
- Starbucks: The pricing of Starbucks products indicates a target audience with a similar spending capacity, positioning themselves as an affordable luxury.
- Brand Loyalty: High:
- Blue Tokai: High brand loyalty among customers.
- Starbucks: Starbucks has a strong global brand with a loyal customer base. Their loyalty programs and consistent quality help maintain high brand loyalty.
- Price Sensitivity: Moderate:
- Blue Tokai: Customers are somewhat sensitive to price but value quality.
- Starbucks: Starbucks customers are also moderately price-sensitive but are willing to pay a premium for the experience and quality.
- Quality Expectation: High:
- Blue Tokai: High expectations for product quality.
- Starbucks: Similarly, Starbucks customers expect high-quality products and service.
Using Blue Tokai’s ICP for Starbucks India
- Demographic and Psychographic Similarities: Both brands target affluent, urban professionals who are serious about their coffee and frequent cafes for work and leisure.
- Multi-Channel Approach: Both brands cater to customers who enjoy consuming coffee at cafes, ordering online, or at home, indicating similar behavior patterns.
- Brand Positioning: Starbucks and Blue Tokai both position themselves as premium coffee brands with a focus on quality, experience, and customer loyalty.
- Market Segment Overlap: There is a significant overlap in the target market segment regarding spending capacity, brand loyalty, and quality expectations.
ICP
Name | Sid | Shruti |
Coffee Connect | Social Cafe Goer | Serious Cafe Goer |
Coffee Quote | Coffee = Fun times | Cafes are a great place to get work done |
TAM | High | High |
Typical Coffee Touch points (in order of priority) | At-Cafes; At-Office | At-Cafes; Order Online; At-Home |
Frequency of Use-Case | High | High |
Average Spend on Coffee/Month | INR 2,500 | INR 5,000 |
Willingness to pay | High | High |
Perceived Value of Brand | High | Moderate |
Potential to capture Share of Wallet | Moderate | High |
ICP Prioritisation 🧍♀️
For Starbucks India, ICP prioritisation ensures targeted marketing and operations towards the most profitable customer segments, maximising resource efficiency and enhancing customer loyalty. This strategic focus drives higher conversion rates and revenue growth by catering specifically to the preferences and needs of these high-value customers.
Name | Shruti |
Coffee Connect | Serious Cafe Goer |
Coffee Quote | Cafes are a great place to get work done |
TAM | High |
Typical Coffee Touch points (in order of priority) | At-Cafes; Order Online; At-Home |
Frequency of Use-Case | High |
Average Spend on Coffee/Month | INR 5,000 |
Willingness to pay | High |
Perceived Value of Brand | Moderate |
Potential to capture Share of Wallet | High |
Market Sizing
In analysing Starbucks’ market sizing in India, it’s important to distinguish between two key segments that Starbucks operates in internationally: Business-to-Consumer (B2C) and Business-to-Business (B2B).
B2C (Business-to-Consumer): Directly engages with individual customers through retail stores.
B2B (Business-to-Business): Involves selling products to other businesses, such as bulk coffee supplies for corporate clients or other coffee shops.
Starbucks India has chosen to focus solely on the B2C segment for now. As CEO Sushant Dash noted in a recent interview, the company aims to build its brand and grow the coffee category before exploring the B2B space. This strategic focus on retail allows Starbucks to establish its presence and enhance customer loyalty before considering B2B opportunities.
So for this piece we will eliminate the focus on the B2B segment category for Starbucks.
1. Total Addressable Market (TAM)
Total Addressable Market (TAM) for Starbucks India represents the maximum revenue opportunity if Starbucks captured 100% of the coffee market in India.
- It includes potential coffee consumers across all regions, both urban and rural.
- TAM also considers future growth as coffee culture and demand expand in the country.
- Understanding TAM helps Starbucks gauge the overall market size and tailor its expansion strategy.
- This insight allows Starbucks to effectively plan how to reach and serve the broadest customer base in India.
