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Starbucks to Teach Indians to Drink Coffee

Starbucks plans to open 1,000 coffee shops in India within four years. The target is to more than double the number of outlets in the country. In practice, that means a new coffee shop will open every three days. Starbucks wants to capitalise on the growing middle class, where it sees the potential for increased coffee consumption. But they won't have it so easy.

About Starbucks

Starbucks Corporation is a coffee manufacturer and the world's largest coffee shop chain, originally from Seattle, USA. The company was founded in 1971 by Gordon Bowker, Jerry Baldwin and Zev Siegel.  It is named after a whaling ship officer named Frank Starbuck from Melville's novel The White Whale. As of November 2022, the company had 35,711 stores in 80 countries, 15,873 of which were located in the United States. It focused primarily on selling many types of ready-to-drink coffees, espresso, various other hot and cold beverages, coffee beans, coffee cakes, and promotional items.

Mission India

"Over the past 11 years, the Indian market has grown to become one of Starbucks' fastest growing markets," said Starbucks CEO Laxman Narasimhan. "With a growing middle class, we are proud to help cultivate an emerging coffee culture."

The global coffee giant wants to operate 1,000 stores in India by 2028 and will focus on so-called tier-2 and tier-3 cities, that is, outside its largest metros. Starbucks also plans to expand its presence in the country through drive throughs, airports and 24-hour coffee shops and expects its Indian workforce to double to 8,600.1

Starbucks already has its foot in the door

The target of opening 1,000 cafes would make India one of the company's main overseas markets, although China still dominates the rankings with more than 6,500 outlets.

The company has already been operating in India since 2012 through a 50% joint venture with Tata Consumer Products Ltd, a unit of one of the nation's largest conglomerates, and currently has 390 outlets in 54 cities. In the third quarter of 2023 alone, 22 new Starbucks outlets were opened in India, according to Tata Consumer, with sales up 14% from the same period last year.

Attacking the appetites of Indians

While tea - especially sweet, milky chai, which is a blend of Indian spices - has traditionally been a popular hot beverage in India, coffee drinking is becoming increasingly popular as aspiring consumers flock to coffee shops. Along with Starbucks, more upscale cafes and local "coffee plantation-to-cup" chains, such as Blue Tokai, have boomed, offering drinks sourced mostly from local produce.

When it comes to consuming coffee itself, Indians prefer to drink instant coffee at home, and retailers are now targeting consumers to switch to more sophisticated forms and varieties, according to the U.S. Department of Agriculture.  Still, the market for premium coffee products remains relatively small, accounting for about a third of Indians' total consumption. Moreover, demand for more premium product may be limited as higher prices force consumers to curb their spending.

Snímek obrazovky 2024-01-10 v 14.03.08

Starbucks share price performance over the last 5 years. Source:Tradingview.com*

Conclusion:

Starbucks' goal of more than doubling its presence in India is indeed ambitious, but the company is not starting from scratch. The coffee giant has been operating in India since 2012 through a 50% joint venture with India's Tata Consumer Products Ltd, and currently has 390 outlets in 54 cities across the country. Additionally, the numbers are more than encouraging for Starbucks - sales in Q3 2023 grew 14% over the same period last year.

Adam Austera, Chief Analyst at Ozios

* Past performance is no guarantee of future results

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate or based on the current economic environment, which may change. Such statements are not guarantees of future results. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

Disclaimer:

The material herein is considered as marketing communication under the relevant laws and regulations, and as such is not a subject to any prohibition on dealing ahead of the dissemination of investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and should not be construed as containing investment advice, or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. The published content is intended for educational/informational purposes only. It does not take into account readers’ financial situation, personal experience or investment objectives. APME FX Trading Europe Ltd makes no representation that the information provided is accurate, current or complete; and therefore, assumes no liability for any losses arising from investments based on the supplied content. The past performance is not a guarantee of future results.

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