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KUSOM Ahead in Management

HIMALAYAN JAVA A Local Starbucks Case Study Reference no 200 90 222

This case was prepared for the purpose of class room discussion by Digdarshan Lal Dhonju,

Ishwory Raut, Mridu Pradhan, Nirala Tuladhar and Sanil Tamrakar – MBA students of

KUSOM, under the supervision of the course instructor Mr. Sujan Raja Shrestha. It is not

meant to measure effectiveness or efficiencies of any organization.

©2009 All Rights reserved by authors and Kathmandu University School of Management

No part of this publication may be copied, stored, transmitted, reproduced, or distributed in any form or medium whatsoever without the written permission of the copyright owners.

Kathmandu University, School of Management, Balkumari, Lalitpur, Nepal.

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Himalayan Java: A Local Starbucks

Background About Coffee

The introduction of coffee to the human palate can be recorded as far back as the ninth century.

The first known coffee plantation was confined to Ethiopia, where its native beans were first

cultivated by Ethiopian highlanders. However, the Arab world began expanding its trade

horizons, and the beans moved into northern Africa where it was mass-cultivated. From there,

the beans entered the Indian and European markets, and the popularity of the beverage spread all

over the world.

The word coffee came into English in 1598 via Italian caffè. This word was created via Turkish

kahve, which in turn came into being via Arabic qahwa, a truncation of qahhwat al-bun or wine

of the bean. Islam prohibits the use of alcohol as a beverage, and coffee provided a suitable

alternative to wine. Today, coffee is one of the most popular beverages in the world.

Coffee in Nepal

Coffee culture in Nepal is relatively a new phenomenon. Tea was introduced in Nepal in the mid

1800’s and has been the main social beverage. The day of most people would start with a cup of

tea. Any guest who comes to a house is offered tea first. Coffee entered Nepal during the mid

1900’s only. Tea as a social beverage had a hundred years of head start over coffee and due to it;

tea became the ubiquitous drink for all ages of people. Coffee culture never caught on as much as

tea drinking culture.

However, coffee is grown in Nepal at the altitude of 500 to 1500 meter above sea level and the

temperature is about 30 degree Celsius. Coffee is a high value cash crop with environmental

importance and is being popular among Nepalese people since last few decades. It has been

spreading in over 33 districts of the middle hill Zones. Districts like Arghakhanchi, Kaski,

Parbat, Lamjung, Lalitpur, Kavre, Sindhu Palchok, Gorkha, Ilam, Nuwakot, Tanahu, Dhading,

Sankhuwasava, Palpa, Gulmi and Makawanpur are successfully growing and producing coffee

beans. Of the two variety of coffee found – “Arabica” and “Robusta”, only Arabica variety is

grown in Nepal. According to the National Coffee development board in Kathmandu, Nepal's

annual production is around 460 metric tons of cherry coffee.

Today, the Nepalese culture has slowly warmed on to coffee culture. Tourists who visit Nepal,

expatriates, and Nepalese returning from foreign countries have slowly brought in the coffee

culture. Therefore, today at least in Kathmandu we see a host of coffee houses and even

restaurants and hotels are offering proper coffee rather than instant coffee.

About Himalayan Java

Himalayan Java Coffee House and Restaurant is the first specialty coffee house in Nepal,

which excels in quality and customer service. Its mission is to promote Nepali coffee industry by

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investing in the people, from the grower to the consumers, and to promote local grown coffee in

the international market. Himalayan Java has been doing business in Kathmandu since 1999, and

over the past years the company has grown and progressed in many areas.

Located above the Bakery Café, on the eastern edge of Thamel, this modern and buzzing

coffeehouse serves a variety of coffee, good tea, blended and iced coffees and snacks. There's a

sunny balcony, lots of mellow sofas, a nonsmoking section, and big-screen TV for the football,

but from certain angles it feels a bit like a hotel foyer. It's popular with and patronized by cool,

urbane middle-class Nepalese.

