Starbucks Coffee Co. announced this week that it will collaborate with Tata Global Beverages to produce a premium Tata Tazo branded line available in Starbucks locations to be built across India.
Starbucks and Tata Beverage Group expect to open 50 stores in Mumbai and New Delhi this summer, according to the two companies. The 50-50 TATA Starbucks Ltd., joint venture will enable the retailer to offer a broad range of beverages including iced and hot coffee. Tata Coffee Ltd. a TGB subsidiary, will roast coffee for Starbucks locations and export coffee used globally in 17,000 outlets.
This agreement paves the way for consumers in India to enjoy the premium Starbucks Experience, while further discovering the unique taste of high-quality Indian Arabica coffee worldwide.
Starbucks intends to source its tea locally as it has done in China and Taiwan, Korea and other tea growing regions.
Together, the JV will enable an expanded range of beverage offerings for Indian consumers. As an example, the companies have agreed to jointly leverage assets and innovation to offer a premium tea product branded Tata Tazo, according to the joint release.
R K Krishnakumar, Vice Chairman, Tata Global Beverages, says the joint venture “opens up exciting business opportunities and new formats for Tata Global Beverages. Starbucks brings unique retail expertise as well as a shared sense of business values. We are excited about the opportunities the alliance presents to innovate in the retail space and bring new beverage experiences to more consumers in India, leveraging the global in-home expertise of Tata Global Beverages and the global out-of-home expertise of Starbucks.”
Demand for coffee in India is increasing at about 5 percent per year, well above the 2 percent worldwide average. India’s young coffee drinkers have doubled consumption in the country in the past 10 years. While consumption is negligible outside South India, the country is the sixth largest producer of coffee in the world at 4.85 million (60 kg) bags. India grows both Arabica and Robusta on 380,000 hectares of land largely in Karnataka (58%), Kerala (2%) and Tamil Nadu (8%), according to the International Coffee Organization. It is the 8th largest coffee exporting country and Tata is a significant player. Tata Coffee is Asia’s largest coffee plantation company and the 3rd largest exporter of instant coffee in the country. The Company produces more than 10,000 metric tons of shade grown Arabica and Robusta coffees at its 19 estates in South India.
India, however, is a land of tea drinkers. Its domestic market consumes more black tea than any country in the world. India ranks 134th in per capita coffee consumption according to the World Resource Institute(2011). Scandinavian countries like Finland and Norway drink 12 kg and Canada ranks 14th at 6.5 kgs. The United States is 25th on the list. Americans drink 4.2 kgs per person but imports 1.3 million metric tons annually making the U.S. to top importer. India’s consumes 85,800 metric tons but its per capita average is 100 grams, tied with Fiji and tea-drinking Egypt.
|Photo of Café Madras in Mumbai by Dan Bolton|
It is clearly cool to be a young coffee drinker, evidence of middle class affluence. Coffee drinkers are paying for the experience and status conferred by the brew as U.S. specialty coffee drinkers did in the 1990s.Traveling the streets of Mumbai one sees hundreds of chaiwalla serving India’s unique blend of tea and spices on the street. In cafes such as the popular Cafe Madras in Mumbai the young people are drinking coffee. Unlike America’s fascination with latte and cappuccino, India’s coffee drinkers often choose iced coffee and bottled coffee drinks. Pricing is quite different from the United States where a latte brings $4. In India tea sells for INRs 10 and $1 buys five cups of tea. Coffee sells for INRs 53 or $1.05.
Starbucks will benefit from this perception. In China Starbucks has 70 percent of the specialty coffee market which is growing by 40%. The company, which opened its first China store in 1998, recently announced its 500th coffee shop with plans to open 1,500 by 2015.
A small cappuccino typically costs 53 rupees, or $1, at Café Coffee Day, India's largest cafe chain.
While several foreign coffee players, like Lavazza of Italy and the California-based chain Coffee Bean & Tea Leaf, have outlets in India, the national market is dominated by Café Coffee Day, which is owned by a coffee-growing and trading firm based in Bangalore.
When the first stores open in August they will be quick service format and they won’t be alone. Italy’s Lavazza operates several stores in South India, Los Angeles-based Coffee Bean & Tea has a few stores and Cafe Coffee Day, which is headquartered in Bangalore, has 1,200 coffee shops in 200 cities.
There are an estimated 2,000 coffee shops now but India is home to 1.3 billion people.
“Even if you were to address the top 20 percent only of this population, you're looking at a population which is potentially the same size as the entire United States,” says Arvind Singhal, the head of Technopak consulting firm in India. He told an NPR reporter “I see no reason why India, like China, would not be able to support two, three, four, 5,000 Starbucks stores.”
Source: Coffee consumption, World Resources Institute, viewed 8th February, 2011; National Public Radio.