Starbucks India Isn't Celebrating Yet
Image: Vikas Khot
here’s a point Howard Schultz never shies away from making. In fact, he weaves it in so effortlessly into a conversation that you barely notice he’s said it. Yet, the three times I’ve met him, the Starbucks boss always lets slip that setting shop in India is going to be no cakewalk. “We’ve got to earn the respect of the Indian consumers.”
That coming from someone who has single-handedly built a $19 billion empire with 19,972 stores around the world is a stunning display of humility. It’s also an acknowledgment of the challenges the company has faced when it entered other foreign markets. Starbucks took a decade-and-a-half to get it right in China, where it had to build a café culture from scratch. Being a late entrant into the Indian market—he’s up against competitors like Costa Coffee, Gloria Jeans Coffee and the homegrown Café Coffee Day—Schultz knows that Starbucks in India might not have the luxury of a second chance.
Yet, two weeks after the launch, at an earnings call with analysts in his Seattle headquarters, Shultz couldn’t stop gushing about the Indian launch. “All three stores [in Mumbai] are exceeding our loftiest expectations.”
The initial response has been stunning. There have been mile-long queues to enter the flagship store in tony Horniman Circle in south Mumbai. The 1,500-sq ft store at Oberoi Mall in Goregaon, the city’s western suburbs, is equally choc-a-bloc. The third store, at Taj Mahal Palace annexe, Colaba, also got off to a brisk start, but not quite on the same level as the other two.
While Tata Starbucks officials declined to discuss sales data, retail experts say that the 4,000 sq ft two-storied store in Horniman Circle is generating an average sale of Rs 8.5 lakh a day. To put that in perspective, the best that any coffee chain outlet—like the 400-sq ft Café Coffee Day store in Mumbai’s domestic airport—does is a little more than Rs 1 lakh a day. No wonder Schultz is sounding a lot more self-assured. “I’m confident India will evolve into one of Starbucks’ five largest markets over time,” said Schultz on that same call.
While its market entry may rank as one of the more successful global brand launches in India in recent times, the world’s largest coffee chain seems to be in no tearing hurry to ramp up operations. In fact, it plans to continue its slow, measured pace of growth. It is in no rush to play catch-up with local chains, particularly market leader Café Coffee Day, which has 1,350 stores across the country, with plans of expanding to 2,000 stores by 2013.
Starbucks, says insiders, will stick to its script. There are at least two more new stores expected to come up in Mumbai, both in mid-town Mumbai, before the brand puts up its shingles in the capital with its first two stores, one at the Select City Walk in Saket and the other in Connaught Place early next year, and then move to Bangalore. By all indications, it is likely to have about 20 stores by the end of next year.
That might seem a trifle conservative, especially since Starbucks took five years to prepare its entry strategy in India, with at least one aborted joint venture with Kishore Biyani’s Future Group. But then Schultz will know from his China experience that initial euphoria could be misleading. Other global brands like Levi’s, Nike, Ariel, Kellogg’s and McDonald’s have struggled to adapt to the Indian market.
In his exclusive conversation with Forbes India in Mumbai, Schultz made it clear that he had been involved at every stage of the India launch, including examining the design for the flagship store that would be mailed to him every other fortnight.
So what does Schultz have up his sleeve in India?
Let’s rewind to January 2011. Schultz and his trusted lieutenant John Culver, who leads the chain’s Asian operations, had travelled to India with the aim to enter the market. This was the second time the company had attempted to enter India.
It was done in classic Schultz style, where he travelled around the market to understand it. He arrived in Delhi and once his meetings with the government (being a single brand entity, the company could have come in without a partner) were done, he winged his way to Tata Coffee’s plantations in Coorg, Karnataka.
Topmost on his mind was to source coffee in a manner consistent with the company’s policy of giving back to the community. In Coorg, Schultz spent time at Swastha, a Tata Coffee project for differently abled children. Those familiar with the negotiations say it played an important role in swinging the sourcing deal Tata Coffee’s way.
In April, a coffee sourcing deal was signed with Tata Coffee and Starbucks’ India adventure began. Schultz knew he had to get it right the first time around. The story of how they went about their India market entry is instructive.
After travelling through India Schultz realised it would be best to sign on a local partner for the India market. On the face of it, the challenges were daunting: From the unavailability of prime real estate to getting a quality supply chain infrastructure in place. After he met Tata group supremo Ratan Tata and RK Krishna Kumar, vice chairman, Tata Global Beverages, in Mumbai, Schultz realised he needn’t look further.