The number of repeat customers is important than store count: Avani Saglani Davda, CEO of Tata Starbucks
In an exclusive interview with VCCircle, Avani Saglani Davda, CEO of Tata Starbucks Ltd shares insights into the company’s India strategy, the rationale behind Starbucks’ move to partner with Tatas, its focus on increasing market share as opposed to chasing footprint, leveraging repeat customers, acquisition plans and more.
How important is India as a market for Starbucks?
Over 15 to 20 years, Starbucks has been aggressively looking at international markets. The company entered Japan, then China and now India which is a very important market given the sheer scale and the potential it offers. It is also looked upon as a market that will be one of the top five for Starbucks in the years to come.
Are Indians willing to spend on coffee? According to media reports quoting International Coffee Organization, India’s annual per capita coffee consumption is less than that of other markets. For instance, its consumption of 82 grams (three ounces) is far below that of 6.79 kilograms (15 pounds) in Germany and 5.87 kg in Brazil…
Fifteen years ago, nobody spoke of Gucci handbags or other luxury items in India but in the last five years there has been an explosion of sorts of these brands. That is led not just by consumption but also something that’s happening in the society in terms of economic trends and the way the people are growing.
India has the maximum number of people between 20 and 35 years of age. It is mind boggling to see how Indians have reacted to the internet, which has opened so many avenues. The Indian youth is open to experimentation that was not the case earlier. These social trends are important when you look at a business like ours, or you look at any player in the quick service restaurants (QSR) segment.
Why did Starbucks opt for Tatas for a partnership? It is said that Tatas have tea and coffee plantations, but have little experience in operating coffee chains…
A lot of companies come to India with a mindset of having partners and accordingly look at the shelf life of joint ventures. Starbucks’ business ethos and the way it has conducted itself over the last 43 years is very akin to what Tata as a company thinks. The partnership for it is about the meeting of the minds, because if you want to invest in the market and if you are here for the long term, separation from the partner is a big deal. It also matters how you do the business; if it is a 50-50 joint venture, unless you are aligned in the top level (in terms of how you conduct it and how you look at the market), it does not become engaging. Hence, when Starbucks came to India, Tatas were somebody it wanted to engage with.
You have opened quite a few stores. How has the customer response been?
Many consumers already knew about Starbucks. But it was humbling to see them coming in and trying our offering and saying, yes it is the same like the one we tasted in Singapore or Boston. Every time we open a store, there are a handful of consumers who actually wait and come only to test whether it tastes the same or are they cheated. In that sense, it is a judgment day for us whenever we open our doors to customers.
What is Starbucks’ retail strategy in India?
The metros are definitely key markets for us. There are 53 Indian cities that are probably on the list of most retailers. We have consciously looked at it as to where the brand should show first—whether at neighborhoods or malls. Starbucks has certain store formats that have been used internationally. How and when we introduce those in India and the way the brand has to show up is very important for us.
While our marquee stores will build what the brand will be in each of the city that we enter, the same experience will be delivered in different environments like an airport or a mall. While in the US, every corner and every street has a Starbucks, you won’t expect Starbucks to turn up at a railway station, or a grocery store. Indians have a different approach to life and we will be respectful as to where and how the consumer wants to see us.
Why is the merchandise different from the one being served abroad?
It is fair to ask why there is a paneer tikka sandwich in an Indian Starbucks store when it is not there in a store in the US. Starbucks is a ‘third place’ where consumers can be themselves whether they are with a friend or with family. For doing that, we have to serve items that are not completely alien to the consumer’s palette, though we cannot say everything will be suited according to the Indian taste.
We have to maintain the right balance when it comes to the merchandise. Some people look for blueberry muffin, which is a classic Starbucks dish, while some want Indian stuff. While we do not follow a formula to ensure that a certain percentage of our offerings is Indian dishes, we make sure there is an Indian element in order to entice all kinds of customers. We even serve Chai Tea Latte which is sweet masala tea.
Are you sourcing coffee locally?
It is the first time Starbucks is looking at sourcing and roasting coffee locally. When you have a partner like Tata, it makes sense because Tata’s coffee is a sister concern of Tata Global Beverages, a key investor in Starbucks. The roaster in India is the first one outside the US and Europe. This is also a test model for Starbucks and it is probably going to use this model in other geographies as well. Roasting coffee locally does not mean it is of an Indian flavour. Starbucks have high standards and are particular about the type of Arabica beans that are picked, so that the espresso tastes the same in every country.
Are you running the risk of being seen as the choice of the affluent in terms of pricing?
Indian consumers are not necessarily happy with cheap offerings. The consumer is very savvy when it comes to pricing; if you price something right, they will perceive the value to be correct. The consumers will have an affinity to the brand and will be loyal. Pricing was a good bet for us and it played out well, but comparisons happen because there are good local players who have larger footprints and one tends to compare Starbucks’ offering with their price points. However, there is a difference in value.
How has customers’ experiences been?
Over the last six months, we did not look at our store count; the important metric for us is how many people are coming back to us. First time customers might have wanted to try Starbucks because it is a new brand and there is euphoria around it. We are measuring the number of repeat customers, their type and the reason for their return.
How do you compare yourself with local stores with larger footprints?
We are looking at the share of the consumer’s wallet that we are getting and at the dent we are making in the market in terms of revenue from coffee. We try to see how we can make money on the investment that we have made and how we ensure that the iconic nature of the brand is preserved and established for a long term in India. There is competition at different price points but we have chosen to take this pricing model. We are planning to go after market share and not necessarily after the footprint. We are looking at aggressive growth and would be gaining a double-digit market share soon.
What is your marketing campaign for India?
The digital space is important for us. When we entered Delhi, we did a number of interesting campaigns in the digital space and when we launched our store in Saket, we also did a Twitter campaign for the same. We are not going to shy away from any medium for marketing channel, if it is required in any geography (including India). But at this stage, our focus is on the digital space because we feel that's where our consumer really wants to see our brand.
We also offer a Starbucks card that is basically a prepaid one; by the end of the next quarter, it will become a loyalty card. Consumers will be able to get points for their purchases and use them in later visits. It is not only about free points—consumers like to hold the card; I was surprised to see customers in Hong Kong or Singapore collect differently designed Starbucks cards. We did use a unique Indian motif when we launched our card in India and this is the only market where Starbucks launched the stores and cards at the same time.
Are you open to acquisition of small QSRs?
If there is an acquisition that meets our requirement and helps us achieve our long-term plan, we will definitely look at it, though we are not actively scouting for any acquisition. In parts of Europe, Starbucks has acquired local chains and has grown that way. But at this stage in India, both the partners have decided to put in their own investment which reflects the leadership’s view that we are here for a long term and are going to invest and grow in this market. If an opportunity allows us to achieve that, we will go for it but it is not going to be driven by the need for footprint.
What about acquisitions of small technology companies to enhance your capabilities?
In terms of technology partners, we are fortunate because we are part of the Tata Group and TCS is one of the largest players in the market and a significant player in the retail segment as well.
How does it feel like being one of the youngest CEOs in the Tata ecosystem?
I have worked in the group for eleven years; I have also worked with people who are younger than me but hold bigger balance sheets and handle bigger profit and loss responsibilities.
Have you become a coffee lover now?
I enjoy some of the offerings and also like some of the food that’s paired with them. I am beginning to discover coffee.
(Edited by Joby Puthuparampil Johnson)
In a welcome move, the Ministry of Corporate Affairs on 19 July 2016 issued a notification amending the Compan