Starbucks (Nasdaq: SBUX) is finally set for India after a three-year-long struggle. Is it worth it? Let’s see. Although primarily a tea-drinking country, India does have a 600 million-strong youth population. Given the $185 million worth of the country's organized coffee market, which is set to reach $900 million in the next five years, India is certainly the destination to head for.
The great Indian consumer story
There seems to be a rush to cash in on the great Indian consumption story. In the last few years, the country has been the destination of choice for some of America’s most popular names. Some top brands in the food and beverage space have already reaped benefits and are now vying for even more.
After some fantastic results over the years, Yum! Brands (NYSE: YUM) has announced its plan to focus on India as a separate segment. Even McDonald's (NYSE: MCD) expects to double its Indian outlets in the next three years. On the coffee scene, Dunkin' Donuts (Nasdaq: DNKN) recently announced that it will open 30 outlets in India over the next three years.
Why competition shouldn’t worry Starbucks
The Indian coffee market already has some notable players such as Café Coffee Day, Costa Coffee, Barista and other local coffee joints. What’s interesting here is the market expanse that stands at 1,300 outlets at present and holds the potential to grow up to 5,000. This gives a lot of room for each one of them to grow, including Starbucks.
Starbucks also expects to distinguish from competition through its premium positioning. The company’s perceived customer base in India comprises the upper and upper-mid segment, unlike those of its competitors.
The Tata route
Premium positioning -- that’s where Starbucks hopes to optimize its partnership with the Tata Group. Not only is Tata Global Beverages India’s largest producer of coffee in India, but it also has significant premium retail presence through its “Westside” stores and Taj group of hotels.
Starbucks will be able to tap the desired customer base through retail outlets in the Taj hotels and other premium properties of Tata. Also, Starbucks will initially source coffee beans from Tata Coffee, a unit of Tata Global. This will certainly make operations easier while also providing an advantage over competitors such as Costa Coffee, who do not have similar arrangements.
Why it should interest investors
At this stage, the deal certainly looks promising. While the nascent Indian coffee market should offer sufficient room for growth, Starbucks can count on Tata’s proven expertise to milk the opportunity even further. To find out if Starbucks coffee is acceptable to Indian palates, add it to your watchlist. It’s free!
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