“Reasons for choosing Market entry strategies of Moscow, 2024

Higher School of Economics Coffee shops in Asia-Pacific markets exemplified

by Starbucks and Costa Coffee in China and India”

“Reasons for choosing Market entry strategies of Coffee shops

in Asia-Pacific markets exemplified by Starbucks and Costa
Coffee in China and India”

Student: Ksenija Dabanovic

Research Advisor: Alexey Blinov
 Higher School of Economics “Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
INTRODUCTI markets exemplified by Starbucks and Costa Coffee in China and India” 2
ON

Object of research:
Market entry strategies of Asia-Pacific market
Subject of research:
Market entry strategies in Coffee shops
Research Question:
What are the reasons for market entry strategies that are implemented by Starbucks and Costa Coffee in China and
India?
 Higher School of Economics
STRUCUTURE
“Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
markets exemplified by Starbucks and Costa Coffee in China and India” 3

Structure of the paper

Chapter 1 Theoretical aspects of market Chapter 2 Analysis of reasons for Market Chapter 3 Findings and
entry strategies in Coffee shops in Asia entry strategies in Coffee shops in Asia recommendation for reasons for Market
Pacific Markets Pacific markets exemplified by Starbucks entry strategies in Coffee shops in Asia
and Costa Coffee in China and India Pacific markets exemplified by
1.1 Literature review of market entry
2.1 Overview of Coffee Shop market Starbucks and Costa Coffee in China
strategies in Coffee shops
and India
1.2 Theoretical background of market entry 2.2 Case of Starbucks in China and India
3.1 Findings regarding reasons for Market
strategies in Coffee shops 2.3 Case of Costa Coffee in China and India entry strategies in Coffee shops in Asia Pacific
1.3 Previous research of reasons for market 2.4 Comparative analysis of Starbucks and markets
entry strategies in Coffee shop in Asia Costa Coffee in China and India 3.2 Recommendations to Coffee shop brands
Pacific Markets using market entry strategies Asia Pacific
3.3 Limitations and recommendation for
further research
 Higher School of Economics
THEORY
“Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
markets exemplified by Starbucks and Costa Coffee in China and India” 4

1.1 Literature review of market entry strategies in Coffee shops

Authors Research focus Conclusions

Based on Culture: • Entry modes determined by: institutional • Firms that perceive high investment risks due
Kogut (1998) and cultural context, transactional costs to high costs of nationals culture tend to use
Drogendjik and Slangen(2006) and firm performance joint ventures
• Cooperative mode of entry decreases with the
Marschette al (2010) • Meta analysis of external terminates degree of cultural distance
Johanson and Vahlne (1977) • Cultural distance influence on choices of • High cooperation increases greenfield
expanding through acquisitions or investments
greenfield • Greater the cultural difference, greater
• Entry mode patterns based on previous opportunity for joint venture or whole owned
experience of foreign market subsidiaries market entry

Based on Market Attractiveness: • Subsidiaries ownership preferences • Firms enter highly wanted market via wholly
Brouthers ( 2013,2002) amongst MNEs owned subsidiaries due to expected potential
Taylor,Zou and Osland (1998) • MNEs resource commitment through • Attractive market enter vis wholly owned
subsidiaries and reflects greater potential
Randoy and Dibrell(2002) foreign market entry • Firms should use Vertical integration in order
• Independent and joint influence of to benefit economies of scale and to secure
ownership advantages long term market presence
 Higher School of Economics
THEORY
“Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
markets exemplified by Starbucks and Costa Coffee in China and India” 5

1.2 Theoretical background of market entry strategies in Coffee shops in Asia-Pacific Markets
• Anderson and Gatignon (1986) consider an Why Firms Go International:
entry mode a governance structure that
allows a firm to exercise control over foreign • Proactive Stimuli
operations Profit advantage Direct
export Franchising
• Hill et al. (1990) defines the phenomenon as a
Unique product
way of organizing the business activities in a Technological advantage
foreign country. Declining domestic sales Indirect
Joint
Exclusive Information export
MARKET ENTRY Ventures
• Sharma and Erramilli (2004:2) define as “a Economies of scale STRATEGIES
structural agreement that allows a firm to
implement its product market strategy in a
• Reactive Stimuli FDI
host country either by carrying out only International
marketing operations (i.e. via export modes) Competitive Pressures
acquisitions
Overproduction International
or both production and marketing operations
Declining domestic sales Mergers
there by itself for in a partnership with others
(contractual modes, joint venture, wholly Excess capacity
owned operations)” Saturated domestic markets
 Higher School of Economics
THEORY
“Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
markets exemplified by Starbucks and Costa Coffee in China and India” 6

1.3 Previous research of reasons for market entry strategies in Coffee shop in Asia Pacific Markets

The United Nations Department of Economic and Social Affairs reported that the global population was about 7.7B in 2019
of which there are 4.74 billion people living in Asia-Pacific — 60% of the world’s population - accounting for around 37% of
global economic output.

