At Horniman Circle opener, Starbucks sets premium tone


October 20, 2012

Nupur Anand & Ashish K Tiwari, DNA (Daily News & Analysis)

Mumbai, October 20, 2012

The Seattle, US-headquartered Starbucks on Friday opened its first store in India, kickstarting what could be a sedate rollout, going ahead.

Yet, if the 4,500 sq ft store in the historic Elphinstone Building in South Mumbai’s Horniman Circle — with an upscale brand Hermes at sniffing distance — is any indication, the company has positioned itself at the premium end, about 50-60% costlier than Café Coffee Day.

The experience is akin to “walking into a shrine of Starbucks coffee”, Howard Schultz, chairman, president and CEO, Starbucks Coffee Company, said of the flagship store, which sports tastefully done up, wood-and-leather interiors.

Two more stores are slated to open in the city next week — in the Taj Mahal Palace Annexe (Gateway of India) and the Oberoi Mall in Goregaon East — before the coffee chain hits Delhi and elsewhere with another 3 stores in the next 6 months.

Beyond that, officials of Tata Starbucks Ltd, an equal joint venture (JV) between New York Stock Exchange-listed Starbucks Coffee Company and BSE-listed Tata Global Beverages Ltd, were tight-lipped, underscoring a circumspect debut.

The bigger question, say experts, is whether Starbucks can really crack the India code, coming in now?

Schultz appeared gung-ho. “The size of the market is very large. If you look at other countries where we have stores — 700 in mainland China, 800 in the UK, 1,000 in Japan, 8,000 in the US — this is a very large opportunity and putting an overall number for stores here will not be possible at this stage. But with Tata’s help and the size and scale of this market, we believe this is where we will grow significantly and make investments over the near future,” he said.

Experts feel the brand name, too, will work its magic — at least initially.

“It is a very successful brand. They have been able to establish themselves in other Asian markets such as China, which is predominantly a tea drinking country. In fact, they are believed to have created the demand for coffee in the Chinese market and have met with roaring success. Therefore, India may not be difficult either,” said Arvind Singhal, chairman of retail consultancy Technopak Advisors.

Technopak expects India’s cafe market to touch $410 million by 2017, up from $230 million now, with the number of cafes rising from 1,950 to 2,900.

Others feel Starbucks will benefit from localisation, as it has in other markets. For instance, in China, it worked with ingredients like green tea.

Something similar will work just fine here, said Gaurav Sharma, assistant vice president, Technova.

Schultz appeared to concur. “Though we will be importing coffee beans, for the first time in our history, we will be sourcing and roasting coffee locally,” he said.

“This apart, we will also offer a host of localised food items sourced from Tata’s food and beverage operations. So, you will see items like elaichi mawa croissant, murg tikka panini, tandoori paneer roll among others,” said Avani Saglani Davda, CEO, Tata Starbucks Ltd.

But will this be enough, given that competition is rife, with several players in the fray?

Singhal of Technopak feels it would take a herculean effort to upstage the market leader, Café Coffee Day. But of course, the positioning of two brands is different and so a clone war is not impending, he is quick to add.

Some analysts believe that in order to succeed Starbucks will have to focus on the location and quality.

To be sure, the café chain is not a leader in all the markets that it is present in, Devangshu Dutta, chief executive, Third Eyesight retail points out. According to him, pricing, product offering and location will decide its success.

Yet others feel the company will do well to focus on smaller sizes and cheaper beverages.

The world’s largest coffee chain will need options that are priced as much as 33% lower than its US offerings to succeed in the Indian market, said Saloni Nangia, president at Technopak Advisors.

For example, Café Coffee Day, the nation’s biggest chain with 1,360 stores across the country, sells a regular cup of cappuccino for Rs61 in Mumbai, while its closest competitor Barista, with 318 stores, sells for Rs69. This, in a nation where the World Bank says about two-thirds of the people live on less than $2 (around Rs108 as at Friday’s conversion) a day.

That may prompt Starbucks to sell its drinks for about $2-2.50 a cup, Nangia said, compared with about $4 in Beijing and $3.50 in the US.

But it may well choose not to do that and remain a premium player, said Larry Miller, an Atlanta-based analyst at RBC Capital Markets Corp. “I wouldn’t be surprised to see similar levels to other markets around the world, which would be a pretty expensive proposition for the Indian consumer,” he said. “In China, their products are just as expensive as they are in the US.”

With Bloomberg