Himalayan Java offers fresh crop of coffee every year, harvested from local Nepali growers.

These high quality red beans are of the Arabica variety, permitting it to create a specialty coffee

with a distinct Nepali flavor. Himalayan Java prides itself on the freshness of their coffee beans.

Currently it offers three separate blends - Mountain Supreme, this is its own lightest blend

creating a supple, mellow flavor. House Blend, this is a darker roast with a richer taste and Long

Black, darkest roast and its strong blend is mainly used for espressos. The restaurant offers

wireless/wifi internet service as well.

History

Himalayan Java was established in 1999 by two young entrepreneurs Gagan Pradhan and an

American partner. After completing their degree in Hotel Management from Australia,

Mr.Gagan Pradhan returned to Nepal. He was searching for an opportunity to invest in Nepal.

Soon after his return, he conducted a six week research to identify the various potentials. Since,

his background was hospitality management and as he had worked as an area manager of a

multinational food chain in Australia overseeing 18 local stores, he was concentrating in the food

and beverage industry. When he conducted the market survey he realized that the food and

beverage industry was well diverse and represented. In the Nepalese market there were

restaurants serving foods from all over the world. In this market he felt he had nothing new to

offer. But, during his research he did realize that there were no specialized coffee houses in

Kathmandu. They felt that the potential for such business is very lucrative. Thus he decided to

start his own coffee house in Kathmandu.

First to implement his plan, Mr. Gagan Pradhan realized that he lacked the expertise and the

knowhow of operating a coffee shop. He therefore enrolled for a three month “barista course” in

the US to gain training of the art of coffee making. After the three months training he returned to

Nepal with a vision to establish his own coffee shop.

Vision and Mission

Himalayan Java was established with a vision to promote Nepalese coffee. Nepal produces one

of the best coffee beans because of its strategic geographical location. Coffee grows best in an

altitude of over 1000 m from sea level. The mid hilly regions of Nepal are best suited for coffee

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production. When Himalayan Java was first established, the national production of Nepal was

only 20 tons but today the national production is about 300 metric tons.

Himalayan Java has always embraced and promoted Nepalese coffee. Nepal grows “Arabica”

variety of coffee. Himalayan Java encourages Nepalese farmers to grow coffee as a cash crop, it

purchases the coffee cherries from the farmers and process it to produce coffee beans which it

sells through its Himalayan Java Coffee Bar and Lounge and offers the same as coffee

beverages. The Mocca Trading (P) Ltd, Himalayan Java’s sister concern sells coffee machines

and roasted coffee beans to various other hotels, restaurants and other coffee houses.

In order to promote Nepalese coffee and to bring the coffee culture in Nepal there was a need for

a coffee house. There was a need to educate the customers that coffee does not mean only instant

coffee like Nescafe but to introduce them to the real roasted coffee. Hence, a coffee house would

be established as a front. Himalayan Java has always promoted Nepalese coffee and it

exclusively serves Nepalese coffee in its outlet.

Development of Himalayan Java Brand

Mr. Gagan Pradhan along with his American partner established Himalayan Java in 1999. They

did a thorough research for opening an outlet in Kathmandu. Mr. Gagan Pradhan wanted to

target the white collar office workers as his prime customers because he felt that the white collar

workers would drink coffee to reinvigorate themselves after a hard day’s work. Coffee houses

were supposed to be cozy, quiet far from the hustle and bustle of a busy city centre. Therefore,

he scoured for a location that would match his requirement. During 1999, there were limited

commercial buildings in Kathmandu. He settled for the ground floor in Heritage Plaza in

Kamaladi to set up Himalayan Java. The location was chosen after a careful research. The plaza

contained lots of corporate offices. He went to these offices and carried out a research regarding

the viability of a coffee shop in the area. He inquired the workers in those offices if they would

be interested in buying coffee from the shop downstairs. Based on the overwhelming favorable

response, Himalayan Java was set up in Heritage Plaza in Kathmandu.

