Since Scotsman Robert Bruce discovered tea bushes growing along the banks of the Brahmaputra river in Assam in 1823, India has gone on to become the world's leading commercial producer and consumer of tea. So the fact that Starbucks, the globe's leading specialty coffee retailer, is now desperately trying to enter the world's largest tea?drinking nation may seem somewhat far?fetched to some.
It is not. Trends indicate a surging demand for coffee in India that some established coffee chains are already taking advantage of. And if Starbucks can adapt to the various peculiarities of the Indian market, coffee may soon become many Indians' cup of tea.
The coffee market is growing at a feverish pace in India. Coffee consumption has almost doubled in the last decade on the back of a large, young urban population, which prefers Western cafes to traditional Indian coffeehouses. Leading coffee chains in India like Cafe Coffee Day and Costa Coffee are already registering double?digit growth rates with ease and statistics indicate that the market is far from saturated.
If the Indian economy sustains its blistering growth in per capita income and GDP, McKinsey Global Institute predicts that India's middle class will grow from 50 million in 2007 to 583 million by 2025. Little wonder then that Starbucks has woken up and smelt the coffee in India.
Entering the Indian market also jives well with the company's long?term growth strategy. Most of Starbucks' future store expansion, Chief Executive Officer (CEO) Howard Schultz said in 2008, will come from the pursuit of international opportunities, particularly in the BRIC countries, Brazil, Russia, India and China, which are the global engines of growth.
Of these four emerging markets, India is the only one that Starbucks has not entered, mostly because of wrangling with the Indian Foreign Investment Promotion Board (FIPB) over foreign direct investment (FDI) regulations in the retail sector. With the financial crisis behind it and India's ruling Congress Party eager to liberalize its lucrative retail sector, entering the country in partnership with other established Indian companies, such as Tata Coffee, makes sense.
While Starbucks does face stiff competition, it is also in some ways better suited to the new Indian market than some of its competitors. I heard that Costa Coffee CEO Santhosh Unni grumbled recently about how Costa's whole business model had to be reworked "to better accommodate socializing," since coffeehouses in India are now "first and foremost meeting places." He seemed to wish he ran Starbucks, a company with a competitive advantage that combines coffee quality with personalized customer service and a relaxed ambiance. The coffee giant has already had great success by expanding its cafe areas and seating room in many Asian markets where most of the purchases are consumed in?store. It would be fairly easy to replicate this business model in India.
The trickier issue will be "Indianizing" Starbucks to account for local tastes, which no Western brand has been able to escape. McDonald's introduced the now famous the McAloo Tikki, a vegetable burger stuffed with potatoes, peas, spices and a vegetable?tomato mayonnaise, while Taco Bell, which opened its first branch in India just last year, added menu items for as low as 35 cents. Coffee outlets in India tend to combine food with coffee to draw larger crowds and offer a combination of lower prices, vegetarian options and local favorites. Starbucks will thus have to customize its products and practices somewhat, perhaps by adjusting its price and add some Indian teas, coffees and foods into the mix.
This may all seem like a tall (or grande) order. But consider Starbucks' work in Britain, the country that houses the largest per capita tea consumers in the world and which birthed everything from afternoon tea to tea gardens to tea dances. According to the Harvard Business School, when Starbucks first entered the country in 1998, tea sales fell even as coffee sales rose rapidly and in just seven years, Starbucks' national market share was larger than any other coffee chain. By 2008, annual sales of coffee in Britain had exceeded sales of tea.
Need a coffee break to digest that one? I'm sure more Indians will be taking those soon if Starbucks brews the right strategy for entering the country.
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