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Starbucks Finally Coming to India: Will It Knock Out the Indian Coffee Retailers?

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One of my Indian friends abroad was returning home after a three year stint in Japan and mentioned, "Well, the only thing that I would not find in India and I can't live without is Starbucks."

"But, there are Café Coffee Day and Barista, the Indian Coffee chains, if all you want is a hang out joint and some good tea or coffee," I said.

"No, they are not the same, they don't even serve Tazo Chai Tea Latte," was the curt response.

Well, it's only an individual example, but kind of opens up a window to understand how brands develop and make your life incomplete without them being around. It is also precisely this sentiment that would welcome Starbucks in India. However, Starbucks is looking at a much bigger market than merely those who eagerly await its arrival.

Indian coffee consumption has doubled up in the last decade to 100,000 metric tonnes. While the main players in the retail coffee chain in India are Café Coffee Day, Barista and Costa Café, it is really only the Café' Coffee Day that has the largest market share. With over 1250 cafés across various cities in India, Café Coffee Day is progressing at a growth rate of nearly 30 percent a year. In Contrast, Barista remains slightly an upmarket Café with about 250 cafes across the county and Costa Coffee, still lesser at about 100 Cafes. Who amongst these is really the competitor for Starbucks really depends on how the company positions itself in India.

Starbucks is partnering with Tatas with a 50: 50 Joint Venture to launch the first set of the 50 retail coffee chains across India by the end of the year. The first launch is estimated in August. Finally! The question one likes to ask is not what is bringing Starbucks into India, but what has really kept it out for so long. It may be the Foreign Direct Investment Policies for single brand retail companies, where the bar was kept at 51 percent. Apparently, Starbucks has long been interested in coming to India but somehow it didn't work. However in the last few years, contemplating a Franchisee Model and was in talks with Kishore Biyani of The Future Group, India. It however does not work for many brands who do not want to partner with any Indian brand, such as Apple and IKEA. It is only in January, 2012, that the Indian Government allowed 100 percent FDI for single brand retailer raising from 51 percent. The only condition that comes with 100 percent FDI is that the companies who take the 100 percent route must procure 30 percent from smaller Indian companies.

It is interesting that despite the 100 percent FDI allowance now, Starbucks has chosen to go for a joint venture with the leading Indian Conglomerate Tata, that too with a 50:50 partnership stake. The two companies who are signing in MO U's are working on the finer print for the Indian chains set to launch soon. Starbucks is already in agreement with the company over sourcing its coffee from India. Although the final arrangement between the tie up is still not public, it wouldn't be a surprise if TATAs, who are also in the hospitality business, run some of the retail stores out of their own properties. Starbucks, which runs over 1900 retail stores in over 58 countries, is planning to launch stores in all leading cities in the first round this year. However, it is estimated that Indian market currently has the capacity to absorb more than double the stores it already has.

What brings Starbucks to India, when it is a known fact that Indians are not known for their love for coffee? In a country where the predominant beverage across the country remains 'tea' and the coffee drinking South Indians drink milky and sugary filtered coffee, it may not sound like a very naturally inclined market for Starbucks. However it is not the affinity for coffee, but the size of the Indian middle class which is estimated at 300 million that is attractive for brands like Starbucks. It is also true that Starbucks isn't really all about Coffee, the branding apparently is hooked on to the coffee, but Starbuck offers more than the Coffee anywhere in the World and wouldn't it be fair to expect that there would be something special for Indian market too. Café Coffee Day is no different, it does sell snacks, tea and so many soda based drinks, not remotely connected with Coffee.

That brings the discussion to the buzz that is going around in the internet world. From the Washington post to the Wall Street Journal, blogs are talking about suggestive or anticipated menu for the Indian palate courtesy Starbucks. While the guess is that "Frappuccino" and the "Latte", should remain there, some suggest Starbucks could benefit from having Alphonso Vivanno Lassi for Indians and may also consider change of name for 'Tazo Chai Tea Latte'. Some suggestions are around having a 'real masala tea' as well as serving 'coconut water'. One could imagine Indian obsession with mangoes, diary and sweet getting twisted into some interesting new beverages. It's not a long wait now.

Starbucks Corp. is serious on spreading its wings in Asia. One, the middle class in any of the East and South Asian countries is growing and the success in China has been definitely impressive for the company. The China success where cafeterias have become a national pastime of the sorts for the middle class, India must be an inspiration. The China experience shows that it is the young from the middle class that are its typical customers. While all across Asia Pacific the Café market is growing and is estimated at 10 percent to 30 percent, Mr. Wang, head of the Starbucks Asia Pacific finds Korea as one of the most promising market.

Mr. Wang believes that their entry into the Indian market will lift up the entire coffee market in the country. Self-assured yet cautious, Mr. Wang seem not too worried about the local or national competition from existing brands. One of the reasons he cites is that theirs is a proven global brand. The other being their attitude that any competition helps you remain focussed, keeps them working hard on standing out. Or as they say, there may be a place for everyone to co exists.

Interestingly, Mr. Wang who is a trained lawyer thinks that Starbucks culture is about being either a rule breaker or a rule maker. The company, he insists, relies on innovation and engaging customers and the market. Starbucks, he conveys, stands for its goals on sustainable growth, farmer equity and environmental awareness. The Starbucks would like to work with coffee farmers to better yields without reducing chemical inputs.

The joint venture between the Tata and Starbucks will be called Tata Starbucks Ltd. It is Delhi and Mumbai which would host the first of these stores. Well, for those who won't like to go to a café for their coffee, they can still relish a new product that both groups will together launch 'Tata Tazo". For the rest, long chats await in a few months from now at Starbucks.