Brand Name

Java coffee is one of the most famous coffees in the world. Java is a small island off Indonesia

and some of the best coffee comes from there. Himalaya is the name through which Nepal is

known all over the world. Nepal is a country situated at the laps of the Himalayas and people

were already familiar with the moniker. Therefore, Mr. Gagan Pradhan decided to combine these

two to convey the very best of both – coffee from the laps of Himalayas – Himalayan Java.

Also, during that time the Bakery Café had just been established and a host of restaurants were

coming up all ending with bakery café. He wanted to differentiate his coffee house from other

restaurants and cafes therefore he chose the name Himalayan Java.

Even though the name sounded good, it did create some problem for Himalayan Java in the

beginning. People confused Java with a popular computer programming language (Java) and

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associated Himalayan Java with computer courses! They mistook Himalayan Java to be a

computer institute and were astonished to find out that Himalayan Java was in fact a coffee

house. But, Gagan Pradhan persisted with the name and adopted a logo of a hot steaming cup of

coffee.

Target Market

Coffee is not the first choice of beverage for most Nepalese. Coffee drinking was limited to

tourist who wanted their morning cup of coffee and would not be satiated by instant coffee

brands, or foreign expatriates and Nepalese who had returned from abroad. These Nepalese

brought the coffee drinking culture along with them back to Nepal. Mr. Pradhan initially targeted

these people and also the white collar workers rather than focus on the tourists. Tourism is a

seasonal business and Mr. Pradhan realized that he could not base his business on seasonal

customers. The white collar workers would look for a cup of coffee to reinvigorate themselves

from the mental stress they face every day. There was also a lot of Nepalese who had returned

from their stay abroad and Mr. Pradhan was sure that they would patronize his coffee house.

Other targets included the hip and cool urbane middle class Kathmandu society.

Initial Challenges

Two to three months into the opening at Heritage Plaza, The Himalayan Java realized a flaw in

the market survey they had conducted. Nepalese people being polite did not want to disappoint

the survey conducting people therefore they exaggerated their replies or gave false answers so

Himalayan Java found that their sales did not match their research data. They did not make

losses but the expectation was also not met.

Another problem Himalayan Java faced in Heritage plaza was they were constantly getting very

high electricity bills which greatly contributed to their overhead thereby decreasing their profit

margin. An investigation to the cause of such high electricity bill led to the finding that their

electricity line had been connected to other eight offices. The building management had been

fleecing Himalayan Java for six months. After this revelation, the situation became untenable in

Heritage Plaza therefore Himalayan Java decided to move its base.

Establishment in Thamel

The Himalayan Java moved to Thamel in 2000 to its current location. Mr. Gagan Pradhan

entered into partnership with the landlord of the building. His American partner left the

partnership due to the then political situation in Nepal. Maoist insurgency was gaining

momentum and there was great political instability in Nepal. The new partner was Mr. Anand

Gurung. The move to Thamel was a strategic decision. It brought Himalayan Java to the centre

of the city – a tourist area frequented by both the tourist and local Nepalese. With this move,

Himalayan Java hoped for a change in the fortune.

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Positioning Statement

The owners of Himalayan Java had a clear vision about how they want to position the coffee

house to the customers. They wanted to present the coffee house as the “third place” – a place in

the minds of the customers after their home and office. Himalayan Java would be a place where

they could relax, unwind and socialize over a cup of coffee. Therefore, the interiors were

designed to look cozy like the living room of a house. The furniture consisted of comfortable and

spacious couches for the customers to really relax. Himalayan Java came up with the motto

“Coffee, Conversation, Community”. Their motto reflected how they wanted to be positioned in

the mind of the customers. Himalayan Java would be the place to socialize with your friends.

Drinking coffee would be an experience, it would be an enjoyable moment because you would

be sharing it with your friends and family. Coffee may be bitter in taste but the experience of

sipping it with your friends would make it sweet and a moment to cherish and enjoy. Coffee

drinkers and lovers in Nepal is a niche market in Nepal. Himalayan Java would cater to this

niche market. Himalayan Java would always be a coffee house never a restaurant.

