1. Key Issue:
CCD holds the largest market share of 60% in the coffee market. It majorly targets young population in the less than 30 age group. It achieves operational efficiency by keeping most manufacturing in-house and managing efficient expansion and staffing. It is no facing competition from global retail chains like Starbucks which faced a great initial response on introduction in India, with its flagship store generating twice the revenue earned but CCDs best store in spite of concentrating just top 5-7 % in terms of income. The challenges to growth: high rent, attrition, keeping customers engaged and keeping traffic throughout the day. We have analyzed the three possible next steps for CCD through the analysis of their retail strategy, 7 P analysis, STP and quantitative analysis.
2. Analysis of strategies adopted by Café Coffee Day and its competitors
Retail Strategy Analysis
Category and Merchandise management
Café Coffee Day Starbucks Merchandise offering
Cold & hot coffee and tea in different variants
An equal mix of International & regional cuisines & desserts
Coffee cups, t-shirts, bags etc.
Cold & hot coffee and tea in different variants
More of International cuisines and a few regional ones as well
Coffee cups and Coffee beans only Degree of localization
Relatively higher, which reflected in their menu
Indianisation of Western dishes
Some degree of localization in menu, still geared towards tourists and well-travelled Indians Pricing
Lower than its competition, reflecting the affordable luxury image
Premium-priced
(Rs.125 for a sandwich at Starbucks vs Rs.85 at CCD ABV
Rs.175 (2004)
Rs.450-600
Store Operations
Café Coffee Day Starbucks Store size & location
800-1000 sq. ft. stores in urban areas with a large youth population like, on corporate campuses, high streets, education institutions, malls etc.
1700-2000 sq. ft. stores at premium shopping locations and expensive high streets. Store aesthetics & Service-level
The store itself reflected the youthful aesthetics but focused more on functionality. No as such personalization & customization in service was offered in general.
Larger and Lavish stores with a chic & artsy aesthetic.
Higher service levels with layers of personalization and better-trained personnel Customer loyalty
Very high given the affordable price point and the brand image it had among its customers. In 2004, 60% of customers visited CCDs at least twice a week
Relatively low, popular among travellers and not very affordable for average Indians to visit regularly Retail model- Company owned/Franchise
Company-owned stores to maintain control and consistency in quality which can be compromised in a franchise based model
Owned/Rented by the JV – Tata group and Starbucks India.
Quality control to maintain very high service levels.
Supply Chain management (Sourcing/logistics) Café Coffee Day Starbucks Sourcing raw materials
Coffee beans procured from their own plantations (enough production that they export)
Beans are majorly sourced from Tata coffee plantations (synergy of the joint venture) Manufacturing (roasting, blending)
All the manufacturing activities being in-house gives good supply side forecasts and less variability
Most of the roasting activities managed by Tata Group. Blending is in-house for consistent quality & taste Inventory control & flexibility
Vertical integration and a huge number of stores across India give them a higher control on inventory levels. Excess inventory can be sold off as packaged beans in multiple retail formats.
Flexibility & economies of scale is leveraged
The focus is primarily on the revenues owing to premium pricing hence higher inventory is acceptable to ensure superior product availability across its multiple stores in major cities.
Not as flexible and to enhance economies of scale the firm is looking for fast expansion (many more stores)
Segmentation, Targeting and Positioning
Particulars Café Coffee Day Starbucks Our recommendation for CCD Segmentation
CCD has segmented the
market into primarily 4 kinds of consumers on the basis of
demographic and psychographic characteristics; i.e. The typical youngsters (Age
15-30), the upper middle class
(Age 28-36), The no hassle consumer who doesn‟t have time for any kind of experience, and is only interested in getting good, hygienic food at an affordable price, and coffee connoisseurs with a taste for exotic coffee.
Starbucks primarily looked at the
upper segment of the market, mostly working professionals
above the age of 25, who had higher willingness to pay, and appreciated ambience and aesthetics apart from the tangible product/service
We recommend similar market segmentation for CCD. Targeting
CCD targets all 4 segments by different product/service offerings. It caters to the youngsters with lower WTP with its Café coffee day cafes across different cities, whereas people who don‟t care about the ambience and want to have a quick bite are catered to by the Xpress kiosks. The upper middle class, working professionals are catered to through the CCD lounges with muted colors, better furniture, softer music etc. Further social
elite were targeted through the
CCD Square
Starbucks primarily targets the upper middle class, who don‟t mind spending an average bill of Rs600 per visit, and who give immense value to the experience of coffee drinking. However, Starbucks is making sure that as Indian consumers are price
sensitive, they don‟t overprice their products too much, and keep them as close to the WTP of their TG as possible, reducing the consumer surplus
Using the 20:80 rule, CCD should focus its energies on 2 primary segments, its primary customer base, that is the youngsters, and the more privileged, working professionals. They can introduce a new brand to reposition its image, apart from being a value for money, low cost café. This would help them cater to both the consumer segments, as the lounge and square segments give them 4x-7x revenue
Positioning As a value for money option
for having a quick bite or
meeting a friend/family,
becoming a third place, after
home and office
As the ultimate coffee drinking
experience, with personalized
attention given to each
customers, and a social status
upliftment.