Bottom-Up Approach
Baseline Number
Parameter | Reasoning | Data |
Total Population of India | 1,400,000,000 | |
Urban Population | 36% of total | 500,000,000 |
Population in the 18-45 Age group (most coffee consumption happens in this group) | 650 Million | 650,000,000 |
Urban Population in the 18-45 Age Group | 36% of 18-45 | 0.36*650,000,000 = 234,000,000 |
Retail Cafe Chain
Parameter | Data | Source/Assumption |
Base Population | 234,000,000 | From the above table |
15% try coffee in cafes | 0.15*234000000 = 35,100,000 | Reasonable estimate (further qualified with disposable income and non-coffee consumers) |
Natural Frequency | Once a month = 12 times a year | ICP data |
Average Order Value | INR 250 | Reasonable estimate (Lower end coffee starts at 150 to higher end at 600) |
TAM | =35,100,000*12*250* = INR 10530 CR INR |
2. Serviceable Addressable Market (SAM)
Serviceable Available Market (SAM) is the segment of the Total Addressable Market (TAM) that a company’s products or services can target, considering current capabilities and geographical reach.
- For Starbucks India, SAM includes the coffee market segments that Starbucks can effectively serve, given its current store locations and operational scope.
- SAM focuses on areas where Starbucks can realistically compete and meet consumer demand with its existing infrastructure and product offerings.
- It helps Starbucks identify the market portion they can address within the larger TAM.
- By understanding SAM, Starbucks can prioritize its resources and marketing efforts to regions and customer segments it can effectively serve.
- Cafe culture is booming in Tier 1 and Tier 2 cities, especially around high-population density areas
- Tier 2 and 3 are dominated by local cafes than retail chains
- Majority sales and by that we mean 75% is driven through Tier 1 and Tier 2 cities in the organised sector.
Calculation:
SAM = TAM × Percentage of Organised Sector
SAM = ₹10530 CR × 0.75
SAM = ₹7897.5 CR
3. Serviceable Obtainable Market (SOM)
Serviceable Obtainable Market (SOM) represents the portion of the SAM that a company can realistically capture, considering its market position, competition, and resources.
- For Starbucks India, SOM includes the share of the market that Starbucks can feasibly secure in the short to medium term, based on its competitive advantages and current market conditions.
- SOM takes into account factors like store locations, brand recognition, and marketing strategies to estimate the achievable market share.
- It helps Starbucks set realistic goals and measure progress against its market penetration and growth objectives.
If we assume Starbucks wants to obtain a market share of 30%. Service Obtainable Market for Starbucks in India is calculated as follows:
Calculation:
SOM = SAM × Market share
SOM = 7897.5 × 0.30
SOM = ₹2369.25 CR
Acquisition
First of all, let’s start by defining what acquisition means for Starbucks.
There are distinct lines of business and sources of revenue for Starbucks, hence it is important to define acquisition in each case.
Business Vertical | Platform | Acquisition Definition |
B2C | Café | At least one transaction at the cafe or via delivery from the cafe |
B2C | Market Place | At least, one purchase from Flipkart, Myntra or Tata Cliq |
B2B | Brand Partnerships | Product placement within other businesses |
D2C | Website | Visit to the website and at least one purchase |
D2C | App | App installs |
Channel Prioritisation Framework
Channel | Effort | CAC | Flexibility | Lead Time | Acquisition Potential |
Organic | High | Low | High | High | High |
Product Integration | Medium | Medium | Low | High | Medium |
Paid Ads | Low | High | High | Low | High |
(i) What worked for Starbucks:
- Store Expansion: Starbucks is aggressively expanding in India, with 421 outlets in 61 cities and plans to open around 1,000 more by 2028 — that’s one every three days. Recognising India as a key growth market, Starbucks aims to double its workforce from 4,300 to 8,600 to boost service and efficiency. The company will also target tier-2 and tier-3 cities, expand drive-thrus at airports, and increase 24-hour locations to enhance accessibility and meet customer needs.
- Product placement with Vistara 🛫: Vistara, a joint venture between Tata Sons and Singapore Airlines, has teamed up with Starbucks to enhance the in-flight experience for passengers. Now, travellers can enjoy freshly brewed Starbucks® India Estates Blend at 35,000 feet. This collaboration not only brings the beloved coffee experience to the skies but also showcases the premium quality of Indian Arabica coffee, marking it as the first Indian coffee offered by Starbucks all while enhancing the customer touch point for them.
