Starbucks Entering Joint Venture to Bring Locations to India
Starbucks (NASDAQ:SBUX) has finalized an agreement with Tata Global Beverages Ltd, which should soon allow the popular coffee chain and retailer access to India – a marketplace of almost 1.2 billion people. The alliance, which will be an equal joint venture between the two companies, will be known as Tata Starbucks Ltd. This comes as a follow up to an earlier deal from one year ago between Starbucks and Tata Coffee, a division of Tata Global, to roast premium coffee beans from India; at the time the two companies speculated that they might enter into a stronger partnership.
India has been a major untapped market for Starbucks to date, but the company stands to take advantage of India’s growing interest in coffee. Though India has traditionally been a tea drinking society, the steady move of its growing middle class toward more Western affectations has seen considerable growth in the sales of espresso and cappuccino drinks and the emergence of quick-serve coffee cafes. Cafe Coffee Day, part of Amalgamated Bean Coffee Trading Co., currently runs the country’s biggest chain of coffee retailers, followed by Luigi Lavazza S.p.A.’s Barista Lavazza espresso bars and Costa Coffees, which are run by Whitbread PLC. Numbers released in 2010 show that coffee consumption in the country was up 80% in the prior decade, with about 2000-2200 coffee cafes already present in the marketplace.
Yet despite heavy existing competition Starbucks has shown optimism toward the market; last year Howard Schultz, Starbucks’ CEO even stated that the country could some day rival China in sales potential, where the company expects to triple its penetration to about 1500 outlets within the next five years. Starbucks will undeniably benefit from its alliance with Tata: besides having influence in the beverage market, the Tata group also owns Indian Hotels Co, which runs both the Taj Hotels Resorts and Palaces brand hospitality chains. The group also has a retail arm through an alliance with the privately owned Infiniti Retail Ltd called Trent Ltd. Tata Coffee will be supplying roasted coffee to any of the new outlets as part of the two company’s preexisting agreement.