Tata Consumer Products, the joint venture partner of Starbucks in India, is strategically adjusting its expansion plans due to decreased foot traffic in its cafes. This decision comes as Indian consumers grapple with persistent inflation, impacting spending on non-essential items like coffee.
CEO Sunil D’Souza revealed in an interview with Reuters that Tata Starbucks will moderately reduce new store openings in the short term. While initially aiming for 100 new locations, the company now plans to open around 80, with adjustments to future targets to compensate. Despite this temporary slowdown, D’Souza affirmed Tata Starbucks’ commitment to its long-term goal of operating 1,000 stores in India by 2028.
This strategic shift reflects a broader trend in India’s consumer market. Rising inflation has squeezed middle-class budgets, forcing consumers to prioritize essential spending. W wage growth hasn’t kept pace with inflation, further impacting discretionary spending on items like coffee and dining out. This economic reality is affecting various sectors, with companies like Sapphire Foods India, a Yum Brands franchisee, also exercising caution in their expansion plans.
Currently, Tata Starbucks boasts over 450 cafes across India, making it the largest coffee chain in the country. While the company has more than doubled its store count in the past four years, challenges remain. D’Souza highlighted the scarcity of suitable real estate with high foot traffic as a significant hurdle. He contrasted this with the rapid mall development in China, Starbucks’ second-largest market, where prime locations are more readily available.
To address this challenge, Tata Starbucks has strengthened its dedicated team responsible for identifying and securing prospective locations. This proactive approach involves monitoring upcoming real estate developments and shortlisting potential sites in advance.
Despite the current headwinds, Tata Consumer remains optimistic about the long-term prospects of the coffee market in India. The company anticipates that the burgeoning coffee culture and the relatively low cafe density compared to other Asian countries like Indonesia, Vietnam, and the Philippines will ultimately drive growth.
Financially, Tata Starbucks reported a 12% increase in sales to 12.18 billion Indian rupees ($143.6 million) in the last financial year. However, the company also experienced a widening net loss, attributed to factors including higher raw material costs. While revenue growth in the first half of this year was marginal, D’Souza projects double-digit revenue growth for Tata Consumer in the second half of the financial year, although profits may remain under pressure due to elevated input costs, including tea. Analysts polled by LSEG forecast a nearly 16% revenue increase for Tata Consumer in the second half. This outlook underscores the company’s resilience and its commitment to navigating the challenges of the current economic landscape.
