Tata Starbucks accelerates store opening amidst Covid-19; here's why

Defying the pandemic which has crippled several businesses over the past two years, Starbucks has embarked on its biggest ever store expansion in India since nearly a decade of its launch in the country. The company has opened 51 new stores in the span of a year, made inroads into a clutch of new markets taking its total store tally in the country to 252 across 26 cities. A growing local economy and an increasing count of consumers who are looking for differentiated experiences in a market otherwise often dotted with a flurry of look alike brands is what Starbucks plans to tap into.

“More than anything else, it is the Starbucks experience people are looking for. That is the primary reason (behind the expansion),” Sushant Dash, CEO at Tata Starbucks tells Fortune India.

Starbucks operates in India through a 50:50 joint venture with Tata Consumer Products. The Seattle-based firm that runs a chain of coffeehouses globally opened its first India outlet in Mumbai in October 2012.

Adding to the prevalent trend of scores of brands chasing growth in smaller cities, a significant portion of Tata Starbucks’ portfolio of new stores are in Tier-II cities. Last week, it announced its foray into six new cities which includes Siliguri, a mid-sized bustling town in North Bengal. Nashik, Guwahati, Thiruvananthapuram, Goa and Bhubaneswar are the other locations where the brand launched its stores. In fact, the expansion marked Tata Starbucks’ entry into the states of Assam, Goa and Odisha. This, however, does not imply that the company is going slow on broadening its footprint in the metros and Tier-I cities, clarifies Dash.

“In India, I think we are still scratching the surface in terms of the potential of the brand. We still have quite a long distance to cover even in the metros and tier one cities. For us, the potential exists in both small and big cities,” asserts Dash. Tata Starbucks will continue to be “aggressive” with its store expansion strategy in the current year as well. Dash, though, did not give any fresh numbers.

The company will experiment with varied store formats comprising a mix of small engine stores, drive-thru outlets, highway outlets and the core Starbucks stores that the brand is identified with. The store strategy for different regions is typically driven by the market size and potential and the availability of real estate, says Dash. Another idea is to widen its footprint in mature markets like Mumbai where the brand is already very well-received. The firm wants to add smaller format stores in such markets to cater to more consumers who are looking for distinct propositions.

“In an area like Bandra or Andheri, where we already have four to five stores, we will look at opening smaller format stores. People might want a Starbucks store closer to their homes. We feel there could be more potential in the catchment,” explains Dash.

Overall business for Tata Starbucks has already touched pre-Covid levels and the company did not shut any store amid the pandemic, says Dash. In Q2FY22, business grew by as much as 128%. “The recovery has been very good post the second wave. We should end FY22 at a good place,” says Dash.

The rapid spread of the Omicron variant and the consequent curbs imposed by states have “put some pressure” but it is too early to assess the impact, says Dash. The CEO says that the brand has also been able to scale up the delivery business amid the pandemic and it now contributes about 17% to total revenues compared to just about 5-6% pre-Covid. “I think we have been able to replicate the experience of the offline stores on the digital to an extent. It has worked for us,” says Dash.

Even as competition in the space deepens with emergence of a spate of new age D2C brands that seem to be resonating well with the millennials and Gen Z at least, Dash is unfazed. “I think we serve the best coffee in the world. The top 3% arabica coffee is what we source. Our brand is synonymous with warmth, connection and consistency,” adds Dash.