India meets latte and latches on

India Dispatch: Coffee shops are proving a big hit as the traditional chai takes a back seat. Starbucks is said to be about to open its first outlet in the country, taking on the three big chains that dominate the industry. The market is forecast to grow by up to five times in four years

Indian people take a break with a cup of coffee at an upmarket shopping mall in the satellite town of Gurgaon. Anna Zieminski / AFP

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Subcontinent: Coffee retailers

Café Coffee Day: 1,134 outlets. Café Coffee Day (CCD) is the market leader in India. The company was launched by VG Siddhartha in 1996 on Bangalore's trendy Brigade Road. Since then, it has grown rapidly and has an estimated turnover of US$150 million (Dh550.9m). Today CCD is controlled by Amalgamated Bean, whose major shareholder is still Mr Siddhartha.

Barista: 228 outlets. Barista comes in at number two. The group was founded in 1997 by Amit Judge, an Indian businessman who a few years later sold part of the company to Tata Coffee. Barista has since changed hands a few more times, and it was eventually bought by the Italian Lavazza coffee group in 2007.

Costa Coffee: 73 outlets. At number three is Costa Coffee, a joint venture between the UK brewery group Whitbread and Devyani International, an Indian food group that also runs KFC and Pizza Hut franchises.

Coffee shops in Mumbai are hip, happening places. There is all the latest Bollywood gossip to be shared, deals to be made and the internet to be surfed.

And then there is, of course, the coffee - and sandwiches and cakes.

Comfy sofas, muzak and armchairs invite guests to linger. And linger they do.

One of them is Neha Punjabi, an advertising director, who is sitting hunched over her laptop, sipping a latte and nibbling on a bagel.

"'I've been here for about four hours today and come here at least three times a week," she says. "I mainly come here to use the internet for work and meet my friends. For me it's the extension of my living room."

It is people such as Ms Punjabi whom the US coffee shop giant Starbucks wants to court as the Seattle-based company is believed to be weeks away from opening its first outlet in India, to be based at the renowned Taj hotel in the Mumbai district of Colaba.

Starbucks wants its slice of the juicy pie that India can potentially offer. The country's coffee shop market is worth a modest US$200 million (Dh734.6m) but in just four years it could be worth five times as much, according to Research In India. This is against the mature US market, which last year was worth about $18bn, according to the market research company Mintel.

Starbucks is not landing in India a moment too soon. The thirst for coffee is growing.

Market sources say Starbucks and the Indian multi-industry giant Tata have carved a joint venture that would allow the US company to operate in India. The country's foreign direct investment regulations would allow Starbucks to hold up to 51 per cent in the joint venture. Starbucks and Tata declined to comment on their plans.

The US company is clearly keen to boost its overseas revenue as it currently receives a fifth of its sales from non-US operations. Its net income for the three months to July 3 stood at $279.1m, up 34 per cent on a year earlier, with international revenue rising by 20 per cent versus 9 per cent in the US, according to the company's figures.

There are about 1,700 to 1,800 coffee-shop chain cafes operating in India, and the market can easily absorb more than twice those numbers in the top 50 to 60 Indian cities, says the research firm Technopak.

"The initial effort and work required to familiarise people with the concept has been done over the last decade," says Saloni Nangia, the senior vice president at Technopak.

"Now, meeting or spending time at a coffee shop or seeing coffee shops as an option for a quick bite is very much a part of the consumer's lifestyle in the top 15 to 20 cities. It would percolate further quite steadily as the smaller cities have fewer options currently."

As the trend for coffee shops spreads outside the big cities, it seems Indians of all ages are steadily developing a taste for cappuccinos, macchiatos and espressos instead of their traditional chai.

Coffee consumption has been growing in recent years. In 2005, India's coffee consumption was in the region of 80 tonnes, but by last year it was 108 tonnes, according to government figures.

The operators Café Coffee Day, Barista and Costa have so far ruled the roast in the country.

Café Coffee Day, or CCD as it is known among the hipsters, has more than 1,000 outlets, and the average customer spends in the region of 200 rupees (Dh14.99) per visit.

Its chief rival, Barista, is far behind with about 200 outlets. Barista sells heavily on its European image, whereas CCD is modelled on the American style with bright colours and cheery slogans adorning each shop.

The third, Costa Coffee, is a UK joint venture. Costa is the most expensive of the chains and says it offers an authentic "Italian" experience with product names in Italian and images of European cafes plastered on the walls. It caters to the older segment of the market, analysts say. All three chains started their operations in the bigger cities and have expanded to smaller cities. The growth has accelerated, with CCD and Barista, in particular, opening outlets almost daily ahead of Starbucks's India onslaught.

Other chains include Mocha, Gloria Jean's and a group of independent retailers that may struggle in the face of aggressive expansions by the three main chains, says Technopak.

Starbucks's entry to India is well timed, analysts say, as the country's middle class adapts to western tastes.

"Starbucks is an aspirational coffee brand, and … will have its loyal clientele over time. The market is just beginning to grow, so there are enough options for new entrants into the market," Ms Nangia says.

Many foreign cafe operators have had their eye on India for some time. The US giant Dunkin' Donuts said this year that it had entered into a deal with India's Jubilant FoodWorks to open 25 to 30 Dunkin' Donuts outlets over the next three years.

But despite the optimistic growth figures, Starbucks will have its work cut out to lure the cost-conscious Indian consumer.

"Its success would depend very largely on the ambition Starbucks has for India. The Starbucks offer, with no customisation for the Indian market, would also have a market, which would be smaller and limited," says Ms Nangia.

Starbucks remains bullish about the Indian market, with Howard Schultz, the company's chairman, reportedly saying this year that Starbucks in India could one day rival Starbucks's operations in China, where the company plans to more than triple the number of outlets to about 1,500 in five years.

For India's latte generation, it's all in the brand.

"I've heard of Starbucks, of course. It is a cool American brand, and I would visit for sure," says Ms Punjabi.

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