- RSVP to summer party ☀️: India has the largest millennial population which makes up almost 34% (440 million) of the country's total population. Together with Gen Z, by 2030, around 50% of India’s population (750 million) will consist Millennials and Gen Z and to appeal to this category Starbucks came up with their RSVP to summer party. Stores across Mumbai, Delhi, Bengaluru, Pune, Chennai and more had appearances made by some of India’s leading content creators who turned into baristas as they go behind the scenes of the coffee bar to take up a shift for consumers present and there’s nothing more that drives more footfall than your favourite influencer making your drink.
- Collaboration 🤝: We all know how some people go nuts over Starbucks’ merchandise. What if you bring the two biggest celebrated designers of India to launch a limited edition merchandise with you? that’s exactly what Starbucks did. This year they launched a limited edition merchandise with Manish Malhotra and a little over two years ago they did the same with Sabyasachi Mukherjee. Collaborations with popular designers like these can attract new customers who are fans of these designers, expanding Starbucks' customer base.
(ii) By GrowthX:
- Paid Ads: Paid Ads can enhance the visibility of Starbucks. Our incredible team at GrowthX has worked on a Capstone Project for Blue tokai where 64% of their users mentioned YouTube and Instagram as amongst the top used apps.
B2C: Introducing Coffee Hours
Insights:
Based on our visits to cafes in Bangalore and competitor analysis, we have found that on weekdays, the slump hours range from 12PM to 4 PM. Both the footfall and number of transactions are at the lowest during slump hours.
Blue Tokai product team hinted that the slump hours vary from one location to another.
Lever | Acquisition |
Sub-type | Social Media, Influencer Campaigns, You Tube Ads, Amplified by Paid Ads |
Campaign Objective | • Primary → Increase morning foot traffic to Starbucks stores (Slump hours)
• Secondary → Special breakfast menu items and morning-only discounts. |
Loyalty Program | Earn two stars for purchases made during the Coffee hours. |
Campaign Insight | • Offering exclusive morning deals which enhances customer loyalty and satisfaction.
• Morning-specific menu items cater to the needs of early risers, fostering a habit of beginning the day at Starbucks |
Target ICP | • Serious Cafe-Goer |
Channel Prioritisation
Channel | Cost | Flexibility | Effort | Lead Time | Scale |
Google Search | High | High | Medium | Low | Medium |
Google App Campaigns | Medium | Low | Low | Low | High |
Google YouTube | Medium | Medium | Low | Medium | High |
Facebook | Low | High | Medium | Medium | High |
Instagram | Low | High | Medium | Medium | High |
Flipkart, Myntra, Tata Cliq Ads | Medium | Low | Medium | Medium | Medium |
Promotional Strategies and Offers
- Special Combos: Pair a coffee with a food item at a discounted price, ensuring the average order value is ₹500 or less.
- Short Café Americano & Malabari Egg Croissant: ₹499 (originally ₹555, saving ₹56)
- Short Cappuccino & Mediterranean Veggie Wrap: ₹500 (originally ₹650, saving ₹150)
- Tall Iced Coffee Latte & Pesto Veggie Sourdough: ₹500 (originally ₹755, saving ₹255)
- Coffee-Only Offers: 20% off on specialty coffee during Coffee Hours (12 PM - 4 PM).
- Loyalty Program: Double Reward Stars for purchases made during Coffee Hours.
Time Slot | AOV (Average Order Value) | Number of Customers (During Slump Hours) | Targeted Increase in Customers |
12-4 PM (Weekday) | ₹500 | 55 | 20 |
Since out of 105 hrs of cafe in a week we are targeting 20 hrs which is around 19% of the Cafe time
Projected Revenue
Increased Revenue | Amount |
Increased Revenue per day | 10000 |
421 cafes | 4210000 |
Per week (5 days) | ₹21,050,000 |
Per month | ₹84,200,000 |
Per year | ₹1,094,600,000 (₹109.46 CR) |
These projections highlight the significant financial impact that the targeted increase in customers during slump hours can have on the cafe's overall revenue. The annual revenue increase ₹1,094,600,000 (₹109.46 CR) represents a substantial boost to the cafe's financial performance.
