Starbucks Sets Frothy Target For Its Unprofitable Indian Joint Venture

A thousand-crore investment over 11 years yielded Rs 1,000 crore in revenue. This is the story of global coffee retailer Starbucks Corp.'s India foray.

India accounts for around 1% of the Starbucks store count globally. Yet, it is the next bet after China for it, leading to over Rs 1,060-crore investment by the U.S.-based coffee retailer and its Indian partner Tata Consumer Products Ltd.

The global coffee retailer recently saw a change of guard at the helm, with India-born Laxman Narasimhan taking charge as the chief executive officer. In his maiden India visit, Narasimhan said the cafe chain is targeting over 1,000 stores by 2028. It currently runs 390-odd outlets across 54 cities in India amid rising competition from new-age and emerging coffee chains, forcing Starbucks to penetrate Tier 2 and Tier 3 cities.

Tata Starbucks Ltd., the 50:50 joint venture between Starbucks and the Tata Group, continues to be unprofitable, though the company claimed that it was positive at the Ebitda or operating income level, in the fiscal ended March 2023. Tata Starbucks took 11 years to scale its operations to a revenue of over Rs 1,000 crore. In FY23, according to the balance sheet of Tata Consumer Products, Tata Starbucks reported a loss of Rs 25 crore on a turnover of Rs 1,087 crore.

The coffee retailer now targets adding 150 stores in each of the next four years—or one outlet every three days—to meet the 1,000-store target. That appears to be as frothy a target as its coffee, pushing its profitability further under pressure and doubling the requirement of equity infusion by both parents.

The Starbucks-Tata joint venture came into existence in January 2012, and yet its revenue scalability has been slow given the potential of the Indian market. Both the promoters have been infusing funds into the operations on a regular basis. In the last two years, Starbucks and Tata Consumer have invested over Rs 370 crore together to scale the store count to 390 and revenue to Rs 1,000 crore.

Now, Starbucks wants to more than double the count of outlets in half the time. It is not as easy as sipping a cup of coffee.