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S6h33u1t57.Pdf I--_--------------------- ---.:ST:.:ARBUCKS' FORAY INTO TEA-ORIN KING INDIA 217 313-186-1 that it would not hold any equity. The application was rejected again in June 2007 by the Department of Industrial Policy & Promotion (DIPP), which suggested that Starbucks take the 51 % FDI route rather than the franchisee route. W ith its application being rejected for the second time and amid speculations that the Indian government would further tighten franchisee regulations, Starbucks withdrew its application from the FIPB in July 2007, without giving any date for its Indian debut. A Starbuck, spokesperson said, "Starbucks Coffee International, a wholly-owned subsidiary of Starbucks Coffee Company, notified the ministry of commerce & industry and FIPS that we decided to postpone our entry into India and officially withdraw the application to operate single-brand retail stores in this country. Starbucks is reviewing all options and evaluating how we can proceed related to our entry into one of the fastest growing economies in the world. It is premature for us to announce any new dates.':" The company was also unsure about the involvement of Sharma and Biyani in its future plans. N WITHTHETATAS In January 2011, Starbucks took a significant step and signed a non-binding m emorandum of understanding (MoU) with Tata Coffee (a subsidiary of Tata G lobal Beverages Limited) (Tata), one among of India's leading providers of premium Arabica coffee beans. Tata Global Beverages was a part of the global Tata Group and the world's second largest tea company. Its brands included Tata Tea, Tetley, Himalayan natural mineral water, and Eight 0' Clock Coffee. Tata Coffee, a subsidiary of Tata Global Beverages, was Asia's largest coffee plantation company and the third largest exporter of instant coffee in the country, which produced more than 10,000 Metric Tonnes (MT) of shade grown Arabica and Robusta coffees at its 19 estates in South India. Its two Instant Coffee manufacturing facilities had a combined installed capacity of 6000 MT. It exported green coffee to countries in Europe, Asia, the Middle East, and North America. The MoV was signed for sourcing and roasting high-quality green coffee beans in Tara Coffee's facility in Coorg in south India. Both the parties also explored the development of Starbucks retail stores in India. Starbucks' Schultz said, "India is one of the most dynamic markets in the world with a diverse culture and tremendous potential. This MoV is the first step in our entry to India. We are focused on exploring local sourcing and roasting opportunities with the thousands of coffee farmers within the Tata ecosystem. We believe India can be an important source for coffee in the domestic market. as well as across the many regions globally where Starbucks has operanons.v'" After a year of signing the MoU, Starbucks set up ajoint venture with Tata Global Beverages Ltd. in January 2012. The agreement paved the way for Starbucks to set up cafes in India and for Tata to sell Indian coffee globally. The 50/50 JV was named Tata Starbucks Limited and would own and operate Starbucks cafes branded as 'Starbucks Coffee - A Tata Alliance'. The company planned to open coffee retail stores across the country by the end of the year, starting with stores in Delhi and Mumbai. In a separate agreement, Tata Coffee Lim ited agreed to roast coffee and supply it to Tata Starbucks Limited. and to export to Starbucks Coffee Company. The agreement paved the way for Starbucks to reach consumers in India. The companies agreed to have an expanded range of beverage offerings for Indian consumers and jointly leverage assets and innovation to offer premium products. John Culver, president, Starbucks China and Asia Pacific, stated, "We're very pleased to have found the best partner for Starbucks in Tara - a company that shares so many of the same values for conducting business in a way that earns the trust and respect of our customers and partners (employees). We look forward to bringing the Starbucks Experience to customers in India by off~rin~,~igh ~uality ara?ica coffee, handcrafted beverag~s, locally relevant food, and legendary service. ~ Stating the business advantages of the partnership, Howard Schultz said, "What Tata brings is a unique perspective in terms of real estate acquisition capabilities. the opportunity to integrate Starbucks into Taj Hotels, the ability to brin? fo?d from the Taj into Starbucks stores and the capability that we Just could not do on our own Just tn terms of the infrastructure and distribution."n 7 218 International Business Strategl~Y'- _ 313-186-1 The companies opined that