To achieve this growth, a multi-channel awareness campaign is proposed, utilising Google Display, YouTube, and Meta platforms.
Platform | Cost | Cafe Visits on slump time |
Google Display | ₹780,000.00 | 10400 |
YouTube | ₹1,144,000.00 | 12480 |
Meta | ₹1,310,400.00 | 18720 |
Total (one month) | ₹3,234,400.00 | 41600 |
Total (twelve months) | ₹38,812,800.00 | 499200 |
The awareness campaign is expected to drive a significant increase in cafe visits during slump hours. The projected number of additional customers attracted through each platform is: Google Display (10,400), YouTube (12,480), and Meta (18,720), totalling 41,600 new customers per month and 4,99,200 per year.
Onboarding
Onboarding in the context of Starbucks India refers to the strategic process of immersing new customers in the brand, showcasing its unique offerings, and delivering an exceptional experience from the first interaction. This process is designed to engage customers effectively, ensuring they quickly appreciate the value and distinctiveness of Starbucks.
1. Offline 💼
India’s gig economy is booming, with 15 million freelancers in IT, HR, and design and a 4% annual growth rate. Additionally, India boasts one of the largest white-collar workforces globally at 50 million, adding 2.6 million white-collar workers each year. The top five cities—Bengaluru, Hyderabad, Delhi, Mumbai, and Chennai—account for 38%, or 1 million new workers annually.
These professionals, many of whom are millennials reliant on coffee, also need a productive workspace. Starbucks excels in creating a superior in-store experience not just through ambiance, but through its baristas. Baristas at Starbucks are trained to offer amazing customer service right from remembering customers names to their regular go to orders.
2. Mobile Order & Pay 🤳
Circling back to what we mentioned a few minutes ago, the workforce in India is booming. While we have some of them going to the cafe for the peace and quite, the free wifi and getting to work, the rest just want their coffee to go. And they don’t like waiting in lines (especially during peak hours). Enter Mobile order & pay. This feature not only offers unmatched convenience but also serves as a brilliant onboarding lever for new customers. Here’s how it works and why it’s a game-changer.
Appealing to Tech-Savvy Users
MO&P caters to a digital audience by streamlining the coffee-buying process. The Starbucks app allows users to order and pay via their smartphones, avoiding long lines and enhancing efficiency.
Easy Onboarding
Downloading the app from the Apple App Store or Google Play Store is simple. Register as a Starbucks Rewards™ member, explore the menu, and place your first order without waiting in-store.
Boosting Membership
MO&P integrates new users into the Starbucks ecosystem by linking them to the Starbucks Rewards™ program from the start. This encourages future visits and loyalty through immediate rewards.
How It Works
After registration, open the app, enable location services, browse the menu, customize your order, and pick it up at your convenience. This streamlined process saves time and enhances the Starbucks experience.
Why It Matters
A smooth, rewarding first experience with MO&P not only attracts new customers but also encourages repeat visits by making the process easy and rewarding.
3. App
The Starbucks India mobile app is a comprehensive tool designed to enhance your coffee experience, from ordering your favourite drink to earning rewards. Here’s an overview of how the app works, its features, and what makes it an effective onboarding lever.
What is working?
1. Comprehensive Functionality
The app description and the images convey all functionalities of the app. It also mentions features like the my Starbucks rewards programme, pay in store, earning rewards, finding a store, refer-and-earn and Starbucks E gift features.
2. Easy Download and Setup
- App Availability: Available on the Apple App Store and Google Play Store.
- Quick Setup: Simple download and installation process.
3. Personalised Experience
- Face and Fingerprint Recognition: Offers secure and convenient login options.
- Skip Login Process: Allows users to bypass the login step for quicker access.
- Personalised Message: Greets users with a tailored message.
- Referral Code: Option to enter a referral code during sign-up for additional benefits.
4. Location Access and Wi-Fi Connectivity
- Location Permissions: Requests access to your location to find nearby stores and tailor your experience. It does not access personal details.
- In-Store Wi-Fi Connection: A pop-up prompts you to allow automatic connection to in-store Wi-Fi during your visits, along with terms and conditions
What Needs Improvement?
- App Rating: Despite many positive reviews, the overall rating of 3.6 suggests room for improvement in user experience and functionality.
