The year 2011 started off with great news for coffee lovers. Starbucks was planning to make its foray into the profitable Indian market through a joint venture with Tata. The highly adaptive Indian middle class has taken a liking to espressos and cappuccinos. Even though tea has undisputable supremacy, coffee consumption in India is also on a healthy rise. The proposed joint venture (JV) will help Starbucks tap into many domestic sectors managed by the Tata group.
With the move from traditional filter coffee to western espressos, foreign beverage giants seem to be taking notice of Asia’s 3rd largest economy. Starbucks coffee, presently, is available in 24/7 convenience stores in India. Coffee intake has been high over the past few years and, as a result, overall domestic consumption of coffee rose to an estimated 108,000 metric tons in 2010, up 80% in the past decade, according to government figures.
COMPETITION AND SURVIVAL
Even though analysts are optimistic about the future of this venture, Starbucks will face stiff competition from other players in the market. The largest chain of coffee outlets in India is owned by Café Coffee Day (a unit of Amalgamated Bean Coffee Trading Co.).
These coffee houses have managed to develop a cult status and anything from a casual date to a formal business meeting can take place in these cafes. The other competitors in the coffee market include players like Barista and Costa coffee stores.
On the plus side, Starbucks is highly valued as a brand by the upwardly mobile Indian youth. Starbucks will need to adapt itself to the Indian market by tweaking its menu in order to satiate the sub-continental thirst. Like McDonald’s; which introduced customized burgers like paneer tikka, Starbucks too, needs to modify its menu in order to have a greater customer base.
In January this year, Starbucks and Tata Coffee signed an initial agreement for sourcing and roasting premium coffee beans in India. The coffee outlets will most likely be located in retail stores and hotels managed by the Tata group.
The Indian foreign ownership laws forbid a single-brand owning company from having more than 51% stake in a joint venture. This may be a challenge to the Starbucks Company. Starbucks need to expand its beverage corporation to Asian countries like India and China.
The spending power of U.S. consumers is still shaky after the repeated economic agitations. Therefore, investing in upcoming economies will help Starbucks increase their profit. This has been earlier proven by restaurant chains like KFC and McDonald’s.
FUTURE OF THE JOINT VENTURE
Speculations of the JV were enough to raise the shares of Tata by 11% and Starbucks by 1% respectively. “We are moving forward with MoU (signed with Tata Coffee earlier this year) discussions and planning and hope to make an announcement soon,” Starbucks Coffee International President John Culver told PTI. There is a lot of optimism in the market and this seems to be a venture for the long run.
“We welcome Starbucks’ entry into India because of both its unique experience with the store format and for its commitment to society values that we share,” Tata Coffee Chairman R K Krishnakumar. Both the companies are arguably the best in their fields and have tons of experience. With JVs like Volkswagen – Suzuki falling apart, this may well be the one to bank upon.