Why do firms enter Asia-Pacific market?

• Market Growth Key Dynamics Driving Market Entry of Coffee Shops in the Asia-Pacific:
• Changing Consumer Preferences • Rising Trend of Coffee Dynamics
• Influence of Western Coffee Culture Consumption • Surge in Domestic Consumption
• Rising Disposable Incomes • Market Expansion in China
• Untapped Emerging Markets • International Expansion of
• Diversification Strategy Coffee Chains
• Competitive Advantage • Cultural Significance and Market
• Strategic Partnerships
• E-commerce Opportunities
• Cultural Integration
 Higher School of Economics
THEORY
“Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
markets exemplified by Starbucks and Costa Coffee in China and India” 7

The coffee market in Asia-Pacific has evolved into a multifaceted landscape, with several key factors influencing its trajectory:
Shifts in Consumer Preferences: Changing consumer preferences and the growing demand for specialty and artisanal coffee experiences have reshaped the coffee
market, emphasizing quality, sustainability, and ethical sourcing.
Technological Advancements: Innovative brewing technologies and sophisticated coffee-making equipment have redefined the coffee experience, allowing
consumers to enjoy barista-quality coffee at home and on the go.
Sustainability and Fair Trade Initiatives: Increasing awareness about ethical sourcing practices and sustainable production methods has prompted the industry
to embrace environmentally conscious and socially responsible approaches, benefiting both coffee farmers and the ecosystem.
Digital Transformation and E-Commerce: The proliferation of e-commerce platforms and the digitalization of the coffee market have facilitated global access to
diverse coffee products, fostering a vibrant online coffee community and marketplace.

Factors influencing market entry strategy decision on Coffee shop companies:

• Cultural understanding preferences

• Consumer behavior analysis • Socioeconomic factors analysis

• Regulatory environment assessment • Thorough market research

• Market size and potential evaluation • Risk mitigation strategies development

• Competitive landscape analysis

• Economic conditions assessment

• Technology adoption consideration

• Infrastructure and logistics evaluation

 Higher School of Economics
ANALYSIS
“Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
markets exemplified by Starbucks and Costa Coffee in China and India” 8

2.1 Overview of Coffee Shop market

Regional coffee consumption was broadly split between decreased demand within the mature
markets and increased consumption within emerging markets in coffee year 2022/23
• North America saw the largest rate of decrease, with coffee
consumption shrinking to 29.8 million bags in coffee year 2022/23.
C on su mp tion of C offee-R egion s, grow th rate
This led the region’s market share of world consumption to decline

55.2
to 17.2%.

53.1
• • Africa’s coffee consumption fell by 5.4% in coffee year 2022/23,
decreasing to 12.2 million bags, following a prior 1.2% drop in

44.5
44.2
2021.
• • Asia & Pacific’s coffee consumption expanded by 0.6% in coffee
year 2022/23, with the region drinking 44.5 million bags of coffee.

31.3
29.8
As a result, Asia & Oceania’s share of world coffee consumption

27.5
27
increased by 0.7 percentage points to 25.7%.
• • Europe’s coffee consumption decreased to 53.1 million bags in
coffee year 2022/23, falling by 3.7% from 55.2 million bags in the

12.9
11.25
previous coffee year.

6.2
• • For the region composed of the Caribbean, Central America and

6
Mexico, coffee consumption increased by 0.3% in coffee year
2022/23, with 6.0 million bags Likewise, Afr ic a Ame r ic a Sout h Nor t h Asia a nd E ur ope
Ame r ic a Ame r ic a Pa c ifi c
• South America’s consumption increased by 2.0% to 27.5 million Source: Statista Market Insights,2023
bags.
 Higher School of Economics “Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
ANALYSIS markets exemplified by Starbucks and Costa Coffee in China and India” 9

• One of the main reason of the rise in its demand has been the growing understanding of the health
advantages of coffee drinking. Rapid urbanization and increasing per capita disposable income are
also offering profitable expansion opportunities for many coffee businesses in emerging markets.
As a result, the Asia-Pacific market is anticipated to develop throughout due to the trend of its
Global Coffee Shops Market Share (%), By
rising consumption. Thus, it is anticipated that this aspect will accelerate coffee shop market Region
revenue

