Tata Starbucks, taking on the Indian coffee market

India is a highly attractive battleground for the major players in the coffee industry. Over the past couple of months we have looked into how chains are doing amidst increased competition. Some historic names are doing well, others are not.

The attractiveness of the country for retailers is plain to see: With an emerging and expanding economy and a vast population, money is to be made. However the coffee business in India offers different challenges to those that are traditionally found in the West.

Today, we are looking at Starbucks, perhaps the biggest global name in coffee. They announced plans to expand their presence in India, which was met in bullish tones by Cafe Coffee Day.

Other chains are struggling, but Starbucks are pushing ahead their plans for expansion at a rapid rate.

Starbucks’ venture in the subcontinent is a shared one; the US based company are working alongside Tata Global Beverages to enhance their position in India. This joint project opened up four stores in the first two months of 2014, but in the past six week a further seven have opened their doors: four in the capital New Delhi, two in Bangalore and one in Pune, taking the total number of outlets up to 43.

When the company entered the Indian market back in 2012, they said that they had plans to initially invest $80m – not a small amount of money in anybody’s book.

Coffee in India is growing by around a fifth per year and is estimated to be worth in the region of $300m, though the industry as a whole is beginning to stagnate somewhat.

One of the first coffee shops in the country, Barista, is up for sale whilst UK favourite Costa is believed to be contemplating ending its agreements with Devyani International unless the New Delhi-based company stumps up more capital. Costa in India has not been profitable after a nearly a decade of existence.

But, where India differs from Western coffee culture is that Indians tend to lounge around in coffee shops – they simply do not generate a large portion of their revenue from ‘grab-and-go’ sales.

This, analyst’s state, is the main reason that stores find it hard to make money and expand if they do turn a profit as the cost of maintain a spacious coffee shop does not come cheap.

But this is what Starbucks is doing, and doing well by accounts. They have the capital and as such they have cannily positioned themselves as an aspirational brand that is associated with quality, in some ways they are straddling the third and second wave.

In some stores they have, apparently, gone above and beyond in their attempts to create attractive coffee drinking spaces in order to attract customers, hoping that it will reap the rewards further on down the line.

On the surface they do appear to be succeeding where others are failing.

If anybody is going crack the Indian market from the outside, it could well be Starbucks.

photo: Ekabhishek, Wikicommons