Starbucks plans foray into India, as cafe culture booms

After eyeing the Indian market for years, the world's largest coffee chain is planning its foray into the country with a Dh287m investment.

Employees prepare a meal for a customer inside a Costa Coffee shop in Mumbai. India's economic growth may have slowed to a near-decade low, but Britain's Costa Coffee and many other consumer-focused companies are expanding.Show less

MUMBAI // Starbucks is betting on big returns as it seeks to lure an expanding legion of coffee lovers in India - primarily a tea-drinking nation, where lifestyle changes have spawned a booming market for cafes.

After eyeing the Indian market for years, the world's largest coffee chain is planning its foray into the country later this year, with an initial Dh287 million investment to tap the country's fast-growing appetite for the drink.

"Coffee has changed from being a traditional beverage, consumed mainly in south India, to a mainstream beverage with a national presence," said John Culver, the China and Asia-Pacific president of Starbucks.

"Given the size of the Indian economy, the growth of cafe culture and the rising spending power, India will be a very large market over the long term," he said.

India's annual per capita coffee consumption of 82 grams is far below the 6.79kg in Germany and 5.87kg in Brazil, according to data from the International Coffee Organisation.

In addition to the Indian-owned Cafe Coffee Day chain, which dominates the market, foreign chains such as Britain's Costa Coffee and the American brand, the Coffee Bean & Tea Leaf, are well-established in major Indian cities.

Along with its distinctive green- siren logo cups, Starbucks has vowed to take on the competition with "locally relevant" flavours as it adapts its menu to suit Indian tastebuds, following similar moves by other large chains in India.

US outlets such as Pizza Hut and McDonald's have "Indianised" their offerings, selling items such as Indian cottage cheese pizzas and spicy potato burgers to woo consumers.

But analysts offer mixed forecasts for the Seattle-based brand, which is teaming up with local player Tata Global Beverages to enter the Indian market.

"The Tatas have tea and coffee plantations, but little experience in operating coffee chains," said P Phani Sekhar, a fund manager at Angel Broking. The alliance would have to "be street-smart and nimble in decision-making", he added.

Mr Sekhar said spiralling real-estate costs could also be problematic, with Indian cities such as Mumbai recording a sharp rise in property prices in recent years.

It also remains to be seen whether Starbucks can bank on its brand appeal to charge higher prices in India's inflation-prone economy.

With India's GDP growth having fallen to 6.5 per cent in the year to March, after near double-digit expansion for much of the past decade, the growth in demand for premium coffee may be slower than hoped.

Starbucks had promised a simultaneous launch of stores in New Delhi and Mumbai by August or September, but Mr Culver declined to give a specific date, saying only it would be "during the calendar year 2012".

"I never really enjoyed their coffee," said Arjun Rajagopal, a well-travelled executive with a global consultancy firm. "It's the cosy, informal ambience which is important, while meeting friends or for low-key business meetings to get work done."