they shared common values of responsible business ethics and a commitment to community. Tata had been working to improve the li~es of c~ffee growing communities in the state of Kamataka. Starbucks, through an initial financial commitment, would support Tate's 'Swastha' _ a school for children with special needs (in partnership. wi~h the Coorg Foundation) and aim to increase its capacity and outreach into the rural communltle~ I.n.th,e cof~ee growing region of Karnataka, Starbucks and Tate also planned to work together on Intt,I8,tJves like promotion of responsible agronomy practices and training for local farmers, .technl~lans, and agronomists 10 improve their coffee-growing and milling skills and other cornmuruty proJects, The two companies started their venture with an investment of $80 million and proposed to start their stores in August or September of 2012, In September, the company announced that the opening of the Starbucks stores had been pushed back and their opening would coincide with the festive season, which started in October. While the company did not give any reasons for the delay, Saloni Nangia, president at Technopak, said, "The store rollouts of international chains usually take time because they involve a lot of groundwork in terms of sourcing ingredients, menu design, and choosing the furniture for the stores. A lot of effort goes into ensuring that stores are at par with international stendards.?" Analysts also opined that the delay might actually work in favor of Starbucks as consumer spending would be at its peak during the festive season. Finally on October 19, 2012, Starbucks opened its first store in India, in Elphinstone Building, Horniman Circle, Mumbai. On January 24, 2013, it expanded its presence to Delhi by opening 2 outlets, one at Indira Gandhi International Airport and the other at Connaught Place. In January 2012, Culver along with Tata Global Beverages vice chairman, R.K. Krishnakumar, had announced their plans to open 50 cafes by the end of 20 12 with an investment of Rs. 4 billion, but had missed the target. Culver said: "From the Starbucks perspective, we are a publicly traded company. We do not release those figures publicly. We did not do those numbers specifically from a Starbucks perspecrive.?" As of March 2013, Starbucks operated five stores in Mumbai and four in New Delhi. INITIAL RESULTS When the speculations of Starbucks entering India were on, Shoba Narayan, an Indian columnist, wrote. " 'D~cent.' co.!!eelor a com.m.ittedsouth Indian coffee connoisseur such as me involves a long, very specific list: It has to be piping hot; theloam must be on top; it has to be bubbly and the bubbles have to be breaking down; it should be served in a stainless-steel tumbler and 'davara', which is the Indian version 01 a saucer,' the color of the drink should not be as dark as cocoa but not too milky either; and the amount 01 sugar should bejust enough to take out the bitternes; but without adding any sweetness to the taste. That's what I would call decent coffee. My dad drinks four cups 01coffee a day and pays 10 rupees per cup at his neighborhood, no~name cafe. I pay 35 rupees for a cup of espresso at Cafe Coffee Day. It still costs under a dollar for the I. -r .... mos expensive cup OJ coffee In India. How ISStarbucks Somg to get price-conscious Indian consumers who think they are coffee experts to pay US$4/or a talt .Iatte? Lastly, it needs to figure Ollt what the Indian consumer means when they say, All! want IS a simple cup 01decent coffee '. ,,26 However, when Starbucks opened its first store in October 2012 India I . " ,gave awarm we com e to the brand. DUring the early days of Its openm g customers lined up to tak . f h b d d h . ' e a Sip 0 t e ran e ot beverage. The lines stretched so .Iong that a 'one-in one-out' policy . I · ,was Im p ernented After two m ont hS, t h eI mes were gone, but not the enthusiasm of the custome C' . rs. ustomers took hour long treks to reach the stores from different parts of the city Apart f ff . rom co lee and snacks customers alsob augh t S tar b lIC ks tumblers; others took pictures of the cups SI b k' I '., . •arucsogoandthe mtenors to post onF ace b00. k Th ey were also smitten by the taste ofth d. ' 'h e d I h e pro ucr, For many Starbucks becam e t e prererre p ace to ave coffee and hang out with fro ds: d hev di '. len s, an t ey did not mind paying 8 STARBUCK5' FORAY INTO TEA-DRINKING INDIA ___+-..£.l~..1 313-186-1 extra for the Starbucks experience. However, there were some who were disappointed. They felt that Starbucks had not priced its products competitively and that the products were very expensive.
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