- Icon Visibility: Icons for store locator, checkout, and user profile are very small and can be difficult to spot.
- Item Visibility on Home Screen: Beverages and other orderable items do not show up on the first screen; users have to scroll to find them.
- Order Placement Tutorial: No tutorial or guide is available to help new users understand how to place their order, which can be confusing for first-time users.
Engagement
Let’s define what engagement means in the context of Starbucks
Active User Engagement for Starbucks India:
- Cafe: Regularly visits Starbucks stores, places orders, and enjoys the in-store experience.
- Online: Makes purchases through Starbucks India’s website or mobile app, including ordering for pickup or delivery.
(i) What worked for Starbucks
The Starbucks Master Brewer program turns the coffee experience into an immersive journey, engaging customers through education, hands-on practice, and celebrating coffee culture.
1. Journey from Farm to Cup
Participants learn about Starbucks' top 3% Arabica beans, their selection process, sustainable practices, and ethical sourcing, fostering appreciation for the quality and care in every cup.
2. Mastering Brewing Techniques and Latte Art
Guided by skilled Starbucks partners, participants explore brewing methods like French press and pour-over, and gain hands-on experience in crafting intricate latte art.
3. Recognition and Celebration
Participants receive a Master Brewer apron, label pen, French press, top 3% Arabica beans pack, and a certificate, celebrating their expertise and fostering brand loyalty.
(ii) By GrowthX
Let’s begin by understanding what a what a casual, core and power user is with reference to Starbucks
Type | Casual | Core | Power |
Coffee | Once a month | Once a day | 2-3 cups a day |
Cafe | Once a month | Once a week | 3 times a week |
Defining an active user
- Primary Action: An active Starbucks customer is identified through consistent purchases, such as visiting the store or using the app at least once a month.
- Secondary Actions:
- Product Exploration: Regularly trying new beverages and food items from the menu.
- Mobile App Interaction: Engaging with the Starbucks app, checking for offers, and placing orders.
- Rewards Participation: Actively earning and redeeming Starbucks Rewards points.
- Feedback and Reviews: Providing feedback on products.
- Social Media Engagement: Interacting with Starbucks content on platforms like Instagram and Facebook.
The intention is to find the right lever of engagement to move Casual → Core → Power
Engagement Strategy Framework
(i) Cafe
Engagement Framework | Key Tracking Metric | Focus | Rationale |
Frequency | Number of visits in a certain time period | Primary | The more the user visits the cafe, the more they experience the CVP.
More visits = more familiarity with the cafe |
Breadth | Number of unique products consumed | Secondary | The more products the users try, the more delighted they would be to know that each product is of high quality and also caters to different use-cases (hot vs cold etc) |
Depth | Amount of time spent per visit | Secondary | Improves stickiness. More time spent at a cafe will help fuel the habit and increase their comfort levels in the vicinity. |
(ii) Online
Engagement Framework | Key Tracking Metric | Focus | Rationale |
Frequency | Number of order in a certain period of time | Secondary | The more frequently the users order, the stronger their preference for the product becomes, making them less likely to churn. |
Breadth | Number of unique products ordered | Primary | Improves stickiness. Increasing the number of use-cases a customer has with the product will greatly increase engagement, lead to more top-of-mind recall and then lead to an increase in natural frequency. |
Depth | Number of products ordered x Price | N/A | Spending on coffee is limited by various factors, ranging from number of consumers + number of cups a day. It’s hard to change this habit. |
Consumer Insights: Customers choose Starbucks for its high-quality products, premium experience, and strong brand recognition. Understanding these motivations helps tailor engagement strategies to enhance customer satisfaction and loyalty.
Engagement Strategy
Product Hook (1): Explore Your Coffee Experience
Goal: Encourage users to try new beverages and food items based on their past orders or preferences.
Problem Statement: Customers often stick to their usual orders, missing out on new offerings.
Current Alternative: Relying on recommendations from friends or social media.
Solution:
- Personalised Notifications: Send tailored messages like "Try Our New Seasonal Latte!" based on past purchases.
- Interactive Quizzes: Use the app to recommend new drinks based on user preferences.
- Exclusive Offers: Provide limited-time discounts on new items to incentivise trials.
