Starbucks Corporation is finally ready to enter India and is reportedly lining up a $78 million investment to enter into the Indian market. The Seattle-based coffee chain formed a joint venture with Tata Global Beverages earlier this year, wherein the two companies plan to open outlets in India as early as October.
Dunkin Donuts, owned by Dunkin Brands, has already opened its first restaurant in India this year, while Krispy Kreme plans to open 80 new restaurants in the country within the next five years. Apart from these two companies, Starbucks also faces competition from the already established players in the coffee chain segment such as India’s Cafe Coffee Day and Britain’s Costa Coffee.
See full analysis for Starbucks Corporation
With this move, it hopes to replicate its Chinese success in the Indian market. In China, the brand has positioned itself as a destination for the upper middle class, where the consumers can get a high quality coffee experience. Drinking and eating out at Starbucks is considered cool and caters to the aspirational desires of the upper middle class in China. In some cases, the prices of its products are more than those in the U.S.
What might be seen as part of an everyday life in the U.S. or Europe might be seen as a luxury in India or China. The fact that an average Chinese consumer is able to afford Starbucks comes with a feel-good factor as a few years ago he or she might not have been in the position to do so. Furthermore, the well-traveled and well-educated Chinese citizens are more likely to show an appreciation as well as awareness for Western culture; something which again works in favor of Starbucks.
India Is Not So Easy
But cracking India won’t be easy for Starbucks. It not only has to introduce products suited to the local tastes, but also must take into account that India traditionally has a tea-drinking culture. India’s per-capita coffee consumption stands at a mere 82 grams annually, compared to 6.8 kg for Germany or 5.9 kg for Brazil.
Another issue Starbucks is likely to face is that Indian consumers are going to be more price sensitive than their Chinese counterparts. Average incomes in India are half of those in China (in terms of purchasing power) and the number of millionaires is one-tenth. Maintaining a fine balance between brand perception and prices will be a tricky issue for Starbucks.
We have a $54 price estimate for Starbucks, which is about 10% higher than the current market price.
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