Starbucks Not Exiting India, But Sluggish Growth Is A Sign Of Concern

Tata Consumer Products Ltd. has dismissed reports regarding its joint venture partner Starbucks' potential exit from India due to high costs and increasing losses as "baseless". However, the coffee chain has been sailing through choppy waters, as fewer consumers are walking into its cafes.

The latest quarterly performance indicates that Tata Starbucks' pace of new store opening has been slower that its plan of opening one outlet every three days. Between July and September, it opened 19 stores, which translates to one new store every five days, implying that the coffee shop is still trying to adapt to new consumption patterns and rising inflation.

Tata Starbucks' revenue growth slowed to 2% in the second quarter.

In India, Starbucks also experienced its slowest growth in the financial year 2024 since the pandemic, with net sales increasing by only 12% to Rs 1,218 crore. The India unit took 11 years to reach Rs 1,000 crore in revenue. However, it remains an unprofitable venture.

"We continue to remain focused on the longer-term business opportunity in India for Starbucks," Tata Consumer Managing Director and Chief Executive Officer Sunil D'Souza said during a post-results call in October.

Tata Starbucks is committed to opening 1,000 stores by 2028, D'Souza said. Currently, the country's largest coffee chain has 457 stores across 70 cities.

"I think it's an overall consumer spending issue, especially in urban areas. And my hypothesis is probably food inflation is higher than what we think it is, and the impact is far higher," D'Souza said, adding his team has put together a range of initiatives to try to drive traffic back very quickly, including launching cheaper "new classic range" of food as well as coffee.

"The pricing being the attractive piece to draw consumers into the stores," he said. "But how fast and how much? Your guess is as good as mine."