Initial Marketing Strategies

Himalayan Java would rely on the “word of mouth” marketing. Word of mouth marketing is the

best kind of marketing. Nepal does not have a coffee drinking culture and many people initially

did not know the various blends and types of coffee. An expatriate or a tourist or a Nepali who

had return from abroad would come to Himalayan Java with his friends. He would order the

drinks for his friends and educate them about how to drink coffee and about its taste. The friend

would in turn bring his other friends and so on. Thus, word of mouth had a big part in Himalayan

Java’s success. The customers who experienced the taste of Himalayan Java would spread the

word about Java and bring in new customers. This strategy worked for Himalayan Java. People

were tired of the same kind of restaurants in Nepal with the same kind of menu. Himalayan Java

offered a new and innovative service to the customers. The services and the products that

Himalayan Java offered were new to the patrons of Kathmandu.

As expected by its name indeed Java serves good coffee. It's a good spot to gather with friends

and relax on the couches or on the terrace. - Suman Pant (Patron)

Initially, Himalayan Java did go for advertisement in the print media. They did advertisements in

the leading English daily newspapers such as The Kathmandu Post and The Rising Nepal. Also,

they also published their advertisement in popular magazines such as Wave. But, they did not get

the mileage they expected out of the advertisement therefore they discontinued the

advertisements and till today there have been no further advertisements in the print or audio

visual media.

Beverages and Menu Selection

The taste of coffee was not palatable to most Nepali customers who were used to the instant

brand of coffees. Coffee is to be enjoyed by all the senses of our body. Before we even drink the

coffee, first the aroma strikes us, and then comes the body of the coffee in the mouth and the

aftertaste that lingers on even after you have drunk the coffee. Many Nepalese customers could

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not initially take in the bitter acidic taste of roasted coffee of Himalayan Java. They would try the

coffee once – and throw it away after a sip or never drink the coffee again. The customers had to

be educated about the taste of coffee. Himalayan Java also offered food that would go with

coffee – bagels, croissant, pastries, cookies etc. Also, Himalayan Java offered a variety of

Mexican and American food like the Taco. However, Nepali customers did not know how to eat

the food and the taste was not palatable to Nepali taste.

Himalayan Java then decided to customize the drinks and food to match the local taste of the

Nepalese. More syrups was added to the coffee and sweet drinks (juices) were introduced as

Nepalese had a penchant for drinking sweet drinks. Even the menu was changed to bring in

Nepali food like the ever popular momos, burgers and pizza.

Soft drinks were charged a premium in Himalayan Java. Coke was selling at Rs.150 a glass

while a cappuccino was priced at Rs.70 to discourage the patrons from drinking soft drinks in a

coffee house. But, still the premium charged soft drinks were selling briskly. Coffee was an

acquired taste and after few attempts only would a customer warm up to the idea of drinking

bitter coffee.

Growth

Two to three years after the establishment of the Himalayan Java, the sales were still not good.

They were not making losses but their profit margin was also less. The political situation of

Nepal then was also not good. Frequent bandhs, demonstrations marred the economic prospect of

Nepal. Then in July 2002 the World Cup was happening. In Nepal there were no sports bars at

the time. People would gather around in their homes to watch the football matches. Himalayan

Java bought a 50 inch TV and started playing the live matches. People started to flock into

Himalayan Java. The patrons liked the fact that they could watch their football match with a

drink among their friends. Suddenly, business in Himalayan Java took off. During the match day,

Himalayan Java would be filled with 400 to 500 customers. There would be no sitting place so

Himalayan Java had to innovate and bring in the mats so that the patrons can sit down and watch

the matches.

