Starbucks could cause a veritable tempest in local coffee mart

The whiff of the local market has drawn every coffee retailer worth its beans.

But the one that is most likely to stir the market is Seattle-based Starbucks, which has joined forces with another behemoth — Tata Coffee, the largest coffee plantation company and parent of Eight O’Clock Coffee Co.

Even before the US coffee retailer has stepped into the market, industry experts are predicting its entry will reshape the domestic coffee shop scene, which is dominated by V G Siddhartha’s Cafe Coffee Day (CCD).

Starbucks, which is likely to foray into the Indian market by the middle of this year, is seen  gulping down huge volumes. This, experts believe, will slowly shrink CCD’s current market share of around 55%.

Today, of the 1,980 coffee outlets in India, CCD owns 1,080.
In comparison, Starbucks has 1,500 coffee stores in China alone.
Are these numbers giving the market leader the jitters?

Ramakrishnan K, president - marketing, Cafe Coffee Day, is less than perturbed. In fact, he is waiting for Starbucks to come and fire up the market.

“India is still under-penetrated with coffee players having reached only 170 towns. So, there is enough room for more players to come in and grow with the market here. We respect Starbucks, it’s an iconic brand. It will provide us with some benchmarks to improve ourselves,” he said.

Ramakrishnan’s complacency stems from Coffee Board of India’s data on coffee consumption in India. According to the coffee trade body, India’s per capita consumption of coffee is just 85 grams compared to France’s 4.5 kg, Japan’s 4.6 kg and US’s 6 kg.

Another statistic that goes in favour of coffee companies is that even though India is the sixth-largest coffee producer in the world with an annual output of 3 lakh tonnes, it consumes barely one lakh tonne every year. This leaves an immense scope for growth in the coffee market, currently growing at 5% annually.

No wonder, several coffee brands including CCD, Barista Lavazza, Java Green, Costa Coffee and Gloria Jean’s Coffee are merrily sipping into it. Others like Starbucks and Dunkin Donuts are looking to join the party.

These comforting facts notwithstanding, CCD is not about to sit pretty. If its expansion plans are anything to go by, the company seems to be sharpening its weapons for the battle ahead, given that Starbucks will come armed with marketing and financial might.

Ramakrishnan said the company has already grown its number of outlets from 850 last year to 1,080 and plans to double that number in the next three years.

It has done this by targeting educational institutions, hospitals, tourist and transportation hubs and highways. Ramakrishnan said CCD is aggressively sniffing growth opportunities on the highways.

“We see significant growth opportunity on highways with over 1.5 million cars moving between cities. This is prompting us to actively concentrate on highways,” he said.

Also, the company’s coffee shops, which had till recently catered to the masses, have lately started focusing on operating upscale coffee chains under the brand The Lounge and Square.

Ramchander Raman, head - food & beverage, CCD, expects the move to help the company in expanding its footprint in the premium coffee segment, where it expects fierce competition from Starbucks.

Marketing and brand expert Harish Bijoor sees no reason for companies operating coffee chains in India to run for cover with the entry of Starbucks.

“I do not think CCD, Barista or anyone for that matter should feel threatened by Starbucks’ entry. The market is still growing. The only thing that will happen now is that the customer base will expand beyond just college students,” he said.

Bijoor estimates that the country needs roughly 5,400 cafes as against 1,980 now. “So basically, now there will be cafes selling a cup of coffee for Rs300 along with those selling at Rs50.”

He, however, maintained that CCD will have the benefit of being the first mover in the market and Starbucks would need to customise its snack and food option and bring in a degree of localisation.