In one of its fastest-growing markets, Starbucks is rethinking its approach to entice Indians, particularly youngsters, with smaller, less expensive beverages as it seeks to expand in small towns. However, the company is facing a stiff competition from local companies.
The American behemoth, one of the first international coffee companies to enter tea-loving India, has opened 343 locations in nearly 11 years, as opposed to chains Third Wave and Blue Tokai, which are funded by private equity and have opened roughly 150 in the last three years.
"As you grow in size, you need to get new consumers," said Sushant Dash, the chief executive of Starbucks in India, adding that the chain's "pricing play" would help shatter a perception that it is expensive.
As part of its redesign, the business has introduced the six-ounce "Picco" drink, which starts at $2.24, and milkshakes for $3.33, in an effort to appeal to wealthy Indians who like smaller portions.
According to an anonymous industry source, Starbucks intends to expand its presence in smaller communities.
Both of its new products are exclusive to India and are not available in China, Singapore, or the US.
According to Euromonitor, the $300 million speciality tea and coffee cafe market in India is expected to increase by 12% annually. Although they only have a few locations each, Pret A Manger in Britain and Tim Hortons in Canada are both growing.
"Excessively large portion sizes are an American phenomenon," said Devangshu Dutta, head of retail consultancy Third Eyesight.
"Indian consumers are value-conscious. If adjusting portion sizes down to what is more normal helps make prices accessible, that's a double win."
He was one of the analysts who believed Starbucks' decision, which it made in a joint venture with Tata Group to operate in India, may further increase its revenues, which reached a record $132 million in fiscal 2022–23.
Although Starbucks still reigns supreme in India, competition is heating up in the nation's capital, New Delhi, and Bengaluru, the country's technology hub, where Third Wave cafés are frequently just as busy as Starbucks locations.
"We've lost 30 cups a day to them," said a barista at a Starbucks shop in Delhi that sells 7,500 drinks a month, referring to a Third Wave that opened nearby months ago, but already sells 3,700.
Other than in China, where its 6,200 locations serve the largest market outside of the United States, Starbucks has faced domestic rivals.
There, Luckin Coffee has used discounts to entice customers to its 10,000 primarily pickup or delivery locations in only the previous five years.
Starbucks is now ramping up that game in India, where it has over the years incorporated native touches to its offerings to increase their appeal, much like global behemoths McDonald's and Domino's have done.
Only 11% of Indian households, compared to 91% of tea-drinking households, are estimated to consume coffee. Hundreds of cups of hot milky tea, or "chai" as it is known in Hindi, are sold at roadside booths every day for as low as 10 rupees (about 12 cents).
Starbucks has introduced "Indian-inspired" tea selections with spices and cardamom, both favourite in many Indian homes, starting at 185 rupees ($2.24), after years of only offering one milk chai "latte" made with tea syrup.
Dash said that the company would maintain its concentration on coffee and not make chai a main offering. The drinks were introduced to entice folks who do not drink coffee and avoid Starbucks.
According to Chas Hermann, a restaurant consultant based in the United States and a former Starbucks executive, the introduction of smaller, less expensive beverages in India suggests Starbucks may have experienced "a decline in traffic related to a pushback" on higher costs.
In scenes similar of when it initially opened in India, a YouTube video depicted people queuing in the street outside the first Starbucks store in May, which was located in the western city of Aurangabad.
However, its competitors are catching up, and a pricing war has started.
Third Wave introduced its own line of milkshakes in May that were a fifth less expensive at $2.71, following Starbucks' debut of $3.33 milkshakes intended to appeal to kids.
Startup entrepreneurs and investors meet in Third Wave locations in Bengaluru. According to information from the real estate analytics company CRE Matrix, it has more than 40 locations there, more than Starbucks' 35.
Sushant Goel, the chief executive of Third Wave, stated that he intended to open 60 to 70 new stores annually, concentrating on major cities. Starbucks' smaller, less expensive drinks, in his opinion, are a response to rivalry in "an incredibly price-sensitive market."
Blue Tokai's CEO, Matt Chitharanjan, claimed that the company had "seen success in converting customers from Starbucks" in part due to reduced prices.
While Dash claimed that he was unaffected by competition, Starbucks is aware of the danger, albeit quietly.
Starbucks incorporated a "cafe exclusivity" condition into a lease agreement for a Bengaluru mall that was examined by Reuters, prohibiting the mall owner from allocating space on the same level to competing "premium" businesses like Third Wave and Blue Tokai.