13%
23%
10%

• Europe coffee market accounts for the largest market share. The creation of new products 18%
with technological advancements, the rising demand for convenient coffee capsules and 36%
pods, as well as the adoption of automatic bean-to-cup machines, are just a few of the
causes that may be credited to the domination of the regional market. Asia Pacific coffee
Market is projected that a number of factors, including widespread urbanization and the
North America Europe
expanding middle-income population group, will fuel market expansion in the area.
Asia&Pacifc South America
During the projected period, these factors are also anticipated to boost its demand.
Additionally, higher consumer disposable incomes per capita have contributed to an Middle East and Africa
increase in coffee sales.
Source: Statista Market Insights,2023
 ANALYSIS
,,Opportunities and challenges of Market entry strategies in Coffee shop
industry in Emerging markets exemplified by Starbucks and Costa Coffee in 10
China and India”

The Coffee Shops market in the U.S. is estimated at US$37.1 Billion in the year 2022. Further, the
China coffee market held the largest market share, and the India coffee market was the fastest growing
market in the region. India is also anticipated to grow one of the emerging markets with a total of
1192 CCD outlets across 208 cities.
China, the world's second largest economy, is forecast to reach a projected market size of US$14.8
Key market players revenue
Billion by the year 2030 trailing a CAGR of 7.1% over the analysis period 2022 to 2030. Among the in Million $ in Asia-
other noteworthy geographic markets are Japan and Canada, each forecast to grow at 3.4% and 3.9%
respectively over the 2022-2030 period. Within Europe, Germany is forecast to grow at approximately
pacifi c,2022
3.6% CAGR.

Dunkin' Caffee
$1.40
• Among coffee shops, Starbucks remains the leading specialist coffee and tea shop in Costa Coffee
Asia Pacific, accounting for USD26.51 Million in 2022. China, South Korea and $12.00
Japan are key markets for the brand, with further expansion in the pipeline. This is Luckin Caffee
due to its positioning as a premium coffee brand, its location of stores and interior $1.10
design promoting comfort and socializing, as well as partnering with local delivery Gloria and Jeans
platforms such as Grab. $12.10

• However, Starbucks is undoubtedly facing increasing competition from local Starbucks

$26.51
chained coffee shops which are expanding rapidly $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00

Source: Statista Market Insights,2023

 ANALYSIS
“Reasons for choosing Market entry strategies of Coffee shops in Asia-Pacific
markets exemplified by Starbucks and Costa Coffee in China and India” 11

The Growing Demand in the Asia Pacific Region:

•The Asia Pacific region is witnessing a surge in demand for ethical and organic coffee products driven by consumers' increasing concerns about social and ecological factors.
•Particularly in countries like India and China, there is a noticeable trend towards preferring organic-certified coffee.
Factors Driving the Trend:
1.Social and Ecological Awareness:
1. Consumers are seeking products that align with their values, including sustainability and ethical sourcing.
2. Organic certification is perceived as a means to reduce exposure to synthetic chemicals and pesticides, appealing to health-conscious consumers.
2.Influence of Young Consumers:
1. Younger demographics are driving the organic coffee trend, showing a preference for diverse flavors and a desire to understand the origins of their products.
Industry Response:
•Key players in the coffee sector are responding to this demand by expanding their organic product lines to cater to the growing market.
•For example, in 2019, Lavazza introduced Tierra Bio-Organic, an organic ground coffee specifically for the Indian market.
Expansion of Product Portfolio:
•There's a notable shift towards specialty and organic coffee products, including coffee pods and capsules, reflecting changing consumer preferences.
•In 2022, Blue Tokai Coffee Roasters launched biodegradable specialty coffee capsules in India, catering to the environmentally conscious consumer segment.
Market Growth and Outlook:
•The Asia Pacific region is experiencing significant growth in awareness of healthy eating habits, leading to increased demand for specialty and organic coffee.
•This trend is expected to continue as consumers become more educated and discerning about their coffee choices, presenting opportunities for further innovation and market expansion.
 12

