Starbucks is intensifying its focus on rapid expansion and affordability in the Indian market, according to Sunil D’Souza, the managing director of Tata Consumer Products. Operating the world’s largest coffee retail brand in the country, Tata Consumer Products is witnessing increased competition in the coffee cafe chain market, with at least half-a-dozen new players entering the scene.
“In India, we do see heightened competition, but I would say we should not miss the woods for the trees. We are focused on how quickly we can expand the footprint of Starbucks in an affordable manner,” stated D’Souza.
The Indian division of the Seattle-headquartered coffee retailer, contending with Costa Coffee, Cafe Coffee Day, Barista, and emerging competitors like Pret a Manger, Tim Hortons, Third Wave, and Blue Tokai, manages a network of 370 stores across 49 cities in India.
In the current fiscal year, Starbucks plans to increase its store count by 80-100 outlets, marking a considerably accelerated pace of expansion compared to previous periods.
“Every year, we see this (cafe) space expanding. Coffee is growing and tea is flat lining. So there is space for substantially more outlets than what exists today in the medium to longer term,” said D’Souza.
During the fiscal year 2022-23, the collaboration between the Tata Group and Starbucks achieved its most rapid expansion to date, with the opening of 71 new stores.
In June, Starbucks responded to heightened competition and aimed to capture a larger market share in tier-2 and 3 markets by introducing smaller-sized, more affordable beverages.
Café chains in India are experiencing a faster growth rate compared to quick-service restaurants (QSR), driven by the increasing demand from younger, aspirational consumers. According to a Statista Research report, the coffee cafe franchise market in the country is valued at ‘4,500 crore, with an annual growth rate of 8-9%.
In the post-earnings management commentary, Tata Starbucks identified India as one of its key growth markets, having surpassed 1,000 crore in sales during the fiscal year 2022-23.
“It’s about how fundamentally, out-of-home coffee consumption is going to continue to power up. This is happening as the GDP grows, as disposable incomes grow and consumers start to become more aspirational,” D’Souza said.
The coffee market is outpacing the growth of tea nationwide, a trend observed not only in major metropolitan areas but also in smaller markets. Brands are strategically targeting both smaller cities and large metros. Investors are showing confidence in this trend, as evidenced by significant funding rounds for new cafe chains. In January, Blue Tokai Coffee Roasters secured $30 million in funding led by A91 Partners, while Third Wave Coffee Roasters raised $20 million from WestBridge Capital last year.
Starbucks is also setting up stores on highways, in response to the “mindset of people when they are driving”, said D’Souza. “There is a lot of traffic that comes to highway stores. So from a P&L (profit and loss) perspective, it makes a lot of sense…”