How Starbucks plans to win over tea-loving Indians to take on domestic rivals

By India Today Business DeskUS-based Starbucks has brewed a fresh strategy to take on domestic rivals in India, including the likes of Third Wave Coffee and Blue Tokai.

The popular multinational coffeehouse chain, which operates in India as part of a joint venture with the Tata Group, has introduced cheaper beverages as it looks to penetrate into smaller towns as it faces competition in urban areas from newly established domestic brands, reported news agency Reuters.

Starbucks was one of the first foreign coffee brands to enter the Indian market, but it has taken the company more than a decade to open 343 stores, far lower than private equity-based chains Third Wave Coffee and Blue Tokai. Both have opened around 150 stores in the past three years.

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Starbucks bets on cheaper pricing, expansion

Stressing on the need to expand operations, Starbucks India chief executive Sushant Dash said, “As you grow in size, you need to get new consumers.”

Dash added that the chain’s “pricing play” would help shatter the perception that it is expensive. It has also introduced smaller-sized beverages to attract more customers.

The company has launched a six-ounce drink called Picco, which starts at around Rs 185 and milkshakes for Rs 275 as part of its makeover to target affluent Indians who prefer smaller servings.

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It may be noted that both its offerings are exclusively for India and unavailable in China, Singapore and the United States. In addition to cheaper beverages, Starbucks also plans to open more stores in smaller towns, according to a source quoted in the Reuters report.

Devangshu Dutta, head of retail consultancy Third Eyesight, told the news agency that “excessively large portion sizes are an American phenomenon”. “Indian consumers are value-conscious. If adjusting portion sizes down to what is more normal helps make prices accessible, that’s a double win,” he added.

Starbucks has ramped up its efforts to keep its foothold in India as the country’s small but fast-growing specialty tea and coffee café market is worth $300 million and set to grow 12 per cent each year, as per estimates from Euromonitor.

Other foreign brands like Canada’s Tim Hortons and Britain’s Pret A Manger have also started opening branches in India and expanding, but they have a lot of catching up to do to take on Starbucks.

While Starbucks enjoyed a record $132 million worth of sales in India in FY23, its fresh plans could further boost its growth.

‘Chai’ for the win

Starbucks is also planning to enhance domestic customization to better suit the Indian market, similar to what global giants McDonald’s and Domino’s have done in the country.

It is no secret that more Indians prefer tea – or ‘chai’ as it is known in Hindi – over coffee. Practically, millions of cups are sold at roadside stalls every day across the country, costing as little as Rs 10.

Though Starbucks has for years offered one milk chai ‘latte’ or Chai Tea latte (made with tea syrup), it has failed to capitalize on the country’s tea craze so far.

Now, the company has launched “Indian-inspired” tea offerings laced with spices and cardamom – both of which are favourites in many Indian homes – to attract customers who do not drink coffee. The pricing for these offerings starts at Rs 185.

Starbucks chief executive Sushant Dash clarified that the company would continue to retain its focus on coffee and not make chai a primary offering.