"Going deeper into smaller cities, beyond the metros, is the only way to grow," said Ankur Bisen, head of retail at India's Technopak Advisors.
(Source:www.ndtv.com)
The American behemoth, one of the first international coffee companies to enter tea-loving India, has opened 343 locations in nearly 11 years, as opposed to chains Third Wave and Blue Tokai, which are funded by private equity and have opened roughly 150 in the last three years.
"As you grow in size, you need to get new consumers," said Sushant Dash, the chief executive of Starbucks in India, adding that the chain's "pricing play" would help shatter a perception that it is expensive.
As part of its redesign, the business has introduced the six-ounce "Picco" drink, which starts at $2.24, and milkshakes for $3.33, in an effort to appeal to wealthy Indians who like smaller portions.
According to an anonymous industry source, Starbucks intends to expand its presence in smaller communities.
Both of its new products are exclusive to India and are not available in China, Singapore, or the US.
According to Euromonitor, the $300 million speciality tea and coffee cafe market in India is expected to increase by 12% annually. Although they only have a few locations each, Pret A Manger in Britain and Tim Hortons in Canada are both growing.
"Excessively large portion sizes are an American phenomenon," said Devangshu Dutta, head of retail consultancy Third Eyesight.
"Indian consumers are value-conscious. If adjusting portion sizes down to what is more normal helps make prices accessible, that's a double win."
He was one of the analysts who believed Starbucks' decision, which it made in a joint venture with Tata Group to operate in India, may further increase its revenues, which reached a record $132 million in fiscal 2022–23.
Although Starbucks still reigns supreme in India, competition is heating up in the nation's capital, New Delhi, and Bengaluru, the country's technology hub, where Third Wave cafés are frequently just as busy as Starbucks locations.
"We've lost 30 cups a day to them," said a barista at a Starbucks shop in Delhi that sells 7,500 drinks a month, referring to a Third Wave that opened nearby months ago, but already sells 3,700.
Other than in China, where its 6,200 locations serve the largest market outside of the United States, Starbucks has faced domestic rivals.
There, Luckin Coffee has used discounts to entice customers to its 10,000 primarily pickup or delivery locations in only the previous five years.
Starbucks is now ramping up that game in India, where it has over the years incorporated native touches to its offerings to increase their appeal, much like global behemoths McDonald's and Domino's have done.
Only 11% of Indian households, compared to 91% of tea-drinking households, are estimated to consume coffee. Hundreds of cups of hot milky tea, or "chai" as it is known in Hindi, are sold at roadside booths every day for as low as 10 rupees (about 12 cents).
Starbucks has introduced "Indian-inspired" tea selections with spices and cardamom, both favourite in many Indian homes, starting at 185 rupees ($2.24), after years of only offering one milk chai "latte" made with tea syrup.
Dash said that the company would maintain its concentration on coffee and not make chai a main offering. The drinks were introduced to entice folks who do not drink coffee and avoid Starbucks.
According to Chas Hermann, a restaurant consultant based in the United States and a former Starbucks executive, the introduction of smaller, less expensive beverages in India suggests Starbucks may have experienced "a decline in traffic related to a pushback" on higher costs.
In scenes similar of when it initially opened in India, a YouTube video depicted people queuing in the street outside the first Starbucks store in May, which was located in the western city of Aurangabad.
However, its competitors are catching up, and a pricing war has started.
Third Wave introduced its own line of milkshakes in May that were a fifth less expensive at $2.71, following Starbucks' debut of $3.33 milkshakes intended to appeal to kids.
Startup entrepreneurs and investors meet in Third Wave locations in Bengaluru. According to information from the real estate analytics company CRE Matrix, it has more than 40 locations there, more than Starbucks' 35.
Sushant Goel, the chief executive of Third Wave, stated that he intended to open 60 to 70 new stores annually, concentrating on major cities. Starbucks' smaller, less expensive drinks, in his opinion, are a response to rivalry in "an incredibly price-sensitive market."
Blue Tokai's CEO, Matt Chitharanjan, claimed that the company had "seen success in converting customers from Starbucks" in part due to reduced prices.
While Dash claimed that he was unaffected by competition, Starbucks is aware of the danger, albeit quietly.
Starbucks incorporated a "cafe exclusivity" condition into a lease agreement for a Bengaluru mall that was examined by Reuters, prohibiting the mall owner from allocating space on the same level to competing "premium" businesses like Third Wave and Blue Tokai.
"Going deeper into smaller cities, beyond the metros, is the only way to grow," said Ankur Bisen, head of retail at India's Technopak Advisors.
(Source:www.ndtv.com)