Starbucks will open a new café every third day in India to reach the 1,000 mark by 2028, said its chief executive Laxman Narasimhan, as the world’s largest coffee chain bets on a predominantly tea-drinking nation, which is seeing “impressive development with improved ease of doing business.”
“It is really impressive when you look at the investments in infrastructure, you look at the building that is taking place, you look at how there’s a digital revolution,” Narasimhan told ET. “The government is focused on eliminating some of the friction that does exist in areas like business or taxation and how they lean in to support businesses that are looking to invest in the country.” This is Pune-born Narasimhan’s first visit to India since he took charge in March last year.
The US-headquartered company’s Indian unit, a joint venture with Tata Consumer, runs 390 cafés at present. In 2022-23, Tata Starbucks surpassed sales of Rs 1,000 crore for the first time since it set up shop in 2012.
Starbucks’ CEO said the pertinent question is not whether the last decade was India’s, but “how do you think of this long-term? I think India has everything in place today to really accelerate its trajectory even further going forward, which is why we are bullish on India.”
Coffee penetration in India is minuscule compared to most developed markets, including China, where Starbucks has opened 6,000 stores over the past 25 years, said Narasimhan, who has previously worked with Reckitt, PepsiCo and McKinsey.
India is similar to China in that it is also home to tens of thousands of small tea shops, where people enjoy cups through the day at prices as low as Rs 10. But unlike China, where Starbucks had to build awareness about coffee to attract tea-drinking consumers, the preference of Indians gradually changed before the US chain entered — with Starbucks rival Café Coffee Day opening as many as 1,250 outlets.
Despite Starbucks’ aggressive expansion in China, the per capita consumption of coffee in that country is just 12 cups, compared to Japan and the US, where it is 280 and 380, respectively. “When you look at India, you see a penetration of coffee of about 25%, which is lower than what it is in China, which is at about 40%. I think we are at the start of something special in India,” said Narasimhan.
Cafés are profitable globally because consumers are attuned to a takeaway culture, which adds margins with very little cost. India, though, presents a contrast, as most office-goers and students order a cup of coffee to relax and use cafés as a place where they can sit in for hours. Further, India’s expensive real estate demands higher per-square foot realisation from every customer.
Recently, the domestic market has seen newer entrants such as Pret a Manger, Tim Hortons and Third Wave Coffee that are accelerating store openings.
British coffee and sandwich chain Pret A Manger launched its first shop in Mumbai last year, as part of its franchise agreement with Reliance Brands to launch up to 100 stores over the next five years. Tim Hortons, a Canadian coffee chain, entered India in 2022 and plans to have more than 100 outlets in the next three years. Third Wave has already opened more than 100 stores.
“Competition is always good because it makes you sharper. But we are not going to take it lying down. We are building muscle, investing in this business,” said Narasimhan. “We have areas of differentiation and distinctiveness. We have a customer base already, with a brand that’s extremely well known. And with the Tatas and us fully backing what we do in India, our ambitions for India are large.”
Narasimhan said he grew up with a coffee culture, with his mother making “one of the best coffees in the world,” adding, “I have taken my mother to Starbucks, which she loves, she really does.”
The Seattle-based coffee house’s menu innovation in India reflects growing competition, as well as its willingness to adapt. It launched masala chai and filter coffee and also revamped its menu to attract consumers with Indianised and more affordable options — street-style freshly assembled sandwiches, milkshakes, bite-sized snacks and a smaller beverage cup.
By Sagar Malviya
https://economictimes.indiatimes.com/epaper/delhicapital/2024/jan/10/et-front/starbucks-has-its-coffee-strategy-for-india-down-to-a-t/articleshow/106677703.cms
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