Starbucks brews following in India where tea is supreme
Starbucks is hoping to capitalize on India's emerging middle class and its transformation from a rural population to a world economic power.
Seattle Times business reporter
PHOTOGRAPHY BY ERIKA SCHULTZ / THE SEATTLE TIMES
MUMBAI, India —
For a country known for its love of tea, India certainly has given Starbucks coffee a warm reception.
In the days after its first store opened in October in a chic area of Mumbai, lines stretched so long that security guards were forced to implement a one-in, one-out policy.
Two months later, the lines outside the flagship store were gone, but not the enthusiasm.
Srishti Sinha made an hourlong trek to Starbucks one December evening, bouncing with excitement all the way on the back of her boyfriend's scooter. Sinha checked out the menu online and chose their dinners: murg (chicken) tikka panini, lemon jazz cheesecake, a cappuccino and a Frappuccino. They even bought two Starbucks tumblers.
Upstairs in the same busy store, Akshi Chilana sipped her Americano, then took a picture of the cup's Starbucks logo to post on Facebook.
"It has a brand. It has esteem," Chilana explained.
The consumer wave now sweeping India includes an infatuation with branding on everything from cars and mobile phones to gourmet coffee. The phenomenon is part of India's transformation from a mostly rural, frugal population to an economic world power with a growing middle class that can afford $3.35 Frappuccinos.
Starbucks' arrival is just the latest marker.
India already has thousands of high-end coffee shops in addition to an almost uncountable number of traditional servers called chai wallahs slinging spiced, caramelly tea for 20 cents a cup.
Not that the coffee shops are edging out the chai wallahs. India's love of tea abides. With incomes increasing, people support both: Grab a cup of chai on the street and hang out in coffee shops, particularly in the evenings.
Figures show discretionary spending is growing fast and expected to reach 70 percent of average-household consumption by 2025, according to the McKinsey Global Institute.
That's the same year India, now with 1.2 billion people, is expected to pass China as the world's most populous country, according to projections from the U.S. Census Bureau.
Taking it slowly
Starbucks is keeping quiet about how many stores it wants in India.
It has 767 in China and plans to reach 1,500 there by 2015, part of a push into Asia that will include its debut in Vietnam in February.
In India, it is moving slowly for now, opening just four stores since its October launch, but R.K. Krishna Kumar, vice chairman of Tata Global Beverages, indicates faster growth is coming.
"I personally believe the potential couldn't be less than China," he said.
Starbucks owns its Indian stores in a joint venture with the Tata Group, an Indian conglomerate that is one of Asia's largest coffee producers. It also has steel, chemical and hotel operations and owns the company that makes Jaguar and Land Rover vehicles.
The Seattle coffee-shop chain is "taking a very long-term view of India," partly because of India's substandard infrastructure, said John Culver, Starbucks' president for the Asian-Pacific region.
Despite its economic gains, India remains a developing country where many roads are more pothole than road, making it difficult for companies to get goods to market.
Still, Culver said he expects India to someday be one of Starbucks' top-five markets.
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Room for competition
As it is, Starbucks faces formidable competition in the country, where a coffee-shop chain called Cafe Coffee Day has proliferated.
It has 2,000 locations mostly in India, with plans to reach 5,000 stores worldwide in the next five years.
V.G. Siddhartha, Coffee Day's founder and chairman, oozes confidence and enthusiasm about the future for coffee shops and India.
He does not even mind if Starbucks makes a huge dent in the market he has cultivated for almost 20 years.
"I don't have any ego on that. If they put thousands (of stores here), it is good for me. The market will grow," Siddhartha said.
A former stock and commodities trader who is now one of India's wealthiest men, Siddhartha has run the numbers.
He figures India will become the world's third-largest economy in the next 30 years, and that its already burgeoning middle class will be able to support at least as many coffee shops as China.
He started Coffee Day in the mid-'90s as a way to sell coffee from his plantations directly to consumers. "I realized if I just concentrate on this (growing coffee), the international companies will come and kill me," he said.
Coffee Day strategy
Siddhartha plans to spend the next couple of years solidifying Coffee Day's position in India, then expand globally.
Coffee Day has 16 stores in Prague and Vienna.
"If I'm a decent player in the world market in the next 15 years, No. 3, No. 4 doesn't matter," he said.
About 50 of Coffee Day's stores are high-end and more expensive, like Starbucks.
The bulk are small diner-style shops with $1.40 large cappuccinos and meal deals, including hot coffee, a samosa and a "dessert shot" that resembles a small chocolate or mango pudding for $1.10.
Judging from a small sampling of stores in Mumbai, Coffee Day also seemed to play house music with a driving beat, whereas Starbucks leaned toward the Fleet Foxes.
Siddhartha admits Starbucks' arrival "will improve the standards in the industry, because we have to make sure our service and ambience and offerings are better."
Better, but not more expensive. Siddhartha wants Coffee Day to remain an "affordable luxury" — language Starbucks CEO Howard Schultz often uses — but in Coffee Day's case, even more affordable so that it can appeal to 40 percent of the population. He figures big international players like Starbucks appeal to 5 to 7 percent.
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Starbucks, aware of its reputation for high prices, is attempting to offer value in India.
In contrast to central Beijing, where Starbucks charges $4.34 for a 12-ounce cappuccino, in Mumbai it costs $2.14.
"A lot of people were truly surprised by our pricing strategy," said Avani Saglani Davda, CEO of the Starbucks and Tata partnership.
The lower prices are part of its long-term plan to operate stores beyond a handful of major urban areas, she said.
"If the Indian consumer doesn't see value, then it tends to be a temporary commitment to the brand," Davda said.
Although brand savviness is growing, many Indians still shop at mom-and-pop stores that specialize in everything from car parts to bicycles to tea.
"Historically, India was not about materialism or consumerism. It will take years before we can change that culture," said Saloni Nangia, president of Technopak Advisors near New Delhi.
The change comes with economic growth and with the cross-border experiences of people like Neeti Singhi, who returned to Mumbai a decade ago after living for a couple years in San Francisco.
"I got hooked on Tazo chai," Singhi admits, referring to Starbucks' tea brand, Tazo.
Although she is surrounded by some the world's best chai all over Mumbai, she ordered a chai latte at its new flagship Starbucks.
"In India, it's all tea with just a touch of milk and mostly a lot of sweetener," she said. "At Starbucks, it's all milk with a little flavor of tea."
ERIKA SCHULTZ / THE SEATTLE TIMES