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Starbucks come lately

How will the Indian consumer, who sees coffee cafés as hangouts and is not loyal to any one brand, respond to the entry of iconic Starbucks? Anita Sharan finds out. Coffee services in India

business Updated: Feb 19, 2012 23:29 IST
Anita Sharan
Anita Sharan
Hindustan Times

As India's economy expands and increasingly youthful, trendy lifestyles bloom in the bustling metros, international coffee chains such as the UK's Costa Coffee, California-headquartered Coffee Beans and Tea Leaf and Australia's Gloria Jean's have entered India, while homegrown market leader Café Coffee Day and Barista (now owned by Italy's Lavazza) have carved their own paths to growth.

Enter Starbucks - the global leader - in a 50-50 joint venture with Tata Global Beverages. Will Tata Starbucks Ltd manage to create magic for the likes of Shobhit Dandia?

John Culver, president, China & Asia Pacific, Starbucks, says there is enough room for all because the market is growing manifold. "There's a steady shift in consumer preferences. The discerning Indian consumer appreciates a quality experience delivered at the appropriate value."

While that opens the game, the Indian consumer is not particularly brand loyal on coffee outlets.

"Coffee is an impulse category, so location convenience is important," said Santhosh Unni, CEO, Costa Coffee India.

However, in a nation of tea drinkers, coffee chains have grown by 25-30% per year.

Barista's former CEO Sanjay Coutinho (currently CEO, Om Pizza), says the industry has thus far not seen a consistent brand experience because of challenges in retaining and training staff. "Maybe things will change with Starbucks's entry," he said.

Market sources say the Starbucks JV, which sports "A Tata alliance" as its tagline, is looking at outlets measuring 3,000 to 3,500 square feet - that's huge by Indian standards.

"We understand the need to ensure Indian consumers receive a world class experience at a value that reflects the quality of the experience and is respectful of India's strong culinary heritage, and local tastes and preferences," Culver said. "We will offer high-quality arabica coffee, handcrafted beverages, locally relevant food and legendary service to consumers." A premium tea product, Tata Tazo, will be one such offering.

All coffee café chains in India offer varieties of tea. Unni said that at Costa outlets, coffee accounts for 80% of total annual sales, tea a mere for 6%. Coutinho estimates that food and non-coffee beverages would not exceed 25-28% of total sales at most brands' outlets.

Unni said that when all the coffee café brands have outlets in the same locations over the next five-six years, consumers will choose. But until that happens, how much of a premium will consumers be willing to pay? Currently, a regular coffee cup comes for Rs 45-80.

Starbucks is still mum on its pricing strategy. "We will evaluate customer insights, competition and other factors in determining pricing and food offerings," said Culver.

Importing coffee could be an expensive proposition, given the steep import duty rates that apply in India. However, said Culver, "with our sourcing and roasting agreement with Tata Coffee Limited, Tata Coffee will roast Indian arabica coffee for Tata Starbucks and Starbucks Coffee Company. Green coffee will be procured from and roasted at Tata Coffee facilities. We aim to elevate the stature of Indian arabica coffees through joint marketing efforts, and improve the coffee quality through responsible practices and advanced agronomy solutions."

The key question is: what do consumers want?

"Cafes are a place where people hang out and spend time with their friends," said Shobhit Dandia, 27, a finance executive in Mumbai. "The coffee itself is not the driving factor. Unless Starbucks offers something markedly superior in terms of ambience or products, I would look at convenient access as the most important factor."

Interestingly, Costa Coffee, which competes with Starbucks in Europe, charges £2-2.80 a cup there -more than double of what it charges in India. "Starbucks's prices in Europe are similar to ours," Unni said.

"Since it is Starbucks, I may agree to pay a slight premium - maybe R20-30 more," Dandia said. "But, if the premium is significantly higher, I wouldn't pay unless the product is significantly superior."

With Starbucks's entry, the Indian consumer will experience heightened activity in the coffee café market. Adding to the din will be American brand Dunkin' Donuts, expected to enter India soon.

First Published: Feb 19, 2012 22:32 IST