Sometimes back I heard the news that Starbucks is entering in India. Business media started explaining and suggesting strategies what and what not CCD (Cafe Coffee Day), the biggest coffee chain India (60% market share), should do survive the market entry of Starbucks in India. The response was quite expected since Starbucks has all the resources to take battle head-on with CCD in India
However, Starbucks did just the opposite. But before I come on to that let me explain what make CCD so successful in India
The key strengths of Starbucks is its Distribution channel, affordable pricing and high brand equity.
1- Strong Distribution Channel: CCD has a strong store format through which it targets all the segments. It operates its 1,550 outlets in three main formats which target different segments
- Regular café (1,495)
- The premium Lounge (51)
- and CCD Square (4), which serves single-origin (rather than blended) coffee
- Apart from these outlets, CCD has also set up 600 takeaway kiosks called CCD Xpress, and 16,000 vending machines in corporate offices around the country.
Expansion at CCD has been driven in a grid of verticals and formats, where verticals include transport hubs, shop-in-shops, hospitals, highways, college and corporate campuses
2- High Brand Equity among Youths: Being the pioneer of coffee culture in India, CCD enjoys high brand equity among the youths with major chunk of CCD customers falls within the age group of 20 to 30 which accounts for 60% of the overall revenue. The group comprises of mainly college going students and young working professionals
3- Differential Pricing: CCD follows differential prices, different stores of CCD has different pricing, which allows CCD to maintain profitability at store level
Let us see, what happened when Starbucks entered in India?
Conventional wisdom suggests that Starbucks should take a head on battle with CCD. However, Starbucks realized that it will never be able to rival CCD in terms of sheer scale and market share in India and even if it tries to do this will require huge investments in real estate, threat of price war with CCD and other chains, brand dilution etc. Starbucks also realized that CCD has high brand equity among youths due to its affordable pricing due to large young population which are its prime consumer base.
But at the same time, Starbucks realized that CCD is weakest in premium segments doesn’t have the clear positioning and scale of operations. Moreover, this segment has no competition (except CCD lounges and Squares) and there are ample opportunities to provide better services to the premium segment instead of going mass market which has intense competition from other chains
With keeping all the above factors in mind Starbucks has devised a strategy of going premium which will avoid heads on battle with CCD
Starbucks Differentiation Strategy compared to CCD and other Brands
- Single store format: Unlike CCD, Starbucks will have only one format. Single store format will allow Starbucks to set a uniform brand expectations
- Price: Standard pricing for all the stores but 1.5 times higher than CCD
- Location: Unlike CCD, Starbucks will have stores only in premium positions to target upper middle class
- Brand Positioning: By going premium, Starbucks is creating an aspirational brand
In other words, Starbucks has a clearly defined strategy of playing inpremium segment, targeting upper middle class above 30 populations by creating aspirational brand through single format, single pricing and providing high ambiance and coffee experience.
This is a wonderful example of how strategies should be created and uncontested market place are formed. As AG Lafley categorically said, “Strategy not about selectively choosing where to play and how to win but it is also about what not do”
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