NUMBER OF STORES IN ASIA PACIFIC

CONSUMPTION IN ASIA PACIFIC
TRAFFIC
 Higher School of Economics
ANALYSIS
,,Opportunities and challenges of Market entry strategies in Coffee shop
industry in Emerging markets exemplified by Starbucks and Costa Coffee in 13
China and India”
Overview of Coffee Shop market in China:
• China’s coffee market can be divided based on the product category and distribution channel. Fresh coffee, single-serve, ground or whole beans coffee, ready-to-drink (RTD), and instant
coffee are some of the several product categories that make up the Chinese coffee market.
• Online sales of coffee increased at an average annual growth rate of 30% from 2015 to 2017. Also found that some convenience stores in Shanghai sold an average of over 2,100 cups of
coffee per week. Online companies and convenience stores mainly sell instant coffee. Instant coffee represented 87% of market share in China in 2017, while brewed coffee accounted for 76%
sales worldwide
• Chinese customers favor consuming coffee in a portable, easy-to-drink style while on the go. Nearly all coffee consumed in China – until Starbucks entered the Chinese market in 1999 – was
of the instant or ready-to-drink (RTD) type. As of the end of 2021, fresh coffee comes in second place (36.7 percent) among the preferred types of coffee products on the market, despite the
continued Chinese preference for RTD coffee (36.8 percent).
• In terms of consumption, compared to more developed markets in Europe and the US, the Chinese coffee market is still in its infancy – which means there is a lot of space for expansion.
While the international growth rate of coffee consumption is two percent, coffee consumption rates in China are growing 30 percent each year.
• The instant coffee segment held a significant market share owing to its convenience.
• Moreover, middle-class consumers' rising household expenditure, changing lifestyles, and acceptance of Western cultural trends have Chinese Coffee Market by type:

• increased demand for instant coffee across the country.

Drivers of coffee market growth in China:
Fresh
Westernization of Chinese lifestyle 3%
13% Ground/Whole
Increase knowledge about coffee- beans
37%
more educated market Ready-to-Drink
Growing coffee culture in Instant
Change of Chinese consumer taste – 36% Single Serve
China
more sophisticated coffee consumer 10%

Governmental support: E-Coffee

Growing middle class and young
exposition in Haikou,2018
professionals Source: Statista Market Insights,2023
 14
• Starbucks detains more than a half of the total foodservice value. The second biggest portion is kept for a 6.4% by the American with the brand which is
followed by the British coffee house Costa Coffee which accounts for 3.5%. Immediately after there’s the first
Chinese company ranked for shares, which is the Shanghai Lianjuan Business Consulting which accounts for 3,4% of shares through its coffee shop
known as Coffee Eventually, the Beijing-based Luckin Coffee occupies the fourth position with 2.4% of shares
Chinese competitive environment by market share:
Brand Brand 2015 2016 2017 2018
owner
Re v e n u e i n C o ff e e C o n s u m p ti o n i n C h i n a
2010-2023 Starbucks Starbucks 18.7 22.8 31.5 59.2
Corp

12,619
11,551
McCafe McDonald 4 5.2 6.1 6.4
s Corp

10,428
Costa Coca-Cola 4.5 5.5 6.7 9.8

9,307
Coffee Corp
8,214 Coffee The 0.1 0.3 1.6 3.4
7,141

Box Shangai
6,119

LianJuan
5,195

Co Ltd
4,348
3,510

Luckin Luckin - - - 2.4

2,725

Coffee Coffee Co
2,099

Ltd
1,563
1,104

Total 26.759.8 28.318.6 29,405.6 33,035.5

Value in million million million million
2010 2011 2012 2013 2014 2015 2016 2017 2018 1019 2020 2021 2022 2023 RMB:
Source: Cafés/Bars in China, Euromonitor International (2019), (Statista, 2023)
 15

Consumer Profile in Chinese market:

• China stands out among major economies because it lacks a vibrant local coffee culture. A country long recognized for its tea culture, drinking coffee is
widespread, especially in major cities. Nevertheless, coffee habits have picked up quickly, especially among younger consumers.

• Much like how each successive generation in China differs significantly from the previous, so do their coffee consumption and preference.
• Coffee is typically seen as a novelty and distinct from the traditional Chinese lifestyle by older users (60+ years old). They generally do not go looking for it
themselves; however, they could enjoy it with family or give it as a present.
• In major cities, middle-aged consumers (40–59) have embraced coffee as a social experience rather than a product. This group also perceives coffee as a
commodity, a need for doing business, and a status symbol. In the latter case, buying coffee regularly—especially from well-known brands like Starbucks—is
a sign of having achieved financial success because it is costlier compared to local alternatives and reflects above-average earning capacity.
• In varying degrees, millennial and Gen Z customers (people under 40) are considered “native” coffee drinkers. Their upbringing coincided with the entry of
the most famous coffee companies into China, whose influence has become widespread over the past 20 years. Many in this category of Chinese consumers
share similar characteristics with coffee drinkers in mature coffee markets.
 16

