Starbucks opens its first store in India


October 19, 2012

Sapna Agarwal, MINT (A Wall Street Journal Partner)

Mumbai, October 19, 2012

A welcome sign in six languages—Hindi, Marathi, Tamil, Gujarati, French and English—greets customers at the entrance to India’s first Starbucks store, which opened Friday at Horniman circle in south Bombay, offering a glimpse of the localization that the Tata group and Starbucks Corp. are attempting.

The atmospherics are spot on. There’s the aroma of freshly-roasted coffee; the decor is identifiably Indian, thanks to the signature jali (lattice) design; the mugs are emblazoned with Starbucks India along with an image of India Gate; iron trunks and jute bags stamped with Tata Coffee Ltd line the walls.

The pricing has been aligned with that of Café Coffee Day and Barista, starting at Rs.85 for a cup of brewed coffee excluding taxes. There are 42 items on the mixed menu but no pork or beef items.

The first Indian store is a big deal for Starbucks, which needs to make sure that it can pack in more international customers as markets back home get saturated and habitues gravitate towards other brands and stand-alone coffee shops.

Howard Shultz, founder and chief executive officer of Starbucks, was on hand at the opening.

“This is the largest market in the world for Starbucks and we will make significant investments here and build a leadership business,” he said. The company had waited for many years to come to India and had been frustrated that its entry was getting delayed due to the financial crisis and a lack of suitable partners.

Shultz declined to give details of the investments planned or the roll-out strategy. In January, when the firm announced its joint venture with Tata Global Beverages Ltd, Starbucks said it would roll out 50 stores by the end of the year. That target may be difficult to achieve.

Starbucks plans to open two more stores in Mumbai next week at the Oberoi mall and the Taj Mahal Palace annexe—before launching in New Delhi early next year.

“India is a complicated and complex market; it has become easier to enter due to Tata,” Shultz said.

Globally, Starbucks has 18,000 cafes in 60 countries. It has 700 in China, 800 in the UK and 1,000 in Japan.

“They have got their pricing similar to the other coffee chains present in India,” said Devangshu Dutta, chief executive, Third Eyesight, a retail consultancy. A localized menu is a must in India as food is a big part of café culture, he said.

The Starbucks café also offers Himalayan water beverage packs besides tea that’s branded Tata Taazo.

In its 40-year history, India is the first location where Starbucks is sourcing and roasting its coffee locally. A sign in the shops says: “Be prepared to be delighted. Our rich expresso made with coffee beans, grown in India, for India.”

“The decision to locally source is not because of economics,” said Shultz. Sourcing locally is a part of being “respectful” to the country and taking advantage of the huge coffee plantation heritage of the Tatas, he said.

The organized food market which includes fine dining, quick service restaurants, cafe chains is a $2 billion market, of which the cafe business—which consists of chains such as Cafe Coffee Day, Costa Coffee and Barista—is already a $230 million market, according to an October report by Technopak Advisors, a retail consultancy firm.

“There are close to a dozen coffee shop brands, with 1,700 cafes in India and at least another 10 coffee retail firms 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 set up operations in India.

The high growth is also attracting many firms from 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. Jubilant FoodWorks Ltd is the master franchise for Dunkin’ Donuts in India.

The promoters of HT Media Ltd, which publishes Hindustan Times and Mint, and Jubilant are closely related. There are no promoter crossholdings.