Finshots Daily
Is Starbucks leaving India?
In today’s episode for 24th September 2024, we explore whether Starbucks might leave India amid its rising losses.
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- Duration:
- 7m
- Broadcast on:
- 24 Sep 2024
- Audio Format:
- mp3
Hello and welcome to Finn's Shorts Daily. In today's episode we explore, where the Starbucks might leave India amid its rising losses. Before we start today's episode, we have a quick announcement. In the next 10 days, many prominent life insurers will significantly dilute or remove a key feature of term insurance plans, the critical illness rider or the CI rider. With the CI rider, you and your family are given a lump sum if you are diagnosed with the critical illness, giving you enough financial strength to tide over the crisis. The good news is that if you lock in on your plans now, most insurers are still offering the original benefits of this rider. You can talk to our team at Ditto for free to know more. The link to book a call is in the description below. Now on to today's episode. Back in 2007, Starbucks took its first shot at entering the Indian market. Unfortunately, things didn't go as planned, but Starbucks wasn't ready to throw in the towel just yet. Come 2012, the American coffee powerhouse made a cautious second attempt, this time partnering with Tata consumer products in a 50/50 joint venture. Their plan was simple, make Indians fall in love with premium coffee. And for a while, it seemed to work like a charm. Between FY17 and FY23, the brand was unstoppable, and its sales saw a compound annual growth rate of CAGR upwards of 20%. Fast forward to 2024, and the picture isn't as rosy. Sure, the company made sales of 1218 crore rupees, but it also saw its losses jump to 82 crore rupees. That's almost 3 times what they were in the previous year. The sales growth plummeted from double digits to just 7% in the second half of FY24 too. These figures are far from encouraging for a brand, with over 450 stores across India. Clearly, something isn't right. So the burning question on everyone's mind is, is Starbucks bidding a due to India? Or more importantly, why are Indians having second thoughts about that 300 rupees cup of coffee? Look, one of Starbucks' biggest hurdles in India is price sensitivity. Inflation is hit hard, and everything from rent to groceries is getting more expensive. And in this scenario, a 300 rupee cappuccino feels more like a splurge than a daily ritual. But wait, rising disposable incomes, younger consumers, and a growing taste for luxury should work in Starbucks' favour, right? Well, not quite. You see, when Starbucks first entered India, coffee culture was still new to most of the country. Sure, down south, coffee had always been a thing. But for the rest of India, it was all about tea. But Starbucks didn't hold back. Its plan was simple, get Indians hooked on premium coffee, and for a while, it worked. Young folks in particular flocked to Starbucks. It wasn't just about the coffee. It was the cozy ambiance, the status of holding that cup with the green siren, and the whole social experience. Starbucks became a lifestyle symbol, not just a coffee shop. But things have changed. Post Covid has been another shift. Exposure to global trends has created demand for coffee beyond just the mass-produced stuff. Coffee lovers are now chasing artisanal blends, gourmet food, and better value for their money. A small but growing group of coffee enthusiasts is growing these options, and Starbucks is no longer the go-to for everyone. It's also facing competition from a whole new breed of local coffee chains like Blue Tukai, and 3rd Wave Coffee that offer specialty brews at a lower price. You can get a cappuccino at these places for just about 230 rupees compared to Starbucks's 300 rupees. And when you're watching your budget, every rupee comes. It's not just the local players either. Global giants like Tim Hortons and Pretter Manger have also stepped into the ring, making Starbucks's journey in India even tougher. But there's more. Starbucks's sprawling fancy stores are mostly aimed at younger urban crowds in big cities. But for the majority of Indians, a cafe visit is still an occasional treat, not a daily habit. Plus, India's deep-rooted tea culture means that coffee is still seen as a luxury. You'd be surprised to know that Starbucks's struggles in India have a familiar ring, much like the challenges it faced in Australia and Italy. In Australia, Starbucks made its entry in 2000. But it quickly realised it wasn't going to be a smooth ride. Australia already had a deeply entrenched coffee culture. Australians were particular about their coffee, preferring simple, high-quality espressos over Starbucks's sweeter-flavored lattes. And despite Starbucks's aggressive expansion, they had their favourite local cafes. And Starbucks felt too foreign, too fast. But 2008, Starbucks had to shut down over two-thirds of its stores and scale back its operations significantly. Italy wasn't any easier. The birthplace of espresso had its own centuries-old coffee tradition. And Starbucks was an outsider from the get-go. Italian cafes are deeply embedded in local culture. People enjoy quick espresso shots while standing at the bar, and Starbucks's lounge-style spaces and takeaway model just didn't resonate. Efforts to adapt such as opening a reserve roastery in Milan to appeal to purists didn't sway the locals. To Italian, Starbucks felt too commercialized, too foreign, and much too pricey. The brand couldn't integrate itself into the local fabric of coffee culture. The aggressive expansion in Australia and the cultural disconnect in Italy offered valuable lessons. Global success doesn't automatically translate into local triumph. Now, India isn't the only place where Starbucks is feeling the pinch. In its home market, the US, the company has reported its first revenue drop since 2020. With inflation making customers rethink their spending, Starbucks' high-end coffee is one of the first luxuries they're cutting back on. In China, Starbucks is losing ground to local competitors like Lacking Coffee, which offers cheaper alternatives with similar quality. Despite these hurdles, Starbucks isn't ready to give up at least in India. In fact, the company is doubling down on its commitment to India. Its ambition? To hit 1,000 stores by 2028. And this time, it's not just targeting the metros. Starbucks is eyeing tier 2 and tier 3 cities, opening drive-throughs and setting up stores in airports. It's also innovating to cater to local tastes. Take their new, experiential store in Delhi's Punjabi Bag West. A sprawling 2,600-square-foot space offering global and local flavours like the Malabar Coconut Cream Latte. Starbucks is banking on these unique experiences to reconnect with Indian consumers who want more than just a cup of coffee. So what's next for Starbucks in India? Well, that's anybody's guess. But it truly succeeds, it might need to reinvent its brand. Expansion alone won't cut it. Localisation and affordability will be key to keeping its Indian journey brewing. For now, Starbucks isn't just giving up on India just yet. It's just rethinking how to stay relevant in an increasingly competitive landscape. Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to highathoradefinshots.in. Until next time.