History of Starbucks in China:

Market Expansion: Starbucks entered China in 1999 and rapidly expanded to become one of the largest markets for the company.
Adaptation to Local Preferences: Starbucks tailored its offerings and services to appeal to Chinese consumers, including localized menu items and a focus on
dine-in experiences.
Partnership and Acquisition: Starbucks strategically partnered with local firms and acquired joint venture partners to gain insights into the Chinese market and
ensure full ownership of stores.
Upscale Brand Positioning: Starbucks positioned itself as an aspirational brand in China, offering premium coffee experiences through initiatives like Starbucks
Reserve stores and international Roastery locations.
Globalization Strategy: Starbucks implemented a globalization strategy by blending global brand elements with local cultural preferences to resonate with
Chinese consumers.
Differentiation from Competitors: Starbucks differentiated itself from existing competitors in China by offering a European-style coffee shop experience and
emphasizing sophistication and luxury in its brand image.
Financial Growth: Starbucks experienced significant financial success in China, with over 1,700 outlets by 2015 and 5,000 stores by 2021.
Profitability: China became Starbucks' largest market outside the US by 2012, with outlets more profitable per unit than in the US.
Premium Pricing: Starbucks targeted upper-income consumers in China, charging prices approximately 50% higher than in the US, reflecting a willingness among
Chinese consumers to pay a premium for the coffee shop experience.
Strategic Investments: Starbucks made strategic investments in upscale offerings such as Starbucks Reserve stores and international Roastery locations to
position itself as an aspirational brand in China.
Acquisition and Partnerships: Starbucks acquired joint venture partners and formed partnerships with local firms to ensure full ownership of stores and gain
insights into the Chinese market, facilitating its financial success and expansion in the region.
 17

Starbucks in Chinese Market:

P RO F I T/LO S S ( $ M i l l i o n s )
Earn i n g s p e r S h are 2019-2020
Starbucks Quarterly Revenue ( $ Millions) in China

885.7
2019-2020
2019-2022
0.74

1200
0.61

16.4% 1000 964

911 905 897
861
815
800 763 745 775
709 735 734
658 624
760.6

600 545

400 383

200

0
19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
Q1 2019 Q1 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Q1 2019 Q1 2020
Source: Statista Market Insights,2023, Starbucks, Annual Report 2023
 18

• Starbucks currently operate more than 6,500+ stores in over

250 cities in the Chinese mainland, employing more than
60,000 partners.
• Starbucks' localization efforts in China have
contributed to its significant expansion in the
country. Number of Stores opend in China from
• The success of initiatives like the reserve roastery in fiscal year 2005-2022
Shanghai reflects Starbucks' commitment to meeting 7000
the evolving tastes and preferences of Chinese
consumers. 6000
6019
• This strategy has led to the opening of numerous 5000 5358
Starbucks stores across China, establishing the brand 4704
4000
as a prominent player in the Chinese coffee market. 4123
3521
3000
2936
2000 2382
1811
1000 1367
1017
700
0 353 474 470 496
209 261
4.3
5 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
0
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
 Higher School of Economics
ANALYSIS
,,Opportunities and challenges of Market entry strategies in Coffee shop
industry in Emerging markets exemplified by Starbucks and Costa Coffee in 19
China and India”

Starbucks' Entry and Expansion:

Starbucks market entry in China: Starbucks’ Entry in China:
1. Starbucks, a US-based international coffee shop chain, entered the Chinese market in 1999 with its
first store in Beijing's Chaoyang district. Step 1: Direct export mode of distribution to
2. By 2015, Starbucks had expanded rapidly, boasting over 1,700 outlets in more than 90 cities, making
it one of the largest markets for the company.
distribute Starbucks coffee in Beijing
1.Strategic Focus on China:
1. In 2012, Starbucks announced plans for China to become its largest market outside the US, with over
500 outlets already operational. To enter Shanghai, Starbucks partnered with Taiwanese firm Step:2 Used intermediate entry mode of
Presidential Coffee, leveraging their expertise and success in introducing retail concepts to Asian
markets. The partnership with Presidential Coffee provided Starbucks with valuable insights into the
licensing by making a licensing agreement with
local market, building on their successful introduction of 7-eleven stores to the Philippines Beijing Mei Da.
2. Schultz, Starbucks' CEO, acknowledged China's potential to become the largest market, leading to
plans for expansion across different tiers of cities. Step 3: Used strategic alliances/ intermediate
2.Target Audience and Pricing Strategy:
1. Initially targeting expatriates and tourists, Starbucks shifted focus to local consumers as coffee
entry modes of minority equity join venture
consumption and cafe culture gained popularity. with three different partners : Bejing Mei, Uni
2. Starbucks in China targets consumers in upper income levels, with drinks priced approximately 50% President Group, Coffee concept Ltd.
higher than in US stores, emphasizing the premium coffee shop experience.
3.Localization Efforts: Step 4: Increased equity from either 50% share
1. Starbucks adapted its business model to suit Chinese preferences, promoting dine-in service over equity joint venture or majority equity joint
takeout orders and offering larger seating areas.
2. Efforts to localize the menu include introducing items like green tea tiramisu and Chinese moon
ventures with Beijing Mei, Uni President Group
cakes, reflecting local tastes and enhancing the brand's appeal. and Coffee concept Ltd.
4.Success Through Adaptation:
1. Starbucks' success in China is attributed to its adaptation to local tastes and preferences, avoiding a
one-size-fits-all approach and embracing 'glocalization.' Step 5: Established wholly owned subsidiaries
2. Unlike other Western brands that struggled, Starbucks positioned itself as an aspirational brand by at Eastern China and North Easter China
resonating with Chinese consumers through tailored offerings.
 20