- Sampling Program: Introduce a “Taste Before You Buy” option for new beverages, allowing customers to try small samples.
Success Metrics:
- Increase in the average order value (AOV) from core users.
- Growth in the number of new product categories purchased.
- Reduction in churn rates among casual users.
Campaign Example
Campaign Goal: Encourage customers to explore new menu items.
Target Segment: Casual users.
Offer: Notification: "New in Drinks: Try Our Exciting Fall Flavours!" with a surprise discount.
Campaign Content: "Discover Your Coffee Adventure! ☕️ Dive into our new menu items and enjoy exclusive discounts just for you. Click to explore the latest flavours and treats!"
Channel: Push notifications and email.
Frequency: Monthly.
Timing: After their second purchase or during seasonal menu changes.
Success Metrics:
- Increase in AOV from core users.
- Reduction in churn among casual users.
Other Metrics to Track:
- Click-through rates (CTR) on emails and notifications.
- Overall sales growth from new product categories.
Product Hook (2): VIP Access Program
Goal: Drive core users to become power users through exclusive access and tailored experiences.
Problem Statement: Core users may not feel a strong incentive to elevate their loyalty status.
Current Alternative: Users may not perceive significant benefits in their current engagement level.
Solution:
- Exclusive Events: Host special tasting events and barista-led workshops for power users, enhancing the value of their loyalty status.
- Personal Coffee Concierge: Provide a dedicated support channel within the app where power users can get personalised recommendations and priority service for special orders or customisations.
- Early Access to Products: Give power users early access to new products and seasonal offerings, along with exclusive merchandise or limited-edition items.
Campaign Example:
- Campaign Goal: Encourage core users to upgrade to power user status by highlighting exclusive benefits.
- Target Segment: Core users.
- Offer: "Unlock VIP Access! Become a Power User Today!"
- Campaign Content: ”Join our Power User Program and enjoy exclusive tasting events, personalised offers, and more! Upgrade now for a special bonus!”
- Channel: Email and in-app notifications.
- Frequency: Bi-monthly.
- Timing: During new product launches or seasonal promotions.
Success Metrics:
- Increase in upgrades to power user status.
- Growth in attendance at VIP events.
- Higher engagement rates with personalised concierge services.
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Retention
1. Ambient and Scent Marketing:
Olfactory marketing (or Scent Marketing) has been a key element in the hospitality and F&B industries, with Starbucks pioneering scent branding since 1971. While visual marketing is powerful, scent marketing creates a deeper emotional connection. A 2009 study found that ambient scents significantly influence consumer behaviour, and a 2014 Sense of Smell Institute study revealed that 90% of people remember scents compared to 50% for visuals.
At Starbucks India, the in-store experience uses the aroma of freshly brewed coffee and curated music to enhance customer retention. This sensory strategy fosters a welcoming atmosphere, making visits more memorable and enjoyable beyond traditional methods like rewards or sustainability.
2. Starbucks Rewards Program:
You know how Apple locks users into their ecosystem with seamlessly integrated devices, exclusive software, and services? Similarly, Starbucks hooks customers into their “digital ecosystem” through various strategies. To use the convenient mobile order and pay feature, you need to download their app. Additionally, to earn rewards like free drinks and exclusive offers, customers must participate in their loyalty program, which is also managed through the app. By centralising these benefits and conveniences within their app, Starbucks ensures that customers remain engaged and loyal, making it difficult for them to switch to other coffee chains.
Metrics and Impact:
- Membership Growth:
- The My Starbucks Rewards program in India has surpassed 3 million patrons, marking a 30% year-over-year growth. This metric indicates the program's expanding reach and increasing popularity.
- Customer Spend:
- By rewarding customers for every ₹400-₹500 spent, Starbucks incentivises regular spending. This ongoing reward system keeps customers engaged and encourages them to make repeat visits.
- The program encourages higher spending by offering stars for purchases, with a tiered earning system based on payment methods. This incentivises customers to use the Starbucks card, which is beneficial for tracking spending patterns and providing personalised offers.
- Engagement and Convenience:
- The in-store mobile ordering and pickup feature significantly enhances convenience, catering to customers' need for quick service.
