Last week, a decade since it first started scouting around the Indian market Starbucks announced plans to launch its first stores in Delhi and Mumbai by August 2012.
The company’s international operations have been firing on all cylinders in the past one year. After initially stumbling in China it has begun to turn the corner.
While it will no doubt look to avoid those mistakes in India and lean on its JV partner for guidance the question remains: what should we expect from the launch of Starbucks in India? Will it be an up market version of Coffee Day or should we expect a distinctive experience i.e. one with premium pricing? Will they Indianize quickly? How fast will they expand? We’re sticking our necks out and making some predictions.
Brand Positioning: This one is easy as we got our answer from the horse’s mouth. Last year Howard Schultz in an interview with Forbes India had made it clear that the last thing they would do is water down the experience. “I think it would be very disappointing for us to come all the way from Seattle to India and water down the experience because we don’t have the courage to create something that is consistent with our heritage.” So expect the company to go aggressively after real estate in Delhi and Mumbai. Malls, airports, office blocks are prime targets. There should even be a couple of trophy outlets like the one they have at the entrance to the Forbidden City in Beijing. A Starbucks at the Gateway of India perhaps?
Pricing: This one is trickier. As a former CEO of a coffee chain put it, “The deal with the Tata’s is a masterstroke. It allows them to source coffee from India, roasted to their specifications.” But more importantly it allows Starbucks to avoid the 100 percent duty that Coffee Bean, Gloria Jeans Coffee and Costa have to pay. Coffee costs account for 40-45 percent of costs at these chains and what Starbucks has done with the Tata tie-up is that it has reduced its coffee costs to around the same as what say Café Coffee Day would pay. This should give it the pricing heft required for a market likeIndia.
Whether Starbucks passes on these costs to consumers remains to be seen. People in the trade whom Forbes India spoke with said they expected a basic Starbucks coffee to cost an average of Rs125 – higher than the Rs60-75 that Café Coffee Day charges but lower than the Rs150 other international chains inIndiacharge.
In addition to coffee they expect food to be another key driver of footfalls. In India food usually makes up for 25 percent of revenue something Schultz knows only too well. “Just like we have done in China, we will create local relevancy, especially on the food side,” he said in an interview last year.
Given that a coffee shop generates returns of Rs200-250 per square foot — about a fourth  what the typical restaurant does– getting a local food offering that drives footfalls will be key. (Per square foot returns are not an indicator of profitability as the footfalls in a coffee shop are higher). Here again the tie up with the Tata’s comes in. TajSATS, which is well versed with Indian food habits will be roped in to supply food to Starbucks outlets.
Scaling up: Contrary to some reports Starbucks will not find it too hard to get prime real estate. Mall owners should be falling over themselves to welcome the company. The Hindustan Times wrote about the company saying that a Starbucks outlet could increase footfalls in a mall by 40 percent. Once the space is allocated a 1,000 square feet store takes about 15 days to set up. Can the company expand fast? Yes. Will it? No. Instead expect it to use these stores to test its hypotheses on the Indian consumer. Our prediction for the first year: No more than 25 stores. And don’t expect them to get to 3,000 stores anytime soon. Remember after 13 years in China the company is still has only 550 stores in the country.
As we look ahead to the launch, we’d love to hear from you readers about what you’d like to see from Starbucks. Post your thoughts on the comments section.
