Mumbai: Starbucks Corp. and its Indian joint venture (JV) partner Tata Global Beverages Ltd on Monday outlined plans for the formal entry of the global coffee chain into the world’s second fastest growing major economy, a full year after the partners signed a pact to explore the retail entry.
The equal stake JV—Tata Starbucks Ltd—will launch 30-50 outlets in India in 2012 with an initial investment of Rs 400 crore to be split equally. The JV will own and operate the cafes, which will be branded “Starbucks Coffee—A Tata Alliance”, the companies said in a press release. The first retail outlets will be launched in Mumbai and Delhi, followed by other major cities.
“The joint venture with Starbucks is in line with Tata Global Beverages’ strategy of growing through inorganic growth focusing on strategic alliances in addition to organic growth,” R.K. Krishna Kumar, vice-chairman of Tata Global Beverages, told reporters.
Monday’s agreement between Tata Global Beverages and Starbucks comes after the Seattle-headquartered chain had initially signed a pact with the Indian firm’s subsidiary Tata Coffee to source coffee beans and enter retail operations.
“The proposal was to look at Tata Coffee and see if we could enter into a partnership, but soon it became clear that this is the tip of a very big business not restricted to coffee alone,” Krishna Kumar said. “So it became a venture between Tata Global Beverages and Starbucks.”
The time is right for an entry into the quick-service restaurant business in India, especially since coffee retail is the fastest growing segment within food retail, said Amitabh Mall, partner and director at Boston Consulting Group.
“The challenges, however, are that the segment already has a lot of companies operating at every end and Starbucks will have to identify a differentiator,” he said. “I am not sure whether the same proposition that works in the US or the UK will work in India. They will have to experiment with their format in India.”
The JV will also look at jointly leveraging assets, with the two initially offering a premium tea product known as Tata Tazo at the Indian outlets. The outlets will also retail Tata Global Beverages’ mineral water Himalayan in India, while Starbucks could explore offering the brand as part of its mineral water portfolio in stores overseas.
The JV will have an independent chief executive and chief financial officer, with three board representatives from each partner.
Krishna Kumar said other Tata group firms would support the JV. Some of the retail outlets would be located in Taj hotels, part of the Tata group’s listed Indian Hotels Co. Ltd unit.
Starbucks operates in 57 countries worldwide with more than 17,000 stores and typically takes the JV route to cut risks on understanding local culture and habits. On Friday, it announced the opening of its first store in Costa Rica in a JV with Corporación de Franquicias Americanas, although it has been buying coffee beans from the South American nation.
India is the first market where Starbucks will source all its coffee requirements from the local market for retail chain use.
In China, the coffee chain opened its first store in 1999 and now has more than 400 across the mainland. Starbucks has more than 5,500 coffee houses in over 50 countries outside the US. That’s about half the number it has at home, where it underwent a painful restructuring that shuttered hundreds of units, but returned the firm to growth.
“We will look at expanding this partnership as a long-term relation... We are excited at building an enduring company that has a positive impact on India,” John Culver, president of Starbucks (China and Asia-Pacific), told reporters. He said the retail chain would have a premium placement and cafes would be located in malls, office parks, airports, railway stations and universities.
Culver said that despite a recent government decision to allow 100% foreign direct investment in single-brand retail, which opened the doors for Starbucks and other aspirants to go solo in India, the firm had always been keen on a 50:50 JV with the Tata group.
The two sides first came together in October 2004, when Starbucks signed a pact with Tata Coffee for supply of coffee beans, the first time the world’s largest coffee-cafe chain had decided to buy from the country. India, the world’s fifth biggest coffee producer, exports 70-80% of its output.
This will be the Tata group’s second go at the coffee retail space. It had acquired a 34% stake in Indian cafe chain Barista in 2001 and sold its holding to Sterling Group in 2004. Sterling sold the chain to Lavazza, Italy’s largest coffee company, in 2007.
The organized coffee market in India—which reflects consumption mainly through cafes—is estimated to be a Rs 1,000 crore market that’s expected to grow at a compounded annual growth rate of 20%, while the rest of the consumer food service industry is tipped to grow at 15% annually for the next five years.