- This feature not only improves the customer experience but also drives repeat visits, as customers are more likely to return for the ease of use and time savings.
- Retention and Loyalty:
- Offering tangible rewards like free drinks for earned stars strengthens customer loyalty. Patrons feel valued and are motivated to continue spending to earn more stars.
- The rewards program, coupled with mobile ordering and pickup, enhances the overall customer experience by making it more convenient and rewarding.
- The program's structure encourages frequent visits and higher spending, directly impacting retention rates.
To explore how Starbucks' loyalty program has expanded internationally, with 30 million customers and counting, check out this GrowthX newsletter. It’s packed with insights on how their program leverages high-frequency use case and true liquidity of points to create a compelling and valuable customer experience.
Behind the Scenes: Starbucks India’s Cost Breakdown
1. Advertisements 📱
- FY 2023: ₹34 Crores
- FY 2022: ₹18 Crores
Starbucks is rapidly expanding, opening a new store every three days, and engaging Gen Z and millennials with trendy initiatives like RSVPing to summer parties. Last year’s ₹18 crores were just a warm-up; this year, they went full throttle. Coupled with a ₹34 crores ad spend for high digital visibility, these strategies ensure strong brand presence and consumer engagement.
2. Rent 🏢
- FY 2023: ₹81 Crores
- FY 2022: ₹50 Crores
A majority of Starbucks sales come from their retail cafes segment and people go to Starbucks for two key reasons: to hangout & to work and it is essential for them to make sure these stores are located in prime locations or social hubs and we all know that premium location means premium rent. This increase in rent is also because of their rapid store expansion.
3. Employee Expenses 👨💻
- FY 2023: ₹159 Crores
- FY 2022: ₹104 Crores
Employee expenses jumped from ₹104 crores to ₹159 crores. With the addition of 88 stores this year alone, it’s safe to assume this number is going to skyrocket.
4. Raw Materials 🥛
- FY 2023: ₹316 Crores
- FY 2022: ₹185 Crores
Starbucks shelled out ₹316 crores on raw materials this year. That’s a lot of beans, sugar, and everything nice – basically the Powerpuff Girls formula for coffee.
5. Others 💸
- FY 2023: ₹546 Crores
- FY 2022: ₹410 Crores
This category includes expenses for utilities and maintenance like electricity, water, and general store upkeep, technology upgrades, employee training, store design and renovation, and supply chain management. This increase highlights Starbucks' growing investment in operational efficiency and enhancing customer experience.
What’s Truly Working for them? ✅
1. Innovative Store Formats
Starbucks India has experimented with different store formats to cater to diverse customer needs, allowing for flexibility and adaptation to various market conditions. Recently, the company announced the opening of its first store in a metro station across India. The store has been opened in the Western Express Highway Metro station in Mumbai. The store is equipped with facility serving customers on the go. The store will feature a special quick grab and go counter for those in a rush (it will also be open from 8 AM to 9 PM on all days of the week). These express stores, with their streamlined menu and faster service, have reported higher transaction volumes during peak hours. Conversely, larger stores like the one in Elante Mall, Chandigarh, offer a more extensive menu and ample seating, catering to customers who prefer to spend more time in-store. These varied formats ensure Starbucks meets different consumer needs effectively, maximising its market reach and profitability.
2. Expansion into Tier 2 Cities
While major metropolitan areas remain the primary focus, Starbucks India has been expanding into Tier 2 cities, tapping into the growing middle class who aspire to premium brand experiences. The opening of a Starbucks store in Amritsar, a Tier 2 city, showcased the brand's strategy to penetrate new markets. This move has been well-received, contributing to an increase in overall market share. The success in Amritsar has led to further expansions in cities like Ludhiana and Lucknow, indicating strong demand and acceptance in these regions.
3. Consumer Lifestyle Integration
Market analysis reveals that Starbucks India strategically targets urban millennials and young professionals who view Starbucks not just as a coffee shop, but as a lifestyle choice. The brand's premium positioning and the ambiance of its cafes cater to the aspirational lifestyles of these demographics.
Starbucks cafes in India are designed to cater to professionals looking for informal meeting spaces or remote working environments. Reports indicate that this has become particularly popular post-pandemic, with more customers using Starbucks as a co-working space.
