US giant Starbucks’ impending entry into the Bangalore market will froth up cafe culture


October 7, 2013

Priyanka Goilikeri, DNA (Daily News & Analysis)

Bangalore, October 7, 2013

starbucks mumbai How about some white chocolate mocha or caramel macchiato? Not really little-known names, but when they take pride in belonging to one of the largest coffee chains in the world, the urgency to try them out runs high.

At a time when every international brand is trying to gain a foothold in Bangalore, American giant Starbucks is expected to jostle with the likes of homegrown Cafe Coffee Day, and imports like Costa Coffee, Barista, Gloria Jeans and Coffee Bean & Tea Leaf; in a market where drinking kaapi has been a centuries-old tradition.

After opening 15 outlets in New Delhi and Mumbai, the chain is now eyeing a crowded coffee market, where other than the ubiquitous cafes, traditional long-standing outlets like MTR, India Coffee House and Vidyarthi Bhavan dot the landscape.

Armed with a pricing that is upwards of Rs110 for a 273 ml glass of coffee (minus taxes), with variations that can go beyond Rs200 for a larger container; the US giant looks confident of luring its clientele in a migrant-rich, expat-dominated city, with set of globetrotters who would have tasted the brand abroad.

“We don’t believe in waging a price war to win customers,” says Avani Saglani Davda, CEO of Tata Starbucks. Her mantra is simple—one coffee, one customer, one store at a time.

An outlet too many

Brand consultants feel that despite the clutter in the market, Starbucks will be able to carve out its own niche, simply on the basis of its image.

Though the pricing is on the steeper side, experts believe, consumers wouldn’t mind paying to savour a global brand. “The analogy lies in the contention that people have no problems paying for a Baskin Robbins or a California Pizza; even when cheaper alternatives are aplenty,” says an expert, adding that the customer profile for a Starbucks will be distinctly different from those who frequent stores for a quick filter kaapi.

Many customers are aware that the actual price of the coffee in any cafe is just 15-20 per cent of the overall price printed on the menu, say experts, with the balance accounting mainly for real estate, marketing, human resources, and overhead expenditure.

“But still enough, customers do pay since drinking coffee at a Starbucks is not out of necessity, but as part of their lifestyle where hanging out at such a place is considered cool,” argues Devangshu Dutta, CEO of consultancy Third Eyesight.

Coffee’s cool

Yes, the coolness factor does weigh in. For instance, techie Anirudh Gupta, who has frequented Starbucks in the US and is now awaiting its arrival in Bangalore, has this to say, “Abroad, people grab a coffee and head out to work. Here a cafe is more of a place to hang out with friends, or relax while working on the laptop. With Starbucks, the takeaway bit may become popular in India as well.”

Brand consultant Harish Bijoor believes the entry of Starbucks will lead to a caste system of brands in the cafe culture, “where Starbucks might end up being the Brahmin.”

Moreover, alongside the brand image goes the underlying premise that a product belonging to a global chain will be better, along with great ambiance and service, adds Dutta.

“Therefore, a much awaited debut in Bangalore will definitely draw in customers,” says Bijoor.

What happens to CCD?

Since the market is huge, the potential for new and existing players is equal. A study carried out by Bijoor reveals that going by the consumption trend, India at present requires 7,450 cafes. “There are 2,650 as of now. So the demand-supply gap is huge,” explains Bijoor.

And in Bangalore, which remains a Cafe Coffee Day bastion, the entry of a US player is not really a threat. “The entry of a new player won’t throttle. There is room for all,” asserts K Ramakrishnan, president, marketing, Cafe Coffee Day.

Ramakrishnan feels that the chain has the necessary wherewithal, including its menu revision to include non-coffee drinks; and its formats like lounge, square, cafe and kiosk to cater to a mix of customers. And with 200 outlets across the city, “we are ever ready to service all types of customers with products that are sold across all price points,” contends Ramakrishnan.

Thus if Starbucks has its international image, Cafe Coffee Day has its numbers, feels Bijoor. “CCD has done a great job in capturing all the key locations in Bangalore. Finding the right locations will not be easy for Starbucks,” he predicts.

But experts feel that to ensure their top positions, cafe chains will have to provide customers with the same quality and service consistently across all their locations. According to Dutta, if there is any issue with the quality or service, “it can impact customer base.”

And, it will be the customers who will decide the fate of this brewing war.