Coffee giant Starbucks moves into tea-loving India
Published: Saturday, May 5, 2012
Updated: Saturday, May 5, 2012 20:05
Only a few years ago, the very idea of Starbucks even wanting to open any stores in India would’ve been seen as odd at best. As a tea-drinking nation, notoriously unwelcoming toward new businesses looking to invest in the country, the Indian market saw no appeal in inviting Starbucks into their commerical arena. Now, after months of tough negotiations, the U.S. coffee giant has agreed to open its first coffee shop in September, in partnership with the Indian conglomerate Tata Group. Fifty stores are expected to open by the end of this year. Is this a realistic proposal, or is Starbucks punching above its weight?
India, apart from its coffee-producing south, has, until recently, been predominantly a country with a tea-drinking culture. The last decade brought wealth and prosperity to many Indians, resulting in an ever expanding middle class alongside a rapidly growing youth population. This new Indian demographic has a taste for all things cosmopolitan, international and fast-paced, suitable for increasingly busy lives. Unsurprisingly, this has translated into a taste for coffee. But is this going to be an enduring trend? India’s largest coffee chain, Café Coffee Day, initially lured in customers by presenting themselves as Internet cafés, with free cappuccinos for customers who bought Internet time. This was all part of their strategy in not only convincing patrons that they liked coffee, but that they liked getting coffee. It also brought an interesting idea into the new middle class’ mind: that coffee was synonymous with the forward-thinking nature of India; an India which could compete with the other great world economies.
For the youth of India, cafés have filled a major gap in the market. As there is no alcohol being served, it is not frowned upon for youth to gather with friends at cafés. In India, particularly for women, bars and pubs are looked down upon as social scenes for young adults, so the rise in coffee consumption is as much a cultural shift as it is one of taste. The average youth in India today is willing to pay 150 rupees (about three dollars) for his favorite iced vanilla latte if it grants him a few hours with friends in a safe and sociable environment, away from his parents. Plus, as one Indian Wellesley student remarked, cafés provide an informal setting in which many 21st century Indian youths can “chat with members of the opposite sex in a casual way—there is nowhere else we can safely flirt!”
Embraced by the Indian consumers, Starbucks’ arrival, surprisingly enough, is also welcomed by current Indian coffee providers. Obviously, Tata global beverages, with a 50 percent stake in the global venture, is optimistic about the introduction of Starbucks. What is more surprising is that the smaller Indian coffee companies, many of which are independent, are also welcoming Starbucks into the country. Ever since Starbucks began to globally expand, it has been criticized for taking business away from countless numbers of local independent cafés that cannot compete. But Starbucks is receiving the opposite treatment from Indian coffee shop owners. Why? Because they believe that Starbucks’ arrival will put the country’s coffee market on the map and accelerate India’s taste for coffee in general. With a potential market five times the size of that of the United States, they believe there is plenty of room for companies to coexist and all be successful. Statistics back this up—1,000 coffee shops have opened up in the past five years alone. Over the next several years, this number is expected to grow five times as the coffee industry caters to a market expanding by an estimated 25 percent each year.
Previous criticism of Starbucks has been similar to criticism of all multinational corporations—that they are pushing out independent businesses and regional cultures, homogenising the world into one Frappuccino-drinking global village. Moreover, as the profits from Starbucks will ultimately be sent back to the chain’s headquarters in Seattle, how much will the Indian economy actually be benefiting from this deal?
Although all the previously mentioned issues are cause for concern, there is another perhaps more striking point to consider. As India moves into the 21st century, will the youth of the country (currently the coffee market’s main customer base) still have the same demand for cafés? As the country leaves many of its traditional, and somewhat conservative, values behind for a more Western outlook on life, surely the bars and clubs of India will become more socially acceptable venues? India’s demographic may currently seem appealing to Starbucks and Tata, but the mega-conglomerates’ analysis has overlooked the fact that this demographic is constantly evolving, now more than ever. What is trendy for Indians today is just as quickly unfashionable tomorrow. This may turn out to be the first time Starbucks has ever massively over-estimated its potential in a new market. Only time will tell.