The strategy and gamble of putting a 50 inch TV paid off. Himalayan Java came to be known as

a place where people could hang around to watch their favorite football team and cheer them

along with other supporters. Even after the end of World Cup, the patrons remembered the

atmosphere and came back again and again. They brought in their friends and the friend brought

their friends and so on and thus finally Himalayan Java became the place to be - the place to

hang out. People started to say, “Hey, there’s a coffee place in Thamel, it’s different. Let’s go

there.”

During this time Himalayan Java also introduced, its coffee card. The card would be stamped on

every purchase in Himalayan Java and on the sixth purchase; the coffee was on the house. This

strategy was also very successful for Himalayan Java. There was a time when they would be

giving away 1000 coffee cards on a day. This strategy also helped to bring in more patrons to the

coffee house.

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Building the Brand Equity

Himalayan Java was successful in building its brand equity. Its success was not brought

overnight but is a result of years of hard work and perseverance. Himalayan Java offered a

unique and innovation service in Nepal. It was one of the first of its kind in Nepal. People saw

that it was not just another restaurant but saw a truly unique offering. The focus always was on

coffee products. They always served and always promoted Nepali coffee.

The settings were also carefully designed. It was a bit of blend of traditional as well as the

modern - a sort of fusion. The interiors were given a bit of rustic look; the tiles used were the

traditional oil tiles to give the illusion of homeliness and coziness. It had the charm of the

outback rather than the sophistication of uber posh lounges.

The emphasis on quality has been evident throughout its years of operation. Mr. Gagan Pradhan

took the barista course and he personally trains his staff in various aspects of coffee making so

that the quality is maintained. Once the coffee is roasted, it can be preserved for years but its

aroma lasts for maximum 7 days. Himalayan Java will keep its roasted coffee for a maximum of

seven days so that the aroma is retained and the taste of coffee is still exquisite. Himalayan Java

has never compromised on its quality.

Another source of its brand equity is the staff of Himalayan Java. They are well trained and

courteous and personify the quality of Himalayan Java. The staff is trained to embody CHAMPS

- C for Cleanliness, H for Hospitality, A for Accuracy, M for Mentality, P for Product Quality

and S for Speed of Service. It is the guiding motto for all the staff of Himalayan Java.

It is due to this embodiment of the CHAMPS principles that the staff is well liked by the patrons

and many are on first name basis with the servers. This adds to homely environment that

Himalayan Java is trying to portray. Patrons feel that they are coming to their home rather than

feel they are away from home.

Himalayan Java is a member of the American Specialty Coffee Association (ASCA) and

registered under FDA (Food and Drug Administration) which allows them to market the

Himalayan Java brand of coffee to the US.

Expansion/Extension

Presently Himalayan Java outlet is in Thamel. However, they have recently opened outlets in

City Centre Plaza, Norvic Hospital and The Tribhuvan International Airport. They not only serve

coffee only but they provide coffee beans and coffee making machines through its sister concern

Mocca Trading (P). Ltd to other restaurants, hotels and coffee houses as well.

The coffee machines sell at a price of Rs.550,000/ and on an average Himalayan Java sells 6 kg

of coffee. The upper floor of Himalayan Java showcases their coffee machines which are

imported from Italy. Himalayan Java has sold these machines to various restaurants and hotels

all over Nepal including places like Lukla and Namche. Himalayan Java has even sold its coffee

machines to restaurants in India.

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In addition there is a great demand for their coffee beans both nationally and internationally as

well. They export their beans to countries such as USA, Canada, Hong Kong and Singapore. The

export figures are still very small compared to the world market. The overall coffee production in

Nepal is about 300 metric tons yearly. There has been instances where importers have wanted to

place an order of 300 tons of coffee from Himalayan Java alone. Himalayan Java takes part in

the annual Coffee Convention which is held in Atlanta. Himalayan Java has its booth in the

convention for the last eight years.

Besides providing coffee beans and coffee machines, Himalayan Java also provides training for

baristas. Mr. Gagan Pradhan is the only certified coffee brewer in Nepal. He runs training

courses and so far he has trained about 260 baristas. Not only does he provide training for

baristas he also provides comprehensive training and post sales service for the coffee machines.

