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Despite Slow Start, Starbucks Expands in India

  • Aru Pande

Despite a slow start in India, the world's largest coffee chain, Starbucks, says it will continue to expand in the South Asian country. That is good news for the Indian government, which is counting on continued foreign investment to help the country boost economic growth.

The Starbucks outlet in New Delhi’s Connaught Place has been open for more than a month and still draws long lines and interest from young people like Vikram Maour, who until now had only seen the coffee chain on television.

“I think it’s great to have Starbucks in India," said Maour. "We just heard about Starbucks in foreign countries, but to have Starbucks in India, it’s a really good thing.”

Starbucks opened its first store in India in October of 2012, through a joint venture with India’s Tata Global Beverages. The U.S.-based coffee chain had planned to open 50 outlets in the country by the end of last year, but so far has a total of nine stores in the cities of Mumbai and New Delhi.

Starbucks officials say despite the delay, the coffee giant wants to eventually make India one of its top five global markets.

Tata Starbucks CEO Avani Davda says India is a complex market for foreign investors, both socially and economically, but that it carries tremendous potential.

“It comes with it’s own set of issues, in terms of how fast the government can move on the reform side," said Davda. "But, I think still, the fundamental business potential is there and if you are a group like Tata or Starbucks, who conducts business in a certain way and understands the potential of the market, I think there is huge opportunity over here.”

That potential can be seen in India’s 300 million-strong rising middle class and a younger population that is increasingly espousing Western tastes. Starbucks has deliberately kept prices lower compared to its pricing in neighboring China, in an effort to make the brand more accessible.

But the brand still must convince customers in the traditionally tea-drinking country to spend $2 on a cappuccino - instead of 20 cents on a hot chai.

“Younger people, they are open to experimentation," she said. "They are not just hung up on or tea or a particular beverage. Yes, it has been a dairy and a tea market for a long time, but I think people want new experiences and their out-of-home consumption habits are different.”

With India’s coffee consumption increasing 80 percent in the last decade and India's coffee market expected to top $500 million in the next few years, Starbucks officials say they are confident the company’s investment will pay off.