Starbucks Enters India!

The Future is Liquid

By Harish Bijoor


And so, Starbucks is here! Well, almost here. The inking of the recent agreement between Starbucks and Tata Global Beverages, and the birth of Tata Starbucks Limited, is an interesting turning point in Indian coffee at large.

The entry of Starbucks in India is really the final stamp of globalization being doled out. In many ways, it says that India has arrived, and ready to be delivered. On a platter. With profits to share, sourcing arrangements to capitalize upon, and most certainly profits to repatriate to the mother company as well.

What’s different with the entry of Starbucks in India? After all Coca Cola was in India for decades, was sent out of India in 1977 and re-entered India once again in 1993. And McDonalds’s unveiled their golden arches in India in 1996. KFC did it noisily in Bangalore in 1995. What’s different with Starbucks then? Why does Starbucks represent more?

Starbucks represents more, as it is indeed the ultimate symbol of the free world going freer by the day. Starbucks is the ultimate representative point of modern retail, which propitiates the “third place syndrome” dominantly. The chain offers, just as any other Café chain in the world does, a third place away from home and office, a third place away from school and home. A place where you can just be you! And there are 17,000 plus of these sprinkled all across street-corners across the world, making it the most ubiquitous point of retail in the world. More ubiquitous than the biggest chain of super-markets of the world, and certainly more engaging and involving than any other. A lot does happen over coffee and Starbucks has been there, done that and seen that as well.

Just as Coca Cola, and McDonald’s, Starbucks represents the capitalist movement of a free world, where eating and drinking is flaunted, touted and branded aggressively at a price and a premium. In many ways these three brands have emerged as the trust-marks of the world, symbols of trust that make people walk in and partake of the brand offering with panache. And all three of them are now in India. Well nigh nearly there. And curiously so, none of them have needed a 100% FDI in retail as a clause to make this happen. And every one of them has aggressive partners. Partners who have and will make money, create local jobs, create local sourcing opportunities, and prosperity for all at the end of it.

The entry of Starbucks into India is not only symbolic, but a very personal journey for me as well. Having spent nearly two decades in coffee during the toughest of times, Starbucks has represented the gold standard of ultimate coffee achievement for me. It has represented the ultimate climb in the coffee value chain. While many of our Indian companies still struggle at the bottom of the value chain supplying to make the entire enterprise of coffee happen, Starbucks represents the highest link so far in the chain.

Look keenly at the coffee value chain. Right at the bottom is the green bean. The coffee-grower sells most of what he grows as green bean. He defines his core-competence to be plantation activity. He defines for himself the tight lines drawn by agricultural practice, planting, nurturing, pruning and plucking. The value realization for the green bean is therefore the lowest. The pricing is agricultural in its mindset.

Just one rung up ahead of this lowest rung in the value chain is the market for the roasted coffee bean. Roast & Ground coffee outlets that offer coffee in this form make more. They invest in a roaster, a grinder and a retail front. The coffee value-add process has begun. This segment is today dominated in South India by as many as 8435 small roasteries in a Dindigul, an Arokkonam and equally in the Holenarsipuras of India.
One rung higher is the terrain occupied by the Roast and Ground filter coffee marketers of this country. This space is dominated by the small and the big. As much as 62,000 Tonnes of the coffee we produce in India is used up by the likes of HUL and Tata Coffee in the organized segment, and by a whole host of smaller players with a solid base of local brand equity such as Narasu’s and Leo’s in Tamil Nadu and Cothas in Karnataka.

As we climb higher in the value-chain of coffee, we discover Instant coffee. The dominant brand names of Nescafe and Bru are growing today at a frenetic 18% per annum, as the country discovers the joy of convenience coffee that does not take ages to prepare with cumbersome devices such as the coffee filter and percolator alike.

Thus far the value chain of coffee has been of a solid avatar. Time to move the chain over to the liquid avatar. Out here are the vending machines that dispense coffees, the home and office coffee-maker and more.
In many ways the future is liquid, and not solid. Liquid coffee has this exciting habit of delivering bigger margins and bigger degrees of made-to-order satisfaction to consumers alike. And that’s a combination no one will ignore. Liquid coffee through vending machines for outdoor locations and home coffee makers for in-home and in-office locations make coffee climb the value chain higher.

And that’s not the end of the coffee value chain journey. The sit down and take-away Cafes represent the ultimate peak in this value chain. Out here, a coffee you could make comfortably at home for all of Rs.2.60 per cup(with foam and froth and all), will cost you Rs. 50 or Rs.100 or in the future even Rs.150, if you will. The entry of Starbucks in many ways helps create a caste system in the Café chains within India at large. You will have coffees that will come at 1$ a cup (Café Coffee Day), 2$ a cup (Costa Coffee) and maybe at 3$ a cup (Starbucks?).

With the entry of Starbucks in India, the coffee-value chain has touched the peak it has always wanted to. But never got to.
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The author is the Ex-VP, Tata Coffee Limited and ex-member of the Coffee Board of India.
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