Click Here for Original Source – Economic Times
MUMBAI: Starbucks, the world’s largest coffee retailer, posted per-store sales that were more than two-and-a-half times higher than its largest rival during its second full year of operations in India, thanks to its premium pricing and locations that attract more customers. While losses have narrowed, profitability remains a challenge, with each store still losing about Rs 60 lakh annually on average.
Tata Starbucks, a joint venture between Starbucks and Tata Global Beverages, generated total revenue of Rs 171.2 crore in the year ended March 2015, according to its annual report filed with the Registrar of Companies on Monday. That’s an 80% jump from the previous year, when it posted sales of Rs 95 crore through 43 outlets.
With 72 stores until March, a back-of-the-envelope calculation shows that each Starbucks shop sold coffee, snacks and merchandise worth Rs 2.38 crore in 2014-15, higher than most other cafes and quick-service restaurant chains. Starbucks didn’t comment on the figures.
Coffee Day Enterprises, which runs the country’s top coffeehouse chain, Cafe Coffee Day, had retail revenue of Rs 1,326 crore from 1,538 cafes, or about Rs 86 lakh annual sales per store.
Starbucks also overtook Jubilant Foodworks, which had over 930 Domino’s Pizza and Dunkin’ Donuts outlets and clocked sales of Rs 2,074 crore last year, equivalent to Rs 2.23 crore per store on average. A year ago, Jubilant’s Rs 2.3 crore per-store sales was a tad higher than Starbucks’ Rs 2.2 crore.
Experts said while revenue at Starbucks is substantially high by industry standards, sales and profitability will be a challenge. “CCD pricing is much lower than Starbucks, which reflects in the difference in per-store sales. However, pricing of Starbucks needs to improve once they gain coverage and expand in Tier II and III cities,” said Ruchi Sally, director at retail consultancy Elargir Solutions.
“High sales so far is due to global brand value attached, pricing and increasing economies of scale.”
In FY15, Tata Starbucks’ loss narrowed to Rs 47 crore from Rs 51.8 crore a year ago. Over the past year, the coffee chain invested Rs 120 crore to expand India operations.
Starbucks, which opened its first India store in October 2012, now has 78 outlets and its pace of expansion has been a record in Starbucks’ 43-year history. The Indian unit of the Seattle-based company added 29 stores in 2014-15 in a market that’s been subdued over the past two years with consumers not eager to spend amid economic uncertainty. Chains such as Yum! Brands – the operator of KFC and Pizza Hut – and McDonald’s and Jubilant FoodWorks have reported negative or single-digit growth in the past two financial years.
For global coffee chains, including Starbucks, consumers are attuned to a takeaway culture, which helps them add margins at very little cost. In India, however, many officegoers and students go to cafes to relax and spend hours over coffee and snacks. Also, real estate costs in India are high, making it important for retailers that average price realisation per square foot of space.