What might kill their growth in the future? ❌
Starbucks, even after operating in India for a decade, isn’t profitable. Although it surpassed the Rs 1000 crore ($120 million) revenue mark for the first time in the year ended March 2023. Starbucks India faces several key challenges in the coming decade, each of which could significantly impact its operations and growth. These challenges are multifaceted, ranging from intense competition to evolving consumer preferences and economic fluctuations.
1. Affordability Barrier
- Price Disparity: With the daily minimum wage in India at INR 178 ($2.15), Starbucks' beverages, priced up to $4, are prohibitively expensive for most Indians. This makes regular out-of-home coffee purchases unattainable for the majority, especially when compared to the US, where a $4.92 latte is feasible even for low-wage workers who earn a minimum wage of $7.25
- Local Price Comparisons: Starbucks' smaller 'pico' size beverages at below INR 200 ($2.40) still struggle against the ubiquitous $0.20 cup of chai, making it a hard sell for the average consumer.
2. Intensified Competition from Specialty Coffee Startups
- Surge of Specialty Coffee Brands: As Starbucks expanded its footprint in India, a new wave of specialty coffee startups emerged, rapidly gaining traction. Notable among them is Blue Tokai, supported by celebrity endorsements from Deepika Padukone and investors like A91 Partners. Blue Tokai has established itself with nearly 100 stores across India, emphasising high-quality, locally sourced beans and direct relationships with local coffee farmers. Similarly, Third Wave Coffee, valued at around $155 million and backed by investors such as Nikhil Kamath and Unacademy's Gaurav Munjal, has positioned itself as a significant competitor by offering distinctive coffee experiences and a strong customer retention rate of nearly 60%.
- Significant Venture Capital Investment: The investment landscape for specialty coffee chains in India has seen substantial growth. These chains have attracted nearly $100 million in venture capital over the past two years, a notable increase from the $22 million secured in the previous four years. This influx of funding underscores the rising investor confidence in the specialty coffee segment and its growing appeal among consumers.
- Competitive Pricing and Market Penetration: Domestic brands like abCoffee offer competitive pricing, with beverages starting at INR 77 ($0.93) for an espresso and INR 101 ($1.20) for a standard latte. Their ability to provide quality coffee at lower price points, achieved through efficient operations and domestic sourcing, presents a strong challenge to international players like Starbucks.
- Strategic Real Estate Competition: The competition for prime real estate has intensified, particularly in the wake of the decline of Café Coffee Day (CCD). Starbucks has responded by including lease agreements with clauses that prevent premium coffee chains, including Third Wave and Blue Tokai, from operating on the same floor in certain locations. This move highlights the fierce competition and the strategic importance of securing desirable locations in a crowded market.
3. Cultural Preferences
- Dominant Tea Culture: Traditional tea (chai) is deeply ingrained in Indian daily life and remains a significantly cheaper alternative to coffee. This cultural preference poses a major challenge for coffee chains attempting to shift consumer habits.
- Emerging Coffee Trends: Despite a 30% increase in coffee consumption since 2018, coffee still battles against the entrenched tea culture, making market penetration slow and challenging.
4. Economic Sensitivity
- Income Disparity: There are approximately 432 million middle-class Indians, defined as having an annual household income between INR 500,000 and 3 million ($6,700-$40,000). This broad definition indicates that around one-in-three Indians fall into this bracket, making discretionary spending on out-of-home coffee feasible for many.
- Potential Market Size: If just 10% of these top-earning consumers adopt branded coffee culture, India’s addressable market would be on par with a mid-sized European country, indicating substantial growth potential. Furthermore, PRICE forecasts that by 2047, this middle-class group will comprise nearly half of India’s projected 1.66 billion population, suggesting a significant increase in potential consumers for premium coffee brands like Starbucks.
- Economic Fluctuations: According to the Goldman Sachs 2023 report, only 60 million Indians currently earn more than $10,000 annually, a figure projected to rise to 100 million by 2027. For the vast majority of India's 1.4 billion people, specialty coffee remains a luxury that is largely out of reach. India's growing middle class presents both an opportunity and a challenge. While there is a significant potential market of consumers who can afford premium coffee, economic fluctuations and global recessions can affect discretionary spending.
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