In today’s finshots, we explore whether Starbucks might leave India amid its rising losses.

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The Story

Back in 2007, Starbucks took its first shot at entering the Indian market.

Unfortunately, things didn’t go as planned, but Starbucks wasn't ready to throw in the towel just yet.

Come 2012, the American coffee powerhouse made a cautious second attempt, this time partnering with Tata Consumer Products in a 50:50 joint venture.

Their plan was simple: make Indians fall in love with premium coffee. And, for a while, it seemed to work like a charm. Between FY17 and FY23, the brand was unstoppable, and its sales saw a compound annual growth rate (CAGR) upwards of 20%.

Fast-forward to 2024, and the picture isn’t as rosy. Sure, the company made sales of ₹1,218 crore but it also saw its losses jump to ₹82 crore. That’s almost three times what they were in the previous year. The sales growth plummeted from double digits to just 7% in the second half of FY24 too.

These figures are far from encouraging for a brand with over 450 stores across India. Clearly, something isn’t right.

So the burning question on everyone’s mind is ― Is Starbucks bidding adieu to India?

Or, more importantly, why are Indians having second thoughts about that ₹300 cup of coffee?

Look, one of Starbucks’ biggest hurdles in India is price sensitivity. Inflation has hit hard, and everything from rent to groceries is getting more expensive. And in this scenario, a ₹300 cappuccino feels more like a splurge than a daily ritual.

But wait… rising disposable incomes, younger consumers, and a growing taste for luxury should work in Starbucks’ favour, right?

Well, not quite.

You see, when Starbucks first entered India, coffee culture was still new to most of the country. Sure, down south, coffee had always been a thing. But for the rest of India? It was all about tea.

But Starbucks didn’t hold back; its plan was simple ― get Indians hooked on premium coffee. And for a while, it worked. Young folks, in particular, flocked to Starbucks. It wasn’t just about the coffee. It was the cosy ambience, the status of holding that cup with the green siren, and the whole social experience. Starbucks became a lifestyle symbol, not just a coffee shop.

But things have changed.

Post-Covid, there’s been another shift. Exposure to global trends has created demand for coffee beyond just the mass-produced stuff. Coffee lovers are now chasing artisanal blends, gourmet food, and better value for their money. A small but growing group of coffee enthusiasts is exploring these options, and Starbucks is no longer the go-to for everyone.

It’s also facing competition from a whole new breed of local coffee chains like Blue Tokai and Third Wave Coffee that offer specialty brews at a lower price. You can get a cappuccino at these places for about ₹230, compared to Starbucks’ ₹300.

And when you’re watching your budget, every rupee counts.

It’s not just the local players either. Global giants like Tim Hortons and Pret A Manger have also stepped into the ring, making Starbucks’ journey in India even tougher.

But there’s more.

Starbucks’ sprawling, fancy stores are mostly aimed at younger, urban crowds in big cities. But for the majority of Indians, a café visit is still an occasional treat, not a daily habit. Plus, India’s deep-rooted tea culture means coffee is still seen as a luxury.

You would be surprised to know that Starbucks’ struggles in India have a familiar ring, much like the challenges it faced in Australia and Italy.

In Australia, Starbucks made its entry in 2000, but it quickly realised it wasn’t going to be a smooth ride. Australia already had a deeply entrenched coffee culture.

Australians were particular about their coffee, preferring simple, high-quality espressos over Starbucks’ sweeter, flavoured lattes. And despite Starbucks' aggressive expansion, they had their favourite local cafés, and Starbucks felt too foreign, too fast. By 2008, Starbucks had to shut down over two-thirds of its stores and scale back its operations significantly.

Italy wasn’t any easier. The birthplace of espresso had its own centuries-old coffee tradition, and Starbucks was an outsider from the get-go. Italian cafés are deeply embedded in local culture. People enjoy quick espresso shots while standing at the bar, and Starbucks’ lounge-style spaces and takeaway model just didn’t resonate.

Efforts to adapt, such as opening a Reserve Roastery in Milan to appeal to purists, didn’t sway the locals. To Italians, Starbucks felt too commercialised, too foreign, and much too pricey. The brand couldn’t integrate itself into the local fabric of coffee culture.

The aggressive expansion in Australia and the cultural disconnect in Italy offered valuable lessons ― global success doesn’t automatically translate into local triumph.

Now, India isn’t the only place where Starbucks is feeling the pinch. In its home market, the US, the company has reported its first revenue drop since 2020. With inflation making customers rethink their spending, Starbucks’ high-end coffee is one of the first luxuries they’re cutting back on. In China, Starbucks is losing ground to local competitors like Luckin Coffee, which offers cheaper alternatives with similar quality.

Despite these hurdles, Starbucks isn’t ready to give up, at least in India.

In fact, the company is doubling down on its commitment to India.

Its ambition?

To hit 1,000 stores by 2028. And this time, it’s not just targeting the metros. Starbucks is eyeing tier-2 and tier-3 cities, opening drive-throughs, and setting up stores in airports.

It’s also innovating to cater to local tastes. Take their new ‘experiential’ store in Delhi’s Punjabi Bagh West, a sprawling 2,600-square-foot space offering global and local flavours like the Malabar Coconut Cream Latte. Starbucks is banking on these unique experiences to reconnect with Indian consumers who want more than just a cup of coffee.

So, what’s next for Starbucks in India?

Well, that’s anybody’s guess.

But to truly succeed, it might need to reinvent its brand. Expansion alone won’t cut it. Localisation and affordability will be key to keeping its Indian journey brewing.

For now, Starbucks isn’t giving up on India just yet. It’s just rethinking how to stay relevant in an increasingly competitive landscape.

Until then…

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