Starbucks must now fight for every buck in India

India's café culture is undergoing significant changes. However, the global coffee giant Starbucks is facing challenges in the world's most populous country. Tata Starbucks, a collaboration between Starbucks Corporation and Tata Consumer Products, has announced a revision of its expansion strategy, reducing the number of immediate store openings due to rising inflation and real estate challenges.

In an interview with Reuters, Sunil D’Souza, CEO of Tata Consumer Products, elaborated on the updated plans. “We will calibrate for the short term — maybe instead of opening 100, we will open 80 now, and next year we will open 120 instead of 100," he said.

Although the short-term approach is being modified, the long-term objective of reaching 1,000 stores by 2028 remains unchanged. With more than 450 locations already in operation, Tata Starbucks stands as India’s largest café chain and has successfully doubled its presence in just four years.

Reasons for slowdown

Economic challenges

Indian consumers are reducing their discretionary spending as ongoing inflation impacts the budgets of the middle class. Products such as coffee and café items are increasingly regarded as luxury purchases.

Real estate limitations

Securing high-quality locations has become a significant hurdle. D’Souza highlighted that in India, finding prime real estate with sufficient foot traffic is challenging, especially when compared to China, where rapid mall development facilitates Starbucks' robust growth.

Growth amid challenges

Tata Starbucks reported a 12 per cent increase in revenue, reaching Rs 12.18 billion ($143.6 million) in the previous financial year; however, its net loss expanded to Rs 800 million from Rs 250 million. Despite these obstacles, the Indian market presents considerable long-term opportunities due to its relatively low café density compared to other Asian nations like Vietnam and Indonesia.

The company's growth strategy encompasses the following elements:

1. Strategic foresight: A specialized team identifies emerging real estate prospects and selects optimal locations.
2. Tailored offerings: Distinctive menu items such as Chai Tea Latte and Elaichi Mawa Croissant are designed to appeal to Indian preferences.

India's evolving coffee landscape: An expanding opportunity

Although India is primarily a tea-drinking country, the café culture is increasingly popular among urban millennials and professionals. Starbucks' premium brand image aligns well with this audience, yet affordability poses a challenge for broader acceptance.

To tackle this issue, Tata Starbucks has implemented:

1. Smaller, budget-friendly beverage options like the ‘Picco’ cup
2. Loyalty initiatives and special promotions to encourage repeat patronage
3. Expansion into Tier-II and Tier-III cities such as Lucknow and Jaipur, where disposable incomes are on the rise.

Tata Starbucks' long-term plan includes the establishment of 1,000 stores across India by 2028. The company aims to achieve operational efficiency to mitigate real estate and operational expenses. Additionally, it seeks to enhance localization efforts to deepen its engagement with Indian consumers.