Starbucks looks for sweet deals on rents, locales
US-based Starbucks is driving a hard bargain with retail-space owners, in some cases seeking rent-free premises, citing its brand value and its ability to increase footfalls in malls by its presence. Rachit Vats & Sachin Dave report.business Updated: Feb 01, 2012 23:27 IST
Brands come at a price. Even a cup of coffee. US-based Starbucks, the world’s biggest coffee chain with 17,000 outlets, is driving a hard bargain with retail-space owners, in some cases seeking rent-free premises, citing its brand value and its ability to increase footfalls in malls by its presence.
“We are in talks with Starbucks and would love to have them in our premises, but they are bargaining hard,” said Gayatri Ruia, development director, Palladium, a premium retail brand of Phoenix Mills. “But we cannot rent out the premises for free as our mall too commands a premium in Mumbai.”
Starbucks underlined its power as a star tenant at the recent formal announcement of its launch, in association with Tata Global Beverages whose vice-chairman RK Krishnakumar refused to disclose the locations of proposed Starbucks outlets on the grounds that this would jeopardise their ability to negotiate rentals.
In 2007, when Starbucks initially planned to enter India, it had identified Select City Walk in south Delhi for its first outlet. According to industry sources, this time the first few outlets are expected to open in Colaba, Worli and Hughes Road in Mumbai, and Pacific Mall and Ambience Mall in Delhi NCR.
The need to look outside the Tata fold for premises may be prompted by lack of suitable venues within the group, even though it has sizeable real estate assets. “The nature of real estate properties that the Tatas have may not be Starbucks’ cup of coffee,” said Ramakrishnan K, head-marketing, Café Coffee Day.
According to an analyst, the coffee chain would probably be comfortable paying R150-400 sq/ft in its first year in India.
Starbucks has a well-established real-estate acquisition policy, and is launched in top-of-the-line locations wherever it goes. It is expected to follow the same strategy in India, though the coffee chain has of late become less discriminating while choosing real estate locations in the US.
“Developers will be more considerate with Starbucks and you may see them paying less rent, or get heavier discounts or other concessions, on account of what they can bring back to a mall,” said Pranay Sinha, managing director, Star Centres. “In a premium location, Starbucks can help increase initial footfalls by at least 40%.”
Real estate consultants say the coffee chain could benefit from its brand equity. “Every developer would be looking to host big brands like Starbucks and would certainly offer them better financials — which could be either reduced rent or better structured deals,” said Anshuman Magazine, CMD, CBRE, South Asia.
Competitors are keeping the tabs on the coffee chain’s strategy. “The answer is not the rate per sq ft,” said Santhosh Unni, CEO at Costa Coffee (India). “It’s all about a brand’s ability to create enough business to keep the rent-to-revenue percentage in the ballpark of 25%.”
Costa Coffee is one of the biggest competitors of Starbucks globally, and enjoys a first mover advantage in India.
Tata Global Beverages, on behalf of the Starbucks alliance, declined to answer any queries.