India's Tata faces pressure in Starbucks joint venture as consumers cut back

City dwellers in India are cutting spending on everything from cookies and coffee to fast food as persistently high inflation squeezes middle class budgets, with wages failing to keep pace

India's Tata Consumer Products will push back plans for some new Starbucks store openings until later in its existing schedule as fewer customers are walking into its cafes in the world's most populous country, its top boss said on Monday (December 16, 2024).

"We will calibrate for the short term — maybe instead of opening 100, we will open 80 now, and next year we will open 120 instead of 100," Tata Consumer CEO Sunil D'Souza told Reuters, adding that Tata Starbucks is still focused on reaching its 2028 goal to operate 1,000 stores by 2028.

City dwellers in India are cutting spending on everything from cookies and coffee to fast food as persistently high inflation squeezes middle class budgets, with wages failing to keep pace.

Tata Starbucks, a joint venture between U.S. coffee brand Starbucks and the Indian conglomerate, operates the largest cafe chain in the country with more than 450 outlets.

Its store numbers had more than doubled from four years ago by the last financial year, but Mr. D'Souza said a lack of quality locations is a roadblock.

"In India, good quality real estate with traffic... is a challenge," he said, contrasting that to the "massive development of malls" in China, Starbucks' second largest market and the second most populous country after India.

Tata Starbucks has beefed up its dedicated team to plan for store openings, keeping an eye out for upcoming real estate development and shortlisting locations ahead of time.

Sales at Tata Starbucks rose 12% to ₹12.18 billion ($143.6 million) in the last financial year, while its net loss widened to ₹800 million from ₹250 million. In the first half of this year, revenue rose only marginally.

According to business insights provider Tofler, in the last financial year Tata Starbucks revenue had more than doubled compared to four years ago.

Tata Consumer's CEO still expects its bet on coffee to pay off in the longer run as the country's coffee culture grows and with cafe density still low compared with other Asian countries such as Indonesia, Vietnam and the Philippines.

Separately, Mr. D'Souza said Tata Consumer's revenue would increase in the double-digit percentage range in the second half of the financial year, with profit coming under pressure due to higher prices of raw materials, including tea.

Tata Consumer declined to share specific figures. Four analysts polled by LSEG on average expect revenue to climb nearly 16% in the second half.

Earlier this year, Yum Brands franchisee Sapphire Foods India also said it would be "extra cautious" about opening more Pizza Hut stores this financial year.

Published - December 16, 2024 10:49 pm IST