India’s Brewing Coffee Battle Pits Starbucks Against Pret for Share of Growing Market

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India’s biggest billionaires are competing with international coffee chains to convince the world’s largest tea-drinking nation to spend on flat whites and Frappuccinos. Starbucks announced last week that it planned to nearly triple the number of outlets in India, where it opened its first café more than a decade ago, to 1,000 by 2028. The chain operates a joint venture in India with the country’s Tata conglomerate and plans to expand beyond large metropolises into smaller cities, in a country where consumers generally buy Rs10 ($0.12) cups of masala chai served by vendors on the road.

India is a “market that has huge long-term potential,” according to Laxman Narasimhan, the Seattle-based coffee chain’s chief executive. The development of the infrastructure here, the growing consumer base, and the widespread adaptation of technology translate to a prime opportunity for bolstering Starbucks stores. Starbucks is confronting an increasingly competitive field as investors seeking to tap the growing food-and-beverage market turn to cafés. Fast-food chains such as McDonald’s and Domino’s grew 25% a year between 2010 and 2020 as they built thousands of outlets around India, according to analysts.

International food brands have typically entered the market through franchisees or local partners familiar with the market. Pret A Manger launched in India last year in partnership with Mukesh Ambani’s Reliance Industries, shortly after Canadian brand Tim Hortons, which is backed by fast-food group Restaurant Brands International. Costa Coffee, operated by an Indian franchisee of Yum Brands, has announced plans to add 50 cafés a year, while homegrown chains such as Third Wave Coffee and Blue Tokai Coffee Roasters each raised money from venture capital firms last year to finance hundreds of new outlets.

Speciality coffee is still well out of reach for most of India’s 1.4bn population, with Goldman Sachs estimates only 60mn Indians have an income above $10,000 a year, with the figure set to grow to 100mn by 2027. The market for coffee is “restricted by geographies, incomes, and households,” said Ankur Bisen, a retail analyst with Technopak Advisors.

Coffee has long been part of Indian culture, and the country is among the world’s largest coffee growers. Cafés have proven particularly popular among international investors because operating them cost less than for other types of fast-food restaurants. However, brands risk overestimating the ability and appetite for Indian consumers to spend on discretionary drinks in the race to build hundreds of new outlets across the country. Successful chains would need to exercise patience in order to capitalize on the India opportunity.

Read More @ Financial Times

Source: Coffee Talk

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