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On last Thursday, Starbucks finally signed the Memorandum of Understanding (MoU) with Tata Coffee. Starbucks chairman Howard Schultz said that the company would select an Indian partner with whom it will develop stand-alone stores in India, but without offering any time frame. It has been holding talks with several Indian companies, including Jubilant, Reliance, DLF Retail and DB Realty in the past but nothing materialized.
The dialogue with Tatas had been brewing for over a year, but it was a trip to the coffee plantations of Tata Coffee in Coorg that apparently convinced Schultz to tie up with them.
R K Krishna Kumar, Chairman of Tata Coffee, says that Tatas do not want merely to be a franchise partner despite a non-exclusive agreement with the US-based chain. “It is up to Starbucks to decide what kind of a sustainable partner they are looking at, what will be the shared values etc,’’ Kumar is reported to have said.
“They can always have different franchisees for different regions. Besides, they can always have different concept stores with different partners,’’ Kumar said, citing the example of quick service restaurant chain McDonalds, which has different franchisees for the north and east of India and the west and south of India.
Backend partnership at this stage may not seem too exciting but it’s a strategic move for both the partners. It will also help the two companies come closer and understand each other for future expansion-a strategy that Tatas feel will certainly work for them, as always. Besides, importing coffee beans would have added to costs for Starbucks. There is a 100% import duty on roasted coffee and 30% on instant coffee.
The entry of Starbucks is expected to open up the Café market even more, although with established players like Café Coffee Day, Barista and Costa would give a tough competition to Starbucks which might even become a niche specialty player in the mass market already created, according to industry watchers.
Café Coffee Day, India’s café leader, is already present in 150 cities in India and is planning to add over 250 stores to the present 1,050 cafes. The market leader in the segment is followed by Barista with 200 cafes and Costa Coffee with 70 stores.
It may be too early to tell whether the presence of Starbucks will help boost wine sales in India. It had pioneered the concept of serving wine and beer in a couple of US stores and has plans to expand the concept at several of its strategically located stores and possibly export it too. However, it is still in the experimental stage. Even in India, Barista and Café Coffee Day have followed this concept but with no enviable success recorded. In fact, Barista seems to have already taken a back seat. Café Coffee Day has a little more to play with in Bangalore because of the cheaper license cost.
With restaurants in Delhi also allowed to get a wine and beer license at a reduced cost last year, the field has been opened up enough for the coffee companies to experiment with adding wine and beer to the menu, a concept fraught with initial teething troubles.
Starbucks has been making efforts to enter India for the last 4 years. It had announced its plans to enter India four years ago and planned to open its stores in collaboration with local entrepreneurs by summer of 2007. An article in delWine in July 2007 had reported their plans which did not work out due to various reasons, mainly the government policy on FDI.
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Earlier, it had decided to take its proposal back as it was not approved
For some of the earlier related articles, visit:
Barista Plans to Sell Wine in Cafes
Starbuck Wine Idea for Barista
McCabe & Miller in Fast Food US
Starbucks: Cappuccino, Chamomile or Chianti?
Starbuck Postpones its Debut
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