Starbucks close to cafe JV with Tata Coffee

Reuters

October 9, 2011

Picture: Courtesy of Bloomberg via WSJ 

Mumbai  (Oct 10) - Starbucks Corp is finalizing an equity joint venture with India's Tata Coffee Ltd for opening coffee shops in Asia's third-largest economy, the Times of India reported on Monday.

Seattle-based Starbucks had held talks with other potential partners in India including fast food chain operator Jubilant Foodworks before settling down with Tata Coffee, the newspaper said, citing sources with direct knowledge.

Tata Coffee's managing director, Hameed Huq, could not be reached by Reuters at his office in Bangalore, and Starbucks did not immediately respond to a mail seeking comment on the report.

Starbucks had signed a pact with Tata Coffee, part of the Tata industrial conglomerate, in January to buy coffee from India and explore opening retail stores in the country, the companies had said in a statement.

The Times of India said the Starbucks joint venture deal with Tata Coffee would also be backed by other bigger firms within the salt-to-software Tata group.

India's foreign direct investment regulations will allow Starbucks to hold up to 51 percent in the joint venture and Tata shares may be routed through more than one group entity, including Tata Coffee, the newspaper said.

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Original news article cited by the above Reuters' report

Starbucks set for cafe JV with Tatas 

The Economic Times

October 10, 2011

MUMBAI: Starbucks chairman and CEO Howard Schultz is set to clinch a joint venture with Tata Group for opening coffee shops in India, almost nine months after he struck a sourcing deal with Tata Coffee, a unit of India's largest private conglomerate and Asia's largest coffee grower, said two sources directly aware of the matter.

Seattle-based Starbucks Coffee Company had held talks with other potential partners , like Jubilant Foodworks, before settling down with the Tatas for its ubiquitous cafe business in India, where there is a growing affinity for cappuccinos and lattes.

The $11-billion Starbucks is finalizing an exclusive equity joint venture with Tata Coffee which would also be backed by other bigger firms within Tata Group. The country's foreign direct investment (FDI) regulations allow Starbucks to hold up to 51%. Tata shares may be routed through more than one group entity, including Tata Coffee, sources added.

The 58-year-old Schultz, who built an iconic coffee shop enterprise in his lifetime, wants involvement of bigger and more aggressive Tata firms in the joint venture operations , said one of the sources mentioned earlier. This could see group firms like Tata Global Beverages, parent of Tata Coffee, Indian Hotels Company , which runs Taj Hotels, and Infiniti Retail, a fully owned retail subsidiary of Tata Sons, being involved operationally. Starbucks could not be reached for immediate comments.

Senior Tata honcho R K Krishnakumar is spearheading the JV efforts, which involve harnessing synergies between different group entities . Starbucks' vice-president for emerging business Arun Bharadwaj and the Tatas are scanning locations for the cafe parlours. The retail expansion plan-Starbucks is known for aggressive scaling up-include setting up cafes at some Taj Hotel properties and highstreet retail stores of the Tatas . Taj Sats, a flight catering service of Taj Hotels, is assisting in designing the Starbucks food menu.

Starbucks, like most international chains, has turned its attention to emerging markets , including India to drive growth. In China, it plans to triple its coffee outlets to 1,500 by 2015. Starbucks with the famous sea nymph logo has in excess of 17,000 outlets worldwide , with nearly 12,000 of them in North America.

India's coffee shop sector is dominated by local players cafe Coffee day and Barista Bean Company, which was acquired by Italy's Lavazza. Several international brands like Costa, Coffee Bean, Segafredo Zanetti and Nescafe have embarked on building cafe chains in the country. More recently, Dunkin Donuts announced a tie-up with Jubilant.

The Western-style cafe culture has helped boost coffee consumption in India by 6% in the last five years. Coffee consumption stood at 1e lakh tonne in 2010.

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Related past story

Starbucks Gives Tata Coffee a Caffeine Boost

The Wall Street Journal

January 14, 2011

The alliance announced Thursday between Tata Coffee—a part of the Tata Group conglomerate—and U.S-based Starbucks Corp. for sourcing and roasting coffee beanssent the Indian company’s stock rocketing by the exchange’s maximum daily upper limit of 20%, which triggered halt in trading a price off 555.70 rupees ($12.31), the stock’s highest level in the past 30 days.

Trading in the stock is yet to resume. In comparison, the benchmark Sensex is up 1.1%.

The alliance could pave the way for the U.S. chain to open retail outlets in India, possibly in partnership with Tata Coffee, to tap the growth opportunity that the market offers, say market watchers.

Tata Coffee’s financials stand to get a pick-me-up: A better pricing for its premium Arabica beans and long-term orders to supply to Starbucks’ markets in Southeast Asia and China would be a definite booster, say analysts. Its operating margins, currently around 18%, could get a fillip.

And given Starbucks’ aggressive plans for the Asian region, the opportunity would only get bigger with time. Starbucks recently announced plans to more than triple the number of outlets to around 1,500 in five years in China.

What’s more, a partner like Starbucks would also help Tata Coffee tap the domestic market opportunity. Currently, almost 65% of Tata Coffee’s sales come from its Eight O’Clock Coffee Co. unit in the U.S..

Indians, traditionally tea drinkers, now prefer ordering espressos and cappuccino at quick-service cafes as the country’s growing middle class increasingly adapts to Western tastes.

As a result, overall domestic consumption of coffee has risen to an estimated 94,400 metric tons in 2008, up almost 90% since 1998, according to government figures.

Cafe Coffee Day, a unit of Amalgamated Bean Coffee Trading Co. Ltd., and Barista Coffee Co. Ltd., owned by Italian coffee company Luigi Lava Sp., are the larger among the 10-15 coffee chains operating in India.

Prakash Diwan, head of institutional business at Networth Stock Broking, says Tata Coffee will be an ideal partner for Starbucks’ retail foray in India.

Under India’s foreign-investment rules, a single-brand retailer is permitted to hold up to 51% of a joint venture with a local partner.

The fact that Tata Coffee is present along the entire coffee production chain—growing, roasting and trading—enhances its appeal as a potential partner, Mr. Diwan added.