July 18, 2011

Starbucks in India: Creating Sourcing, Quality and Pricing Synergies

Starbucks is finally coming to India. The world's largest premium coffee retail chain announced in January that it has entered into an agreement with Tata Coffee for a strategic alliance.
Headquartered in Seattle, Washington, Starbucks operates in more than 50 countries. It has been sourcing coffee beans from India for the last seven years.
Tata Coffee is Asia’s largest coffee plantation company and the third-largest exporter of instant coffee in the country. It produces more than 10,000 million tonne of shade grown Arabica and Robusta coffees at its 19 estates in south India. Its two instant coffee manufacturing facilities have a combined installed capacity of 6,000 tonne.
Under a non-binding memorandum of understanding (MoU), Starbucks will explore setting up stores in the Tata group's retail outlets and hotels, besides sourcing and roasting coffee beans at Tata Coffee's Kodagu facility.
Tata Coffee, one of the biggest suppliers of Arabica coffee beans, has shipped coffee beans to Starbucks in the past and is now building a structure for a long-term relationship, a joint release from the Tata group and Starbucks.
Retail growth outside the US is now central to the company's strategy. In an investor presentation, Starbucks International President John Culver said the company hopes to operate at least 1,500 stores in mainland China by 2015. He also said that the company sees exciting growth prospects in other emerging countries such as India and Brazil.
According to the MoU, the two companies will collaborate on providing training to local farmers, technicians and agronomists to improve coffee-growing and milling skills. The two companies will also explore social projects in the coffee-growing regions Tata Coffee operates.
“This MoU is the first step in our entry to India. We are focused on exploring local sourcing and roasting opportunities with the thousands of coffee farmers within the Tata ecosystem. We believe India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations,’’ said Howard Schultz, chairman, president & CEO, Starbucks Coffee Company.

In the areas of sourcing and roasting, Starbucks will explore procuring green coffee from Tata Coffee estates and roasting at the Indian company’s existing facilities. At a later phase, Tata Coffee and Starbucks will consider jointly investing in additional facilities and roasting green coffee for export, the release said. 
This is a good strategy for Starbucks to have sourcing and roasting operations in the market which it aims at entering. This integration will help Starbucks to maintain the high quality of its products, customize them to the taste of the Indian palette and achieve pricing synergies. The entire operations of Starbucks India will be streamlined and hence Quality maintenance will not be a problem.

Vishwajit Vyas has done his B.Tech. in Electronics Engineering from Wayne State University, Detroit,  Michigan and can be reached at vishwajitvyas @ gmail . com.

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