Starbucks has finally broken through India’s high barriers to entry and partnered with India’s flagship conglomerate Tata in a 50-50 joint venture, to start serving coffee and lattes across the country, starting with her two largest cities Delhi and Mumbai.
Until now India has remained one of the last untapped markets for the world’s largest coffee retailer, which has operations in 57 countries.
It is a big win for Starbucks, which is counting on emerging markets for additional growth. While Starbucks still generates most of its revenue domestically, sales have been slowing and stores closing amid the economic slowdown.
Starbucks has been eyeing the Indian market for years, but it will face strong competition from established coffee chains. The Indian-owned Cafe Coffee Day chain leads the pack with more than 1,000 outlets.
Traditionally a tea-drinking country, Western-style coffee chains have been popping up across the country in recent years as the wealthy and middle-class blooms.
According to analysts interviewed by the AFP, the changing tastes also has to do with the “social cachet conferred by the beverage in class-conscious India.”
In a filing with the Bombay Stock Exchange, Tata Global Beverages said it had signed an equal part joint venture with Starbucks, which sets forth the vision of developing the business in India.
Tata Global Beverages CEO RK Krishnakumar said the joint venture would leverage on “the global in-home expertise of Tata Global Beverages and the global out-of-home expertise of Starbucks.”
The joint venture will also see the two companies extend their commitment to the community, with Starbucks’ principle of ethical trade and Tata’s history of philanthropy and investing in communities.
The partnership would also give Starbucks access to Tata’s choice property locales, as well as riding on the popularity of Tata’s brand beverages like the Tata Tea.
Earlier this month, India’s government raised the ownership limit to 100 percent for foreign retailers selling a single brand, while requiring companies to procure at least 30 percent of inputs from Indian companies should the involvement in joint ventures exceed 51 percent.
Starbucks is classified as hospitality business rather than a retailer, excluding it from the single-brand competition guidelines before the January changes. According to analysts, the arrival of Starbucks will be viewed positively by other foreign brands that may have become skeptical about India's prospects.