Starbucks sets sights on India

17 January 2011

NEW DELHI: Starbucks, the coffee house giant, is seeking to establish a presence in India, a market it believes could ultimately rival China in importance.

The US multinational has signed a memorandum of understanding with Tata Group, a conglomerate active in sectors from the auto industry to consultancy.

Tata Coffee is one of the country's biggest coffee producers, and owns the Eight O'Clock Coffee grocery brand, created by US retailer A&P in 1859, acquired from Gryphon Investors in 2005.

Howard Schultz, Starbucks chief executive, said the possibilities in India match those in China, where it has outlined the goal of trebling branch numbers to around 1,500 in five years.

"[India is] as large an opportunity as there exists in the world, coupled with China," he told the Wall Street Journal. "India is one of the most dynamic markets in the world with a diverse culture and tremendous potential."

"We believe India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations."

In keeping with the model deployed overseas, Schultz reported the aim was to become a "third place" for customers, outside of home and work.

"We've done a good job of that around the world and we have every intention of doing that here," he argued.

Among the options being considered are opening Starbucks concessions in Tata's retail outlets and hotels, alongside running standalone stores in major metropolitan areas.

"The café phenomenon is a relatively new concept," said R K Krishnakumar, Tata Coffee's chairman.

"They have a very aggressive strategy. Within six months you should be able to have a Starbucks coffee in Mumbai that will be exactly like the one you would have in New York or Paris."

Starbucks began planning its Indian tactics in 2007, and may tap a different partner to develop branded branches going forward.

Under official regulations, retailers stocking a single brand can trade through a joint venture, taking a maximum 51% stake.

While Tata might support a more substantive alliance - or even selling alternatives to coffee - it is also adopting a flexible approach.

"There is no exclusivity as of now; all that will evolve with the partnership. We don't want to be just a franchise partner, although globally that's the model Starbucks follows," Krishnakumar said.

"The Tata brand is a hallowed one. So, the branding-related discussions will happen parallelly. It's up to Starbucks to decide what kind of a sustainable partner they are looking at."

Starbucks' competitors include Café Coffee Day, a unit of Coffee Day Resorts boasting 1,000 sites in 177 cities.

The organisation intends to double its store network during the coming three years, exploiting the rising demand from increasingly affluent, young consumers.

Lavazza, the Italian coffee maker, purchased the Barista chain of espresso bars, in which Tata Coffee once held a stake, in 2007.

Costa Coffee, based in the UK, and US counterpart Coffee Bean & Tea Leaf also both recently entered the country.

Ramesh Srinivas, executive director of consultancy KPMG's Bangalore office, suggested successful foreign brands typically tailored offerings to suit the needs of local shoppers.

"[The best examples] are those that have adapted their products to Indian tastes in addition to what they have done globally," Srinivas said.

Data sourced from Wall Street Journal, Business Standard, Financial Times; additional content by Warc staff