Starbucks, the iconic American coffee brand, has successfully expanded its presence in India beyond metropolitan areas, tapping into the growing consumer demand for lifestyle products in small-town markets. With 333 stores and sales surpassing Rs 1,000 crore in FY23, Starbucks aims to continue its expansion into smaller markets. To attract a wider customer base, the company has introduced an Indianized menu featuring affordable options and localized beverages. While competition is increasing with the entry of new players, Starbucks remains optimistic about the untapped potential in the Indian coffee market, particularly in non-metro areas.
Riding on the rising incomes and growing consumer interest in lifestyle products in small-town India, foreign brands are realizing the need to embrace the local market or risk financial setbacks. Starbucks, the renowned American coffee chain, experienced curiosity and excitement during its debut in India back in 2012, attracting customers who were eager to try the iconic coffee brand seen in Hollywood movies. Fast forward ten years, and Starbucks has shed its exotic appeal, becoming a familiar name in India’s smaller markets and extending far beyond the metros.
Tata Starbucks CEO Sushant Dash recently stated in an interview with ET Now that Starbucks can now be considered a pan-India brand. With a presence in 41 towns and cities, including locations like Vijayawada, Ludhiana, Punjab, Kerala, Bhubaneswar, Siliguri, and Guwahati, the company has expanded into smaller markets. In FY23 alone, Starbucks opened 71 new stores, bringing the total count to 333. It achieved sales of over Rs 1,000 crore for the first time since its inception a decade ago, representing a significant 71% increase from FY22.
Starbucks has pursued menu innovation as a key strategy to achieve double-digit sales growth and gain market share in India. In line with this, it launched a pilot project featuring masala chai (spiced tea) and filter coffee. The company also revamped its menu to offer Indianized and more affordable options, including street-style freshly assembled sandwiches, milkshakes, bite-sized snacks, and smaller-sized beverage cups. This expanded menu has now been rolled out across the country.
Tata Starbucks CEO Sushant Dash expressed confidence in their ability to continue innovating and adapting to consumer preferences, asserting that as long as they remain responsive to customer needs, they will maintain a strong position in the market. Dash also emphasized the importance of attracting new consumers as the company expands in size, highlighting the role of competitive pricing in dispelling the perception that Starbucks is an expensive brand. The introduction of new drinks aims to attract those who do not typically drink coffee or may have previously avoided Starbucks.
India’s specialty tea and coffee cafe market is valued at $300 million and is projected to grow by 12% annually, according to Euromonitor. With the spread of cafe culture in urban areas, the coffee market in India holds substantial potential. Currently, only 11% of Indian households consume coffee, compared to 91% that prefer tea, indicating room for significant growth. On average, an Indian consumes a mere 100 grams of coffee per year, in stark contrast to the 12 kilograms consumed by individuals in Western countries.
This growing coffee market with immense potential has attracted new players. While Starbucks took nearly 11 years to open 343 stores, private equity-backed chains such as Third Wave and Blue Tokai have opened around 150 stores in just the past three years. Canada’s Tim Hortons and Britain’s Pret A Manger are also expanding their presence, albeit with a limited number of outlets.
While Starbucks currently holds a dominant position, competition is intensifying in New Delhi and the technology hub of Bengaluru, where Third Wave cafes often draw crowds comparable to Starbucks. Analysts have cautioned that Starbucks’ higher pricing could be challenged as its global rivals, including Tim Hortons and Pret A Manger, plan to expand their store networks.
Barista, a domestic coffee chain brand, is also aiming for aggressive growth. In April, it opened its 350th store in Udaipur and aims to reach 500 stores within the next two years. Barista, known for introducing Indians to an authentic Italian coffee experience, has successfully operated in metros for the past two decades and now looks to expand beyond these urban centers.
Despite growing competition, Starbucks remains optimistic, citing ample opportunities in the Indian coffee market. CEO Sushant Dash highlighted that the market is far from saturated, offering room for everyone to grow. With only an 11–12% share, there is substantial headroom for expansion, particularly in small-town India, where the coffee market is expected to see significant growth.
In conclusion, Starbucks has recognized the potential in India’s small-town markets and successfully expanded its presence beyond the metros. By introducing an Indianized menu and focusing on affordability, the company aims to continue its growth trajectory while facing competition from both local and global players. With a positive outlook on the untapped coffee market in non-metro areas, Starbucks is determined to brew success with its Bharat strategy.