Starbucks' India Strategy Looks Promising

Starbucks Corp. (SBUX) plans to debut its stores in India by mid-2007 through a joint venture with an Indian partner, RPG Enterprises. Though the negotiations are still going on, unconfirmed reports say that Starbucks will have a 51% stake in the joint venture while RPG will have the remaining 49% stake. RPG will also be the new venture's master franchisee. RPG is one of India's largest conglomerates with significant interests in power, retail, entertainment and technology among others. RPG has beaten other large Indian groups like Reliance Industries and Bharti Enterprises to convince Starbucks. With retail operations in major cities in India, RPG will be able to provide Starbucks with local cultural, economic, operating and franchising expertise, and may also lend its retail network.

New Delhi and Mumbai, the national and financial capitals will see the first stores by mid-2007. Starbucks will also be looking to add 100 stores every year for the next five years. Even though this strategy looks aggressive, it makes sense. Though India is traditionally a tea drinking nation there is a lot of coffee consumption and other malt-based drinks. Coffee culture in India has been getting bigger in India. Reports indicate that customers at existing retail coffee shops are students and professionals between 18 and 35 years old. Big coffee retail players in India like Barista (with Tata and an Italian partner), Costa Coffee (based in UK), Cafe Coffee Day (funded by Sequoia) and Barnie's (based in US) have aggressive expansion plans and are adding new drinks apart from coffee. These players are also using a variety of different approaches to attract new mass and premium clientele. So Starbucks faces very fierce competitors in India.

This is where RPG's assets and expertise will be helpful to Starbuck's India strategy. With RPG's strength in entertainment and other upscale retail space, it can hope to direct some consumers to the new Starbucks stores. They will also have to customize its drinks for the Indian market. Pricing will also be a factor to consider as Starbucks cannot translate its US prices in India. Starbucks' experience with its Chinese operations will offer some ideas in this regard. With a burgeoning middle-class in India, Starbucks needs to attract only a small percentage of them along with students and professionals with high disposable incomes to easily entrench itself in the Indian market.

Though Starbucks does not have a first mover advantage, it is entering an already tried, tested and proven market along with a local player with strong retail expertise giving Starbucks an advantage along with its strong brand. This move will provide strong long-term growth opportunities for Starbucks.

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