Coffee culture in crisis? Starbucks India rethinks its growth brew

Tata Starbucks scales back store openings amid inflationary pressure and real estate challenges. The company remains bullish on India's cafe market, targeting 1,000 stores by 2028

India’s cafe culture is evolving. But global coffee chain Starbucks is feeling the squeeze in the world’s most populous nation. Tata Starbucks, a joint venture between Starbucks Corporation and Tata Consumer Products, announced a recalibration of its expansion plans, scaling back immediate store openings as it grapples with rising inflation and real estate hurdles.

 

Speaking to news agency Reuters, Sunil D’Souza, CEO of Tata Consumer Products, detailed the revised plans, “We will calibrate for the short term — maybe instead of opening 100, we will open 80 now, and next year we will open 120 instead of 100.”

 

While the short-term strategy adjusts, the long-term goal of operating 1,000 stores by 2028 remains intact. With over 450 outlets already established, Tata Starbucks is India’s largest cafe chain and has doubled its footprint in just four years.

 

Why the pause in store expansion? 

Economic pressures 

Indian consumers are cutting back on discretionary spending as persistent inflation strains middle-class budgets. Items like coffee and cafe treats are increasingly seen as luxury indulgences.

 

Real estate constraints 

Finding quality locations is proving difficult.  “In India, good quality real estate with traffic... is a challenge,” D’Souza noted, contrasting India’s market to China, where rapid mall development supports Starbucks’ aggressive growth.

 

Growth despite headwinds 

Tata Starbucks’ revenue increased 12 per cent to Rs 12.18 billion ($143.6 million) in the last financial year, but its net loss widened to Rs 800 million from Rs 250 million. Despite these challenges, the Indian market offers significant long-term potential due to the relatively low cafe density compared to other Asian countries like Vietnam and Indonesia.

 

The company’s expansion strategy includes:  

 

• Proactive planning: A dedicated team scouts emerging real estate opportunities and shortlists prime locations

• Localised offerings: Unique menu items such as Chai Tea Latte and Elaichi Mawa Croissant cater to Indian tastes

 

India’s coffee culture: A growing opportunity 

While India remains a predominantly tea-drinking nation, the cafe culture is gaining momentum among urban millennials and professionals. Starbucks’ premium positioning resonates with this demographic, but affordability remains a barrier for wider adoption.

 

To address this, Tata Starbucks has introduced:   

• Smaller, affordable beverages like the ‘Picco’ cup
• Loyalty programs and promotions to boost repeat visits
• Expansion into Tier-II and Tier-III cities like Lucknow and Jaipur, where disposable incomes are rising

 

Global comparisons and plans 

India’s challenges contrast sharply with markets like China, Starbucks’ second-largest. While China’s rapid urban development supports cafe density, India’s fragmented real estate market limits availability. However, Tata Starbucks remains optimistic. “With cafe density still low, we see untapped potential in India,” D’Souza said.

 

Tata Starbucks long-term strategy:   

• 1,000 stores in India by 2028
• Operational efficiency to offset real estate and operational costs
• Enhanced localisation to strengthen its connection with Indian consumers.

 

[With Reuters inputs]