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Starbucks to enter India, targets 50 outlets by year-end

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Starbucks Corp (SBUX-Q) will open its first coffee shops in India in August or September, a year later than originally planned, and aims to have 50 outlets by year-end through a tie-up with the Tata group, the country's biggest business house.

The Seattle-based chain, known as much for the trendy urban lifestyle it represents as its costly cups of coffee, enters a market with a fast-growing middle class and plenty of competition in the small but fast-growing coffee segment.

Starbucks had initially planned to have its first cafes in India open by mid-2011 but was delayed by difficulties in acquiring real estate and high land costs -- a common problem for chain stores in a country where more than 90 percent of retail is conducted at one-off mom-and-pop shops.

While the tie-up plans to take advantage of the Tata group's sprawling presence by opening cafes in Tata hotels and retail outlets, it is also looking at other locations such as malls, railway stations, airports and offices.

"We are in the process of looking at real estate opportunities at the moment. We are moving as quickly as possible and the expansion of stores will be based on the customer feedback we get," John Culver, president of Starbucks for China and Asia Pacific, told reporters.

India implemented new rules this month to allow foreign single-brand retailers to operate wholly owned outlets, but Starbucks said it has not considered changing the 50-50 structure of the Tata Starbucks Ltd joint venture.

The first Starbucks shops will open in Mumbai and New Delhi, and the joint venture initially plans to invest 4 billion rupees ($81 million US).

The formal launch of the retail foray into India comes a year after it signed a deal with Tata Global Beverages, a unit of the software-to-steel Tata conglomerate and the world's second-largest branded tea company, to buy coffee from India and open retail outlets in the country.

NATION OF TEA DRINKERS

"The timeframe essentially shows cautiousness. Starbucks has clearly wanted to make sure it gets the details right before entering a highly competitive market," said Debashish Mukherjee, partner and vice-president at consultancy AT Kearney.

While India is traditionally a nation of tea-drinkers, young urban professionals of the sort that work in modern offices and frequent the shopping malls that are sprouting around its cities have embraced western-style cafe culture -- and prices.

Cafe Coffee Day, a home-grown brand that is India's largest coffee chain, has nearly 1,200 outlets and plans to open one cafe every third day.

No.2 player Barista, owned by Italy's Lavazza, has more than 200 cafes. UK-based Costa Coffee, which entered the market in 2008, has about 75 stores and is growing quickly.

"Having an iconic brand is one of the parameters which ensures success but there are many iconic brands that have fallen by the wayside, so the pricing, experience and quality must match your offering," Mukherjee said.

Western-style cafes in India charge roughly 60-80 rupees ($1.22-$1.62) for a plain cup of coffee -- less than in developed markets but far more than the 10 rupees a cup charged at a basic local outlet.

Starbucks did not say what it will charge in India.

Still, the organized coffee market in India -- which reflects consumption mainly through cafes -- is small, accounting for about $140 million of the country's annual coffee sales of about $667 million.

Starbucks entered China, another traditional tea-drinking country, in 1999 and now has more than 400 stores across the mainland. Starbucks has more than 17,000 shops, roughly one-third of which are outside the United States.

Tata Coffee, a unit of Tata Global, said separately that it had signed a deal to supply coffee to the joint venture. India is the world's fifth biggest coffee producer, but exports 70-80 percent of its output.

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