A match made in Delhi: Starbucks and Tata

It could be said that Tata is as ubiquitous to India as Starbucks is to coffee. In almost any Indian city, one would struggle to escape the Tata Motors logos driving past Tata Indicom telecommunications posters, decorating the way to Tata Steel and Tata Chemical factories. In the 2010-11 financial year, Tata Group’s total revenue from its Indian operations amounted to around US$35 billion. The Tata Group comprises over 100 operating companies, with coffee and tea covered by Tata Global Beverages and Tata Coffee Limited. It’s the kind of magnitude that Starbucks can relate to. The American giants reported their 2011 net revenues as reaching a record US$11.7 billion, thanks to over 17,000 stores it operates worldwide, branded coffee it sells on grocery shelves, and the Starbucks K-Cups it produces for the Keurig single-serve system. The official announcement in January that Starbucks and Tata Global Beverages were pooling US$80 million for a 50/50 joint venture seemed a natural match of two companies of such large proportions. But as John Culver, President China and Asia Pacific, tells GCR, in looking for a partner, it was more than size that mattered. Starbucks has been eyeing Indian operations since 2006, taking its time to look for the right partner. Apart from the common thread of large-scale commercial success, it was a matching of values that both sides attribute to sealing the deal. “We firmly believe that Tata and Starbucks share many of the same values for conducting business in a way that is responsible and earns the trust and respect of our customers,” says Culver. “Tata is a known leader with a proven track record in delivering quality and value to customers.”  This reference to values is one echoed by Vinaya Chinnappa, Head of Green Coffee for Tata Coffee. In a separate sourcing and roasting agreement between Starbucks Coffee Company and Tata Coffee, complimenting the joint retail venture, Chinnappa will be working to source green coffee for Starbucks ‘A Tata Alliance’ to roast and sell. Chinnappa says that the Tata Group has found in Starbucks a partner who is focused on quality and has long been promoting one of the company’s main core values: improving the lives of the people they work with. For Tata, this experience dates back to the company’s earliest inception, when corporate social responsibility practices were written into the group’s code of conduct.
“In any of the Tata businesses, you have to live CSR,” Hameed Huq, Managing Director of Tata Coffee told GCR in an interview in early 2011. “We believe that things such as welfare and social issues should always be measurable for a business.” Starbucks’ Culver echoes these sentiments, and says that the decision to team up with Tata largely came from the group’s reputation as a known leader in delivering both quality and value to customers in a responsible fashion. Taking this commitment forward, Culver says the two companies will collaborate to invest in coffee growing communities, with a specific focus on agronomy, responsible farming practices, and will also work to extend the Swastha Project’s Community Based Rehabilitation Program, which covers differently-abled children in Kodagu, Karnataka.  The arrangement with Tata Coffee is an outcome of Starbucks continued investment in the production side of coffee. Interestingly, these investments are being made in emerging economies where Starbucks sees the most potential for expansion. In February, Starbucks announced a joint-venture with Ai Ni Group, one of the most established coffee  operators in China’s coffee-growing Yunnan province. Culver says the moves to invest in coffee growing in India and China will help ensure a long-term supply of premium quality coffee. “Our vision is to develop a comprehensive ‘seed to cup’ value chain, where we will leverage our coffee leadership and share our coffee knowledge to help elevate all facets of the coffee industry in China and India, help local farmers promote responsible coffee-growing practices and develop localised high-quality coffee,” Culver says. Sourcing from within a country also comes with some strong commercial incentives. In a move to promote consumption of coffee grown on Indian soil, there is a 108 per cent duty on imported coffee, not really making it economically viable to source coffee elsewhere. For Tata Coffee, securing Starbucks retail locations as a selling point, however, lined up well with the company’s focus on the quality of their coffee. “When Starbucks was looking to enter the Indian market, they naturally needed a partner,” Chinnappa says. “It is a win-win situation because as a group we want to focus on the premium segment. With Starbucks, we found someone who is dedicated to high quality coffee and also shares the same values as us. It really works out for both sides.” India is currently known largely as a Robusta producer, accounting for around two thirds of their crop. With Starbucks focusing on quality Arabica coffee, Chinnappa says the deal will help lift the reputation of Indian coffee internationally. “Starbucks is globally recognised as a purveyor of premium coffee,” Chinnappa says. “The very fact that they are using Indian Arabicas should bring a lot of interest towards coffees from India.”
The first co-branded stores are set to open by the end of 2012, beginning with Dehli and Mumbai. With the partnership under their belts, the question now may not be if Indians take to Starbucks, but if they take to the coffee drinking culture at all. As a primarily tea-drinking nation, per capita coffee consumption in India sits at an average of under a kilogram a year. Domestic brand Café CoffeeDay has had some success, currently operating a network of 1270 cafés in 185 cities around India. Similar to the Tata Group, Café CoffeeDay has its roots in green bean trade, as an offshoot of the Amalgamated Bean Coffee Trading Company. Culver says that he’s confident there is plenty of room for India’s coffee consumption to grow and welcome a variety of coffee houses. “There’s a steady shift in consumer preferences in India – coffee has changed from being a traditional beverage, consumed mainly in South India, to a mainstream beverage with a national presence,” he says. “The Indian market is growing multifold and the marketplace has room for many coffeehouses that meet different customers’ needs.”