Costa Coffee in China • Costa Coffee's successful expansion in China can be

attributed to its strategic approach, focus on consumer
Costa Coffee's Expansion in China
experience, rapid store growth, differentiated offerings,
Costa Coffee, the UK-based subsidiary of Whitbread, entered China in 2006, aiming to
and adaptation to local preferences.
tap into the growing coffee market. By 2020, Costa accounted for 8.9% of the coffee
market in China.
To penetrate the Chinese market, Costa Coffee formed joint ventures, leveraging local
partners' knowledge and market insights. These partnerships facilitated rapid brand Number of Stores opened in China
establishment and market penetration.
Costa Coffee strategically partnered with Beijing Hualian Group to expand into high-end 600 from fiscal year 2013-2020
business complexes, supermarkets, and department stores, besides shopping malls.
In 2017, Costa initiated a buyout of one of its joint venture partners, mirroring the 500
strategic moves of competitors like Starbucks. 480
460
Since its inception in China, Costa Coffee has grown steadily, currently operating over 400
440
420
440 stores in the country.
Financial Data and Market Strategy 345
300
In 2018, Coca-Cola acquired Costa Coffee for 3.9 billion pounds, aiming to diversify its 262
beverage portfolio and explore the hot drink market. 200
200
Costa's financial performance in China has been promising, with total international
sales growing by 4.9% in the first quarter of the year, outperforming the UK segment. 100
Whitbread, Costa's parent company, aims to significantly boost global Costa sales to
about 2.5 billion pounds annually by 2020.
0
Costa Coffee's long-term business plan in China targets further expansion, aiming to 2013 2015 2017 2018 2019 2020 2022
have over 1,200 stores in the country by 2022.
 21

Consolidated financial statement 2019

Income statement 2018/2019 $ 2017/2018 $ Costa Coffee revenue for period
Revenue 15,648 12,455 2017-2020
Operating costs (978.6) (1,169.3)
20,000.00
Operating profit 160.7 122.6 +0.4%

18,000.00
Profit before tax 159.8 121.9 +10%
17,172 17,249
16,000.00
Profit from 129.8 92.9 15,648
operating activities 14,000.00

12,000.00 12,455
10,000.00

8,000.00

6,000.00

4,000.00

2,000.00

0.00
2017 2018 2019 2020
 22

SPECIFICS
Market entry Strategy - Entered China through joint ventures with local partners Yueda and Beijing
Hualian Group in 2006-2007 - Leveraged local expertise to navigate regulatory
complexities and cultural nuances – move that facilitated smoother entry
process and provided valuable insights into consumer preferences, market
trends, and optimal store locations
Partnership - Formed partnerships with Beijing Hualian Group and other prominent players
in 2017 - Expanded presence into high-end business complexes, supermarkets,
and department stores - Gained access to prime real estate and existing
customer bases

Advantages Capitalized on joint ventures with Yueda and Beijing Hualian Group in 2017 -
Gained significant distribution and store placement advantages - Opened stores
strategically in locations such as shopping malls, supermarkets, and residential
estates - Enhanced accessibility and convenience for customers
Localized differentiation - Adapted offerings to resonate with Chinese consumers - Tailored menu and
marketing strategies based on regional tastes and cultural preferences -
Differentiated from competitors and fostered brand loyalty and repeat business

