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Originally published January 30, 2012 at 6:20 PM | Page modified January 30, 2012 at 9:24 PM

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Finally, Starbucks announces plans for India debut

Starbucks plans to open 50 stores in Mumbai and New Delhi in the second half of the year.

Seattle Times business reporter

Starbucks in India

Planned stores: 50 in Mumbai and New Delhi in last four months of this year

Market: 1.2 billion people, second-largest nation on Earth

Challenge: Indians traditionally are tea drinkers, but coffee is gaining popularity among young people and middle class.

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Three months after opening its 500th store in mainland China, Starbucks is preparing to debut in the world's second most populous country: India.

It's taken awhile.

The chain first planned to launch in India in 2007, when it still bragged it would reach 40,000 stores worldwide. The recession and Starbucks' overexpansion ended that talk. An overhauled Starbucks, at 17,250 stores worldwide, also plans less robust growth.

The company expects to open 50 stores in Mumbai and New Delhi between September and December.

"We're going to be very disciplined in how we grow," said John Culver, president of Starbucks' Asian Pacific region. "The rate at which India is growing, the size of the emerging middle class and the growth of disposable income lead us to believe it's going to be a very large market for Starbucks over time."

The biggest challenge is India's lack of infrastructure, Culver said.

When he first visited New Delhi for Starbucks several years ago, Culver said, its airport was decrepit. Now the city has a new, world-class airport, and one is coming in Mumbai, and India is working on its roads and rail system.

"All these things are emerging, and we want to be in a position to capture the opportunity as this infrastructure is built out," Culver said.

Although Indians are traditionally tea drinkers, Culver said coffee is becoming more popular, particularly among young people and the emerging middle class.

It also is much more popular in the southern part of the country, home to India's coffee farms.

Anyone who doubts the power of Starbucks' appeal in a tea-drinking culture should consider the company's success in China, a tea culture where some people have an aversion to milk, said Sharon Zackfia, an analyst at William Blair & Co.

"If you can sell lattes in China, I think you've pretty much cracked the code."

Starbucks is what's called an "aspirational brand," Zackfia said. "It's probably less what you're selling than what the brand represents, which is a certain level of status. It's the first luxury item most people can afford."

George Howell, who sold a Boston-based chain of cafes to Starbucks in the 1990s, saw it happen domestically. "When we sold it, business in our newer markets rose dramatically, because it was a known entity," he said.

India has worked to improve its coffee since it switched from selling coffee to Soviet-controlled countries to exporting it to the West, which has higher standards, said Howell. The businessman owns the online and commercial roastery George Howell Coffee and is considered one of the best coffee buyers in the world.

"I think they'll be a player. I know they will," he said of Indian coffee. "I've been served espressos with 100 percent Indian coffees that have blown me away, how sweet they are. I know the potential exists."

For U.S. coffee buyers, the challenge is finding farms with that level of quality.

That's where the Indian conglomerate Tata Global comes in. It owns half of Starbucks' business in India — a joint-venture arrangement similar to what Starbucks has in other countries.

"India's infrastructure lags China in terms of roads and the ability to secure the supply chain," Zackfia said. "I would not want to see them go it alone in India."

Together, the companies will begin by investing about $80 million.

As India's largest coffee producer and exporter, Tata also will supply all the coffee for Starbucks' espresso drinks there. Although an espresso roast can mask coffees' unique flavors, Indian coffee leans toward the rich velvet of an Indonesian brew.

India has grown coffee since the 1600s, when a man called Baba Budan is said to have smuggled seven beans out of Yemen and cultivated them in the mountains of Mysore, said Mark Pendergrast, author of the book "Uncommon Grounds: The History of Coffee and How It Transformed Our World."

"They have gorgeous plantations where you can have coffee ecotourism," he said. "It could be the next interesting place to pay attention to."

Of course, the coffee's flavor is not why Starbucks is there.

India has 1.2 billion people — just shy of China's 1.3 billion — and is part of Starbucks' most profitable region.

Although Starbucks has more cafes and books greater sales in the United States than anywhere, its highest operating-profit margins are in the Asian Pacific region — about 35 percent, compared with 22 percent in the Americas (which includes the United States) and 7 percent in Europe and the Middle East.

By opening five years later than expected, Starbucks faces more competition.

Cafe Coffee Day has more than 1,000 cafes and kiosks and is growing fast. Other competitors include Barista Lavazza from Italy and the U.K.'s Costa Coffee.

Although India presents infrastructure challenges like no other place for Starbucks, Culver said it could follow the trajectory of Starbucks in China, which started slow in 1999 but now is expected to become its largest international market.

"Time will tell, and customers will tell us how quickly we're able to grow," he said. "But I think what you'll see in India is a similar path."

Melissa Allison: 206-464-3312


On Twitter @AllisonSeattle

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