For the premium segment, CCD
should position itself as a direct
competitor to the Starbucks
experience, by further training
their staff for a more
personalized service and
experience for their consumers.
This would mean an overhaul of
the entire ambience, lighting and
music of the café.
7P Analysis
7Ps CCD Starbucks
Product Coffee sourced from own plantations Local Coffee brand sourced from TATA
Place Prime locations in urban areas along with tier
„b‟ and „c‟. 1496 stores in total.
Prime Locations, 11 stores currently.
Price Relatively Low (Rs.66 for cappuccino)
because of self-backward integration (Bean
plantations to roasting).
Aggressive (Rs.99 for cappuccino) to project a
premier brand image.
Promotion Youth-oriented promotions (Ticket selling
of rocks concerts). Popular films and TV
scenes filmed to target specific audiences.
They sold the idea of “ A lot can happen
over Coffee”
Superior customer service helped in word-ofmouth
publicity. They believed in selling the
“Starbucks Experience”
People Employees from small towns who are unable
to connect to customers were trained in a
residential hospitality college. Attrition
rate was lower for these employees plus
better training of the employees facilitated a
better service for the customer
Heavy investments were made in hiring of talent,
including the café staff. Employees were called as
Partners which gave a sense of belonging to the
brand and hence the service offered by the staff at
the store was excellent.
Processes CCD focused more on delivering appropriate
and satisfactory service to the customer.
Starbucks sold a unique coffee drinking experience
through its impeccable personalized service.
Physical
Evidence
Internally Sourced furniture and fixtures.
Bright red colored logo to give a jazzy and
young look.
Great Ambience. Earthy Pastel Colors gave
the store an elegant and elite look
3. Quantitative Analysis
According to Exhibit 9, 65% of Indians are in the age group 0-25. Because of this, we think it is most appropriate to
focus on the youth segment for revenue growth.
4. Decision Options and Recommendation:
For Coffee Day the ability to tap into youth clusters in tier-2 cities gives them an easier way to grow rapidly, multiplying
their stores.
For Starbucks, the clusters are much more limited, even with the TATA backing for rent contracts, the pricing and
positioning is not as ideal for rapid expansion (US levels). The inability of Costa Coffee and Barista Lavazza to compete
with CCD on their retail presence, even so after readjusting their pricing and menu is testament to the nature of market and
where majority of potential next-gen Coffee drinkers lie.
Some options are:-
1. Slight Course Correction: This would mean to continue with the current growth, fix operational issues and wait how
market shapes up in future.
2. Aggressive Course Correction: Keep focus and expand CCD lounge and CCD square to compete with Starbucks
and keep the status quo for young segment.
3. Create a separate brand for premium customers: Adopt a differentiating strategy and cater to both the segments
i.e. premium and young. Establish a new premium brand which will include CCD lounge and CCD square to compete
with Starbucks. On the other hand sustain the growth and keep on catering to young segment through original CCD
cafes.
These options can be evaluated on the basis of certain criteria namely - Growth in premium segment, Growth in
youth segment, Customer satisfaction level, Employee satisfaction level, budget and time.
In option (1), the action taken doesn‟t take any additional initiates to cater to premium segment. This may even dilute the
brand image. Similarly option (2) suggests aggressive strategy for both the target segments. This may give inconsistent
messages and might create a confusing message in customers mind. But in option (3), CCD can focus on both the
segments simultaneously. A separate premium brand will allow CCD to compete with Starbucks without compromising
the youth segment.
However, the premium segment which is high-margins, lower volumes in major cities, present retailing challenges for the
Indian Coffee major which needs them to rediscover their retail management strategy from its very core.
Some of the changes that we propose:
 Innovate on the merchandize mix by introducing more youth focused drinks; As Starbucks has focused on the
personalization element by writing customer names on the cups, CCD can work on drink customization to differentiate
itself.
 To increase the ABV, while focusing on the youth segment, CCD should release bundles where drinks are packaged
with food items. This is in addition to the small combo offerings they already have.
 The new retail outlets that focus on the premium segment, should be opened in catchment areas with high income
density
 The store layout that can be followed for the premium lounges should be the “Free-form layout” to maintain an image
of premium luxury