Ambitious expansion
- Set target of 1000 stores by 2025 - Focused on saturating key urban centers
and exploring opportunities in emerging cities - Demonstrated confidence in
growth prospects and commitment to Chinese market - Leveraged partnerships
and localized approach for expansion and market penetration
 23

Comparison

Company shares in Chained Cafes in %2013-2017

Coffee Pricing Average Market Number 35
shop price of Share in of Stores
brand a 475ml China in China 30 31.5
Latte (2017)
(EUR) 25

Starbuck Premium 3.5EUR 31.5% 2.936 20

22.8
s pricing 18.7
Costa Premium 6.00EUR 6.7% 345 15 15.9
Coffee pricing 13
10
Luckin Lower 3.00EUR 61.% -
Coffee prices 5 5.5
6.7 6.1
4.5 5.2
4
0 2 2.2 1.6
Starbucks Costa Coffee 0.2 McCafe

2013 2014 2015 2016 2017

 24

COMPARISON IN CHINA:
Costa values the coffee quality and Starbucks values the “third place” coffee experience. However, Costa excels in both. In coffee quality, Costa claims that the coffee beans are all
100% Rainforest Alliance certified and roasted in traditional Italian-style to get the best taste. Costa’s baristas will be trained to understand every step of coffee-making and even
started a global competition to choose the best baristas. However, the training in Starbucks emphasizes how to provide the best customer service In coffee experience, Costa shows
more innovations by proposing the idea of “a place feel like home”.
Starbucks and Costa provided coffee experience in different ways. Starbucks
brings the concept of “third place” to China. The store design is group-oriented since customers always come with groups. The store in Beijing even designs a “coffee workshop”
area .On the other hand, Costa proposed a
new concept of “a place feel like home” base on Starbucks “third place” to provide more traditional coffee experience to customers. The process of making coffee is visible so people
can feel like they are staying in a traditional
western family. The central area is designed to be more private with comfortable couches, which is similar to living room
Value chain of Costa has many common points with Starbucks’. However, it still exists some differences. For support activities, Costa
is joint ventures with Beijing Hualian (Williams, 2014). Beijing Hualian invests a lot of shopping mall. It means Costa can enter the
shopping mall easily. Secondly, Costa can use Alipay which is the largest electronic payment system in China (Comunicaffee, 2016),
whereas Starbucks cannot. Finally, Costa’s coffee bean is from Rainforest Alliance certified farms (Costa, 2017). For primary part,
firstly, Costa posts many advertisements to improve its brand awareness (Yao, 2014). It wants to create a brand image that it has
premium of coffee (Yao, 2014). It hosts the barista competition every year. It conveys a message to customer that the ability of their
barista is updated every year. Moreover, Costa cooperates with Chinese mobile payments and post coupon on them. Finally, Costa
uses semi-automatics tool and its coffee quality rely on professional barista’s capacity (Williams, 2014). It may make its coffee be
purer but cannot guarantee the quality in different stores. Moreover, the backstage of Costa is semitransparent. Customers can look the
process of coffee product. Costa wants to make stores like home instead of third place for consumers.
 25

Opportunities and Challenges in Market Entry for Starbucks and Costa Coffee in China:
•Opportunities:
1.Luxury Brand Image:
1. Starbucks and Costa Coffee are perceived as luxury brands in China, offering opportunities for market entry at premium price points associated with affluent and
urban lifestyles.
2.Profitability for Expansion:
1. The profitability of their products in the Chinese market provides financial resources for rapid expansion, facilitating market entry into new regions and cities.
3.End of Local Partnerships:
1. Termination of local partnerships allows Starbucks and Costa Coffee to assert greater control over their market entry strategies, ensuring alignment with their brand
values and objectives without interference from external partners.
4.Franchising Potential:
1. Despite challenges, franchising offers an opportunity for Starbucks and Costa Coffee to expand their market presence through low-cost, rapid growth strategies,
enhancing accessibility to new consumer markets and accelerating brand recognition.
•Challenges:
1.Franchise Market Development:
1. Limited development of the franchise market in China presents challenges for Starbucks and Costa Coffee in utilizing franchising as a primary market entry
strategy, necessitating alternative approaches to expansion.
2.Maintaining Aspirational Status:
1. While establishing themselves as aspirational brands, Starbucks and Costa Coffee face the challenge of maintaining their premium image amidst market entry
efforts, avoiding commodification and ensuring continued consumer perception of exclusivity.
3.Adapting to Local Preferences:
1. Market entry requires adaptation to local preferences and consumer behaviors, necessitating flexibility in product offerings and marketing strategies to resonate with
Chinese consumers' evolving tastes and lifestyle choices.
4.Competition and Market Saturation:
1. Intensifying competition and market saturation in the Chinese coffee industry pose challenges for Starbucks and Costa Coffee in capturing market share and
sustaining growth, requiring differentiation strategies and innovative approaches to remain competitive.
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India Market overview

