Starbucks Corp., the world’s largest coffee retailer, posted its slowest sales growth in India last year, likely indicating that its novelty factor is waning as it focuses on profitability and halts aggressive expansion.
Tata Starbucks, the unit in India formed in partnership with the Tata Group, clocked net sales of Rs 272 crore, a growth of 14%, during the year ended March 2017 and narrowed losses to Rs 32 crore, according to filings with the Registrar of Companies. A year ago , it had posted sales of Rs 239 crore with a net loss of Rs 41 crore.
Starbucks Corp., the world’s largest coffee retailer, posted its slowest sales growth in India last year, likely indicating that its novelty factor is waning as it focuses on profitability and halts aggressive expansion. The company started in India in October 2012, recorded the fastest store expansion in the company’s 45-year history in the initial few years. The Indian unit of the Seattle-based company opened almost 75 stores until 2015 and has added 16 cafes since then in a market that’s been subdued, with consumers not eager to spend amid economic uncertainty.
Tata Starbucks, the unit in India formed in partnership with the Tata Group, clocked net sales of INR 272 crore, a growth of 14%, during the year ended March 2017 and narrowed losses to INR 32 crore, according to filings with the Registrar of Companies. A year ago, it had posted sales of INR 239 crore with a net loss of INR 41 crore.
With 91 stores until March, a back-of-the-envelope calculation shows that each Starbucks shop sold coffee, snacks and merchandise worth INR 3 crore. That’s three times higher than bigger rival Coffee Day Enterprises, which runs the country’s top coffeehouse chain, Cafe Coffee Day, and had retail revenue of INR 1,423 crore from 1,682 outlets, or about INR 84 lakh annual sales per store.
According to experts, Starbucks’ performance in India has stabilized after initial years of high growth.
Ruchi Sally, Director at retail consultancy Elargir Solutions said, “India is a price-sensitive market, where brands have their own cycle of growth. With new region entry, global brands get high attention, which later stabilizes. Starbuck’s premium pricing is also a challenge for opening stores at newer locations.”
Sumitro Ghosh, CEO at Tata Starbucks said, “We’ve taken a focused and disciplined approach to building Tata-Starbucks since entering India in 2012. Our partners (employees) have been the core to our success through the unparalleled customer experience and coffee craftsmanship which has earned the trust and respect of Indian consumers. We continue to see balanced growth in our business and are committed to the market over the long-term.”
Globally, consolidated net revenue at consolidated net revenue at Starbucks grew 8% to USD5.7 billion in the quarter ended July 2. The company had 26,736 stores across 75 countries.
Also, 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, office-goers and students go to cafes to relax and spend hours over coffee and snacks. Real estate costs in India are high, making it important for retailers that average price realisation per square foot of space. Starbucks has been losing about INR 35 lakh on each store on an average, although it has almost halved from two years ago.
After more than two years of dull growth, quick-service restaurants are now seeing double-digit sales growth, helped by a surge in discount-driven footfalls at malls and greater presence in new markets.
Starbucks expanded its partnership with Tata Group beyond India by launching the latter’s single-origin coffee in the US and Himalayan mineral water in Singapore a year ago.