Coffee is a huge opportunity, scaling up Starbucks biz: TCPL CEO & MD

Tata Consumer Products sees a huge opportunity in the coffee business in India and will focus on scaling up cafes under its joint venture Tata Starbucks, according to its MD & CEO Sunil D'souza.

Tata Starbucks, a 50:50 JV between Tata Consumer Products Ltd (TCPL) and Starbucks Corporation which runs Starbucks cafes in India, plans to take the number to 1,000 cafes by FY2027-28.

The JV has 457 stores across 70 cities as of the September quarter.

TCPL also expects growth from its vending business Tata MyBistro', a relatively new entrant in the segment offering a variety of coffee, tea and other drinks mainly to institutional customers.

 

"With Starbucks, we are very clear that the store profitability is not an issue. And as we get to scale, we know that we can generate profits out of it," D'souza told PTI.

Though, now Starbucks with over 500 outlets has become the largest coffee chain in the country," though it is "significantly under-penetrated" in comparison to similar per capita income GDP countries. It's still a small market and has a long runway, he added.

"That's why we had made a very clear statement of intent by saying that we will get 1,000 outlets by FY'28 nothing changes there. In the short term, we might moderate the number of outlet openings, but the 1000 target remains there, and we will be focused on that," he said.

Tata Starbucks's revenue from operations was up 12 per cent to Rs 1,218.06 crore in FY'24. However, its loss for the period had widened to Rs 79.97 crore from a loss of Rs 24.97 in FY'23 due to the expansion.

"You have got to make sure you are within a particular range, especially on the store profit contribution. The total EBITDA is a different matter, because there are certain other investments and marketing, etc, capital that you will put in, but store profit contribution, that number we watch very very closely because the unit economics have to work when you scale," he said  Tata Starbucks' Advertising promotional expenses were up 26.8 per cent to Rs 43.20 crore and royalty was at Rs 86.15 crore, according to financial data accessed through the business intelligence platform Tofler.

D'souza also added to create efficiencies in operations, it needs a network of five to ten stores, in every particular city.

"So now you will see both a slight bit of an increase in the number of cities, but I more you will see us populating the same densities," he said adding "As we go to tier II & III cities, bar a few exceptions, we are seeing the reception there, and the throughput that we get is almost equal to the metros."  Now the aspirations of the youths in those small tier II & III places are no different from that of a metro.

"Coffee is a huge opportunity in India. India is an under-penetrated country in coffee and when you look at global trends, coffee is a faster-growing category than tea," said D'souza.

That trend is catching on in India in both segments at 'home' and 'out of home', which is mainly TataStarbucks. TCPL's coffee business grew by around 25 to 29 per cent last quarter, and D'ouza expects it to "continue to grow at that pace".

According to D'souza, tea is a Rs 25,000 crore category in India, while coffee is just Rs 3,000 crore category and is having faster growth.

Over its vending business, Tata MyBistro D'ouza said: "Convenience will be a trend going forward. And if you marry both of them, a coffee vending machine giving you tea in your office or workplace is going to be a significant market in the coming future. There is no reason we can not participate in it."  However, he said the estimated number of coffee vending machines in India is between 1.5 to 2 lakh and MyBistro has reached about 2,000 only.

"We have a long way to go and believe me, if you provide quality service with the Tata brand name, there can be magic. So we are focused on this," he said adding this vending machine business will also open the door to a "far larger portfolio" for a whole lot of food and beverages.