He even sends his trained staff to various clients to help them setup their own coffee shops.

Himalayan Java has also recently started a short term intensive barista courses for students and

Nepalese going abroad. By, providing them with these courses, Himalayan Java would like to

help them to get a good and better paying job abroad. The courses are certified by the American

Specialty Coffee Association.

Today, Himalayan Java has increased its services, the menu offers a wide range of food which

are freshly prepared in the kitchens of Himalayan Java. Everything is freshly prepared in

Himalayan Java. It also offers Wi-Fi service in its outlet so that people who want to connect to

the internet can relax and enjoy on their laptops with a cup of coffee.

Market Share

Himalayan Java enjoys a virtual monopoly in the coffee house market. There have been the

leader in coffee house and enjoy a resounding brand recognition and fame in this category. Also,

it is the leading coffee machine seller in Nepal. Himalayan Java enjoys the position of being the

industry leader.

Recently, there have been hosts of competitors who want to ride on the band wagon created by

Himalayan Java. Illy, Kaldi, Central Perk are just a few of its competitors. Himalayan Java is not

fazed by its competitors but rather encourage it. They even provide the coffee machines and

beans to their competitors. They even provide trainings for them also.

Himalayan Java believes in itself and is confident of its brand equity. The Himalayan Java brand

has a strong resonance with its customers. There are regulars who come to the coffee house

everyday and has become and become an integral part of their life.

Success Story

Java Coffee House is the most famous places to have coffee in the pleasant environment of busy

Thamel. It offers great coffee and good food also. The reason for their continued success can be

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attributed to consistency. Himalayan Java has always been consistent on quality, service and its

product.

There is a huge market for Himalayan Java. It has established itself and the awareness among the

customers is high. Even people staying abroad know of Himalayan Java and crave for a cup of

their coffee.

Future Programs

Himalayan Java is working on bringing in new and innovative products in Nepal. One of the

ideas it is soon going to implement is the take away cups. Quite popular in US and Europe, it is a

novel concept in Nepal. The cups have been specifically designed in the US, it is going to add to

the overhead of the business but, once introduced it may catch on and be an unprecedented

success.

Another innovative product, Himalayan Java is coming up with is the blended coffee. Right now,

they are offering coffee in different sizes like Regular, Tall and Grande. They are now planning

to bring in blended coffees to enhance the coffee tasting experience of the patrons. Soon a

customer would be able to choose to have a hazel nut flavor cappuccino or a vanilla flavored

cappuccino. For this additional blending, the staff also need to be trained.

Today the people are getting very conscious about their health. Therefore, Himalayan Java is

redesigning their menu. The new menu will display the calorie content of all the food served in

Himalayan Java along with their suggested intake amount. For this a complete reengineering of

the menu is being conducted.

Himalayan Java is encouraging its own staff to take up the Himalayan Java franchises. This

would ensure that the quality of the services would not be compromised and there would be

continuation with the Himalayan Java brand.

Finally, Himalayan Java is cutting on the food from its menu, it wants to cut 25% of its food

items from its menu and offer more coffee offerings only. It was to focus more on its core

product i.e coffee only.

Conclusion

Himalayan Java is the premier coffee house in Kathmandu. It became a huge success due to its

innovative and novel offering. It had taken a huge risk in starting a coffee house when there was

no coffee culture in Nepal. But, it has prevailed and become the leader of the market. It has

continued to build on its success and brought on new innovations. Only time will tell whether

their new innovations will catch on as well as their last products – but with a sound business

model and marketing there is every chance that they will succeed.

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Exhibit 1Coffee Producing Districts in Nepal

Exhibit 2 Coffee Plantation Area in Hectares

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Exhibit 3 Coffee Cherry Productions in Metric Tons

Exhibit 4 Export of Coffee in Kg

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Exhibit 5 Export of Coffee in Rs. (000)

Exhibit 6 Import of Coffee in Rs. (000)