Over the past two decades, India has seen an unprecedented increase in the number of coffee lovers. Increase in disposable income, global exposure, digital and media penetration,
urbanization, lifestyle changes, are responsible for India Coffee Market growth. These changes have led to what we call coffee culture and are driving the growth of coffee in the market.
Factors driving demand for coffee in India include rising incomes, growing demand from the institutional sector, changing eating habits, health benefits, increased coffee cultivation in
India, etc.

The market for chain cafes is currently valued at 1820 crore and is more then a half of the overall cafe Key Players
market. Cafe Coffee Day, Starbucks, McCafe, and Costa Coffee constitute the main firms operating in the
country. Bru, which is positioned as a family brand, enjoys around a 5% of the market share. Its customer
By share, 2023
base is stronger in Southern India
•Tata Coffee is one of the leading integrated coffee producing companies in the world. Tata Coffee is involved in
every step of the coffee production value chain right from the growing and curing, roasting and blending of coffee to 3% 4%
5%
the marketing and sales of the product. Tata Coffee offers whole coffee beans, instant coffee, roasted coffee, ground
coffee and other type of coffee products.
•Specialty coffee chains such as Starbucks, Coffee Café Day, Blue Tokai, Sleepy Owl, and Rage Coffee are acting as
emerging players in the India Coffee Market. These coffee chains are expanding rapidly across India and boosting the 20% 24%
consumption of coffee.
5% 19%
20%

Tata Coffee NesCafe Dolce Gusto Nutroma

Bru Starbucks Bushells
Blue Bottle Coffee Other
Source: Statista Market Insights,2023
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Growing coffee culture in

India

Number of Coffee Shops, 2020-2023

• Changing Taste Preferences • Urbanization 3.5

3 2.91
2.73
• Youthful Demographic • Digitalization and Social 2.5 2.45
Media
2 1.88

• Cultural Shift •Retail Expansion 1.5

• Health Awareness • Economic Growth 0.5

0
2020 2021 2022 2023

Column1
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Trends Shaping the Global Coffee Market

Coffee remains a staple and highly consumed beverage worldwide, with its popularity continuing to grow. India C offee Shop R E V E N U E A N D
The market is witnessing notable shifts driven by consumer preferences for specialty coffee, evolving brewing methods, and a P R OJE C T E D size 2022-2032
growing emphasis on sustainability and ethical sourcing practices.

1227.47
• Growing Demand for Specialty Coffee:
Consumers are increasingly seeking unique and high-quality coffee experiences, driving the demand for specialty coffee.
This trend is characterized by a desire to explore diverse flavor profiles and indulge in premium coffee offerings.
• Evolution of Coffee Brewing Methods:
Coffee brewing methods continue to evolve, offering consumers diverse and personalized experiences.
Alternative methods such as capsule coffee, AeroPress, and cold brew have gained popularity, allowing coffee lovers to
experiment with different techniques and flavor profiles.
Emphasis on Sustainability and Ethical Sourcing:
There's a rising awareness among consumers regarding the environmental and social impact of coffee production.
Brands are responding by prioritizing fair trade practices, sustainable farming methods, and supporting coffee farmers'

552.9
livelihoods. Certifications like Rainforest Alliance and Fairtrade assure consumers of meeting certain social and environmental
standards.

478
• Market Outlook:
The global coffee market is expected to continue its upward trajectory, fueled by expanding consumption in emerging markets,
premiumization trends, and the rising demand for organic and fairly traded products.
These trends indicate a promising future for the coffee industry, with opportunities for innovation and growth in both traditional
and specialty coffee segments.

• Even though coffee is an export oriented commodity in India, India’s domestic consumption has increased from 2022 2023 2032
50,000 MT in ‘98 to 115,000 MT in 2011. India’s growing middle class, and their penchant for coffee as a social Source: Statista Market Insights,2023
phenomenon has led to the rise of several retail stores like Café Coffee Day, Lavazza, Barista, Starbucks, Coffee India Coffee Market was valued at USD 478 Million in 2022 and is
Beans and Tea Leaf and Costa Coffee expected to reach USD 1,227.47 Million by 2032 at a CAGR of
9.87% during the forecast period 2023-2032.