Mumbai: Starbucks Corp., which runs the world’s biggest coffee shop chain, will open its first cafe in India by the end of October in a 50:50 joint venture with Tata Global Beverages Ltd, seeking to tap potential demand for its beverages in emerging markets to counter the economic slump in the US and Europe.
Tata Starbucks Ltd, the joint venture, said the first outlet will be located in Horniman Circle in south Mumbai, and will serve coffee that is 100% sourced and roasted locally through an agreement with Tata Coffee Ltd. It named Avani Davda, a 10-year veteran of the Tata group, as chief executive officer (CEO).
In January, when the two companies announced the joint venture, they outlined a plan to open 50 stores by the end of the year in Mumbai and Delhi with an initial investment of $80 million (Rs.420 crore today). That target won’t likely be met this year.
John Culver, president of Starbucks China and Asia-Pacific, declined to disclose the precise number of cafes Tata Starbucks would open in India. He said the company planned to open a series of outlets in Mumbai, India’s financial and entertainment capital, before the year end. The Delhi launch has been pushed to early next year.
“It is not about a delay,” Culver said. “It’s about entering the market in the right way at the right location.”
Starbucks is entering India at a time when the country’s economic growth is slowing, causing consumers to cut back on spending. Scaling up in India may not be as easy because of operational issues such as expensive and scarce real estate, analysts said. Starbucks will face competition from expanding coffee shop chains such as Café Coffee Day, which has upwards of 1,300 cafes, and Barista with 320 cafes.
“There are close to a dozen coffee players with 1,700 cafes in India already and at least another 10 coffee retail companies looking at setting up here at the moment,” said Siddharth Bafna, a partner and head of the corporate finance and transaction services practice at Lodha and Co., a consulting firm that helped Costa Coffee to set up operations in India.
As everyone looks at expansion, the first challenge will be real estate, more so in the metros. “Operational issues like real estate delay plans for roll-out, pose a big challenge for all retailers in India,” said Raghav Gupta, principal at Booz and Co., a consulting firm.
Tata Starbucks CEO Davda joined the Tata group as a TAS (Tata Administrative Service) probationer in 2002, and her latest assignment was working in the vice-chairman’s office for Tata Global Beverages Ltd, where she played a pivotal role in the development of the joint venture with Starbucks.
Davda said the company has recruited 60 people who are now being trained to work at its cafes.
Globally, Starbucks has 17,000 cafes, of which 6,000 are outside the US and spread across 50 countries. Given the troubled global economy and the slowdown in its home market, the coffee chain has been looking at emerging markets such as China and India to expand its business.
In China, Starbucks plans to more than double its presence from 600 cafes to 1,500 in the next five years. “India, with a population of 1.2 billion people and a coffee culture, will be a very big market in the long term,” said Culver, estimating the country’s retail coffee market at $200 million and growing at 25% yearly.
The high growth is also attracting many global companies from countries such as the US, Australia, Thailand and Hong Kong. In May, Dunkin’ Donuts opened its first store in India and has plans to open 10 in its first year of operations. Krispy Kreme, another coffee and doughnuts retail chain, plans to open 80 stores in India in the next five years.