Starbucks enters India – smell the coffee!

‘A morning without coffee is like sleep’ ~ Author Unknown

Yes the American iconic brand – STARBUCKS is all set make the big splash in India. A recent ruling has allowed 100 per cent foreign ownership of single-brand retail outlets. Starbucks rides in with a US$80 million 50/50 joint venture with Tata Global Beverages. It is one of the companies of the highly respected Indian giant conglomerate the TATA GROUP who owns global brands like Jaguar, Tetley, Corus and several other Indian brands.

The choice of partner does seem a perfect strategic fit. With Starbucks sourcing Tata’s premium Arabica beans from their coffee plantations for Starbucks stores worldwide as also opening outlets in posh Tata retail locations and in the upscale Taj hotel chain.

A Starbucks store in US

Starbucks intends to flag-off its grand entrée from the commercial capital Mumbai and aims establish 40 outlets by 2012. It also plans to open stores from Delhi, Chennai and Bangalore. India with its teeming millions is an attractive market for MNCs not only for Starbucks. The market, according to analysts has the potential to touch US$900 million with a total of 5,000 cafés by 2015.

The question is “will the Indian consumer wake up and smell the Starbucks coffee”? Will Starbucks be the game changer?

Challenges for Starbucks in India

‘Coffee is not my cup of tea’ ~Author Unknown

India is a tea drinking country. India is one of the largest tea producers in the world, though over 70% of the tea is consumed within India. Tea is culturally rooted in India and the Govt. seriously considering making tea as India’s national drink by end 2012.

So will the Indian Chai drinking consumer switch easily to Coffee drinking? Well some skeptics do say ‘may be yes … maybe no’. With more than half of the country’s population under 25 and rising youth spending, globally mobile executives and higher incomes, coffee outlets are bound to grow exponentially.

A serious competition can be expected from the well entrenched Indian coffee chains like Café Coffee Day (CCD) with 1000 outlets and Barista Lavazza with over 200 outlets. CCD has a built-in ‘first-mover’ advantage of owning large coffee estates to provide a ‘beans to cup’ experience. This brand with the “A lot can happen over coffee” tagline is loved by the youth and is a favorite ‘hang-out’.

Other International players already have a foothold here – U.K.’s Costa Coffee and Gloria Jean’s of Australia.
Another aspect is the Indian consumer being price conscious. While CCD may charge around Rs 40 for a coffee and the wayside shops charge Rs 10 Starbucks $2.5 for a short latte would seem to be very expensive.

The China story

In the words of Howard Schultz Chairman & CEO ~ “China traditionally has been a tea-drinking country but we turned them into coffee drinkers.” Starbucks entered China in 1999 and now has more than 570 stores in 48 cities. By 2015, it plans more than 1,500 stores in 70-plus cities.

Starbucks exciting growth story in China could be identified with its ability to customize Chinese food items such as

Executives say good morning with Starbucks

selling rice dumplings, a traditional local Chinese food for the Dragon Boat Festival and few other favorites. Corporate executives in China love the Starbucks store ambiance and the free unlimited Wi-Fi facility.

Starbucks India Strategy

National responsiveness: Starbucks’s success in India like other foreign brands depends on their adaptability in addition to what they do globally. Like Domino’s “Peppy Paneer” pizza, McDonald’s McAloo tikki burger Starbucks might consider tasty healthy vegetarian recipes for an Indian breakfast treat, next to its muffins some chicken tikka sandwiches may also do fine.

Mr. Schultz said Starbucks plans to become a “third place” for young Indians to seek out between home and work. And he agreed catering to local tastes is crucial. “We’ve done a good job of that around the world and we have every intention of doing that here,” he said.

Drive through to a coffee served with a smile… the staff always very pleasant and professional

The winning mantra according to Schultz, Starbucks will look to create different entry points for different demographics

The Starbucks ambiance

and “will create food relevant to Indian consumers that [it does not] provide anywhere else.”

The company’s biggest outlay will be on property and according to Santosh Unni, the chief executive of Costa Coffee India, the consideration for a coffee chain is not so much about rent per square meter but to keep the “rent-to-revenue percentage around 25 per cent”.

Live feedback

The reactions on Starbucks of friends and my students on whether they are excited about the Starbucks entry – those who have experienced Starbucks coffee overseas are clearly positive others say we’d love to try it out. It’s lucky so far for Starbucks that the ‘naysayers’ are fewer in number.

If Starbucks could achieve success in China and Mexico and other countries can it win the hearts and minds of the Indian consumer?