Anand & Ashish K Tiwari, DNA (Daily News & Analysis)
October 20, 2012
Seattle, US-headquartered Starbucks on Friday opened its first
store in India, kickstarting what could be a sedate rollout, going
Yet, if the 4,500 sq ft store in the historic Elphinstone Building
in South Mumbais Horniman Circle with an upscale
brand Hermes at sniffing distance is any indication, the
company has positioned itself at the premium end, about 50-60%
costlier than Café Coffee Day.
The experience is akin to walking into a shrine of Starbucks
coffee, Howard Schultz, chairman, president and CEO, Starbucks
Coffee Company, said of the flagship store, which sports tastefully
done up, wood-and-leather interiors.
Two more stores are slated to open in the city next week
in the Taj Mahal Palace Annexe (Gateway of India) and the Oberoi
Mall in Goregaon East before the coffee chain hits Delhi
and elsewhere with another 3 stores in the next 6 months.
Beyond that, officials of Tata Starbucks Ltd, an equal joint
venture (JV) between New York Stock Exchange-listed Starbucks
Coffee Company and BSE-listed Tata Global Beverages Ltd, were
tight-lipped, underscoring a circumspect debut.
The bigger question, say experts, is whether Starbucks can really
crack the India code, coming in now?
Schultz appeared gung-ho. The size of the market is very
large. If you look at other countries where we have stores
700 in mainland China, 800 in the UK, 1,000 in Japan, 8,000 in
the US this is a very large opportunity and putting an
overall number for stores here will not be possible at this stage.
But with Tatas help and the size and scale of this market,
we believe this is where we will grow significantly and make investments
over the near future, he said.
Experts feel the brand name, too, will work its magic
at least initially.
It is a very successful brand. They have been able to establish
themselves in other Asian markets such as China, which is predominantly
a tea drinking country. In fact, they are believed to have created
the demand for coffee in the Chinese market and have met with
roaring success. Therefore, India may not be difficult either,
said Arvind Singhal, chairman of retail consultancy Technopak
Technopak expects Indias cafe market to touch $410 million
by 2017, up from $230 million now, with the number of cafes rising
from 1,950 to 2,900.
Others feel Starbucks will benefit from localisation, as it has
in other markets. For instance, in China, it worked with ingredients
like green tea.
Something similar will work just fine here, said Gaurav Sharma,
assistant vice president, Technova.
Schultz appeared to concur. Though we will be importing
coffee beans, for the first time in our history, we will be sourcing
and roasting coffee locally, he said.
This apart, we will also offer a host of localised food
items sourced from Tatas food and beverage operations. So,
you will see items like elaichi mawa croissant, murg tikka panini,
tandoori paneer roll among others, said Avani Saglani Davda,
CEO, Tata Starbucks Ltd.
But will this be enough, given that competition is rife, with
several players in the fray?
Singhal of Technopak feels it would take a herculean effort to
upstage the market leader, Café Coffee Day. But of course,
the positioning of two brands is different and so a clone war
is not impending, he is quick to add.
Some analysts believe that in order to succeed Starbucks will
have to focus on the location and quality.
To be sure, the café chain is not a leader in all the
markets that it is present in, Devangshu Dutta, chief executive,
Third Eyesight retail points out. According to him, pricing, product
offering and location will decide its success.
Yet others feel the company will do well to focus on smaller
sizes and cheaper beverages.
The worlds largest coffee chain will need options that
are priced as much as 33% lower than its US offerings to succeed
in the Indian market, said Saloni Nangia, president at Technopak
For example, Café Coffee Day, the nations biggest
chain with 1,360 stores across the country, sells a regular cup
of cappuccino for Rs61 in Mumbai, while its closest competitor
Barista, with 318 stores, sells for Rs69. This, in a nation where
the World Bank says about two-thirds of the people live on less
than $2 (around Rs108 as at Fridays conversion) a day.
That may prompt Starbucks to sell its drinks for about $2-2.50
a cup, Nangia said, compared with about $4 in Beijing and $3.50
in the US.
But it may well choose not to do that and remain a premium player,
said Larry Miller, an Atlanta-based analyst at RBC Capital Markets
Corp. I wouldnt be surprised to see similar levels
to other markets around the world, which would be a pretty expensive
proposition for the Indian consumer, he said. In China,
their products are just as expensive as they are in the US.