Starbucks goes to India

Starbucks Corp. unveiled an alliance with India\'s flagship conglomerate Tata Group, a move designed to pave the way for retail locations here and to sell more Indian-grown coffee world-wide.

Starbucks Corp. unveiled an alliance Thursday with India's flagship conglomerate -- a move designed to pave the way for retail locations here and to sell more Indian-grown coffee world-wide.

India remains one of the big untapped markets for the Seattle-based coffee and food company. Chairman Howard Schultz said in an interview from Mumbai that India could one day rival China, where the company recently announced plans to more than triple the number of outlets to about 1,500 in five years.

India is "as large an opportunity as there exists in the world, coupled with China," he said.

The alliance is with India's Tata Group, a wide-ranging company that owns everything from Jaguar cars to steel mills and tea plantations. Its Tata Coffee Ltd. unit owns the Eight O'Clock Coffee Co. in the U.S. and is a big coffee producer in India.

The country, though known as a land of tea, is a major coffee exporter -- the fifth-largest in the world, according to the U.S. Department of Agriculture. Mr. Schultz said one of the reasons for the alliance is to raise the profile and use of Indian premium Arabica beans in Starbucks stores elsewhere. The first phase of the alliance involves sourcing and roasting beans.

The companies also are considering the opening of Starbucks outlets in Tata retail locations and hotels, Mr. Schultz said. Tata's Taj hotels are among the most upscale in India and include the landmark Taj Mahal Palace & Tower besieged in the 2008 Mumbai terror attacks.

R.K. Krishnakumar, chairman of Tata Coffee, in a statement said that he welcomes Starbucks's entry into India because of the company's "unique experience with the store format."

Starbucks has said its focus is to replicate efforts that have worked in the U.S. in other markets and to boost its international presence. Mr. Schultz recently went to Mexico to celebrate the 300th Starbucks to open in that country.

Last week, the company unveiled a new logo in an attempt to better brand its products around the world and to distance itself from being known solely as a coffee purveyor. It also is trying to get more of its products into supermarkets and other channels beyond its own coffee shops.

Starbucks recently engineered a turnaround in the U.S. after closing underperforming locations, bringing more efficiency to its operations and selling Via instant coffee in its stores and other retail channels. Sales at U.S. stores open at least a year increased 7% in the fiscal year ended Oct. 3, driven by a 3% increase in traffic.

Mr. Schultz said Starbucks expects to select another Indian partner with which it will develop stand-alone Starbucks stores in India, but he didn't offer a time frame. Under India's foreign investment rules, a single-brand retailer is permitted to hold as much as 51% of a joint venture with a local partner.

Foreign-food brands have had a turbulent history on the subcontinent. Coca-Cola Co. was banned here for 16 years until the mid-1990s for refusing to divulge its secret recipe. Kentucky Fried Chicken, about 15 years ago, became the focal point for some Indian farmers and politicians to protest what they viewed as a threat to India's rich culinary culture.

But in recent years, many brands have been expanding as greater exposure to Western culture has boosted their appeal among young people and a growing middle class. Starbucks had been looking to enter India for a while.

Fast-food giant McDonald's Corp. has 208 restaurants nationwide and is planning to open 40 more this year, according to Amit Jain, vice chairman of McDonald's India.

Yum Brands Inc.'s KFC has more than 100 restaurants in 21 Indian cities and opened its first Taco Bell branch in the high-tech hub of Bangalore in March. Yum said last year it hopes to more than quadruple the total number of Pizza Hut, KFC and Taco Bell stores in India over the next five years to 1,000.

Indians have been flocking to coffee. Overall domestic consumption rose to an estimated 94,400 metric tons in 2008, up almost 90% since 1998, according to government figures. Much of that has been driven by quick-service, comfortable cafes that are Starbucks's specialty. For instance, Coffee Day Resorts, in which U.S. private-equity firm Kohlberg Kravis Roberts & Co. holds a stake, runs a large chain of Cafe Coffee Day stores across India. Lavazza of Italy owns a chain of espresso bars, Barista.

Some Indian consumers in New Delhi welcomed the prospect of Starbucks's arrival.

"My occasional visits abroad have made me addicted to Starbucks," said Ashwin Shinde, 38 years old, a marketing manager at an international bank.

It won't be for everyone, however. Sujaat Varma, who works for a state-run company, was sipping tea from a small plastic cup served to him by a roadside vendor. "Starbucks coming to India -- good for the yuppies and another status symbol for the elite in our metro cities" was his verdict.

Starbucks's success here will depend on its adaptability.

Foreign brands that do best "are those that have adapted their products to Indian tastes in addition to what they have done globally," said Ramesh Srinivas, the executive director of consulting firm KPMG in Bangalore. Mr. Srinivas said Starbucks might consider savory vegetable puff pastries, an Indian breakfast treat, next to the muffins and chicken tikka sandwiches for lunch.

Mr. Schultz said Starbucks plans to become a "third place" for young Indians to seek out between home and work. And he agreed catering to local tastes is crucial. "We've done a good job of that around the world and we have every intention of doing that here," he said.