Is Starbucks slowing down on store expansion in India?

Mumbai: In the last one year, Tata Starbucks Pvt. Ltd, a joint venture of Tata Global Beverages Ltd and Starbucks Corp., has opened only 10 new stores, which is much lower than the average 25 stores a year it opened in the first three years since the launch of its first store in October 2012.

In June 2015, the company had about 74 stores in India; a year later, it has 84 stores across six cities. The numbers include the closure of a couple of stores in Delhi in Lajpat Nagar and South Extension due to the Metro work taking place close by.

Unlike in China, where the company has 2,000 stores and plans to open 500 stores every year for the next five years, in India, the company has given no indications of its future store roll-out plans. “As part of our standard course of business, we continually evaluate our business to ensure a healthy store portfolio. We remain committed to the India market and we will continue to work thoughtfully to open stores quickly,” said the company in an email on 8 July, adding that it is looking at the long term and taking a disciplined and focused approach to building its brand here.

To be sure, profitable growth along with new store openings is one of the top priorities for the new chief executive Sumi Ghosh, who came in January from Chicago. The company is far from being even profitable at this point—in 2014-15, Tata Starbucks reported a net loss of ₹ 42 crore on revenues of ₹ 171.2 crore.

Starbucks started with big stores and is now opening smaller ones as it continues to expand and look at profitability. An average Starbucks store is 1,700-2,000 sq. ft, which is much larger than Cafe Coffee Day, Barista and Dunkin’ Donuts stores, which are on average 800-1500 sq. ft, according to the Red Herring Prospectus of Coffee Day Enterprises Ltd (CDEL), which runs India’s largest cafe chain Café Coffee Day and made an initial public offering of ₹ 1,150 crore in October.

Also, the last two years have been challenging for retail, packaged goods and food companies in India as consumers have cut back on small and large discretionary spends as they remained cautious about the future. In 2014, Australian coffee cafe brand Gloria Jean’s Coffees exited India. Even Barista, which was bought by Delhi-based Carnation Hospitality Pvt. Ltd in 2014 for a reported ₹ 100 crore, is on the block again, Mint had reported in November. Even UK-based coffee chain Costa Coffee, which is operated by Devyani International, is focusing on making its India outlets profitable rather than just increasing count, the Economic Times had reported in February.

For India’s large food companies which disclose their same store sales growth for the last nine quarters, same store sales has been negative (the average of Jubilant Foodworks Ltd, Yum! Brands, Inc. which operates KFC, Pizza Hut and Taco Bells India’s division, and Westlife Development Ltd, the master franchise for McDonald’s in West and South). “This was due to a combination of brands reaching maturity in metros and tier-I cities, cannibalisation of sales, increased competition from domestic and international brands and shrinking consumer sentiment,” said a February report by Anand Rathi Share and Stock Brokers Ltd. Same store sales growth is a measure of growth based on sales in stores that have been open for at least a year.

Still, India has been the fastest market to grow internationally for Starbucks with 83 stores in three-and-a-half years, Ghosh told Mint in May, pointing out that the company hasn’t expanded so fast in its initial years in any other geography, including China.