One year after striking a deal with Tata Coffee Ltd for sourcing coffee from India, US-based Starbucks Coffee Company has formally entered into a joint venture with another Tata group firm, Tata Global Beverages, for opening and operating Starbucks Cafes in the country. Each partner will hold 50 per cent stake in the JV called Tata Starbucks Ltd, which will own and operate Starbucks cafés branded as Starbucks Coffee “A Tata Alliance”.

The retail stores will be developed in cities across the country, beginning with stores in Delhi and Mumbai in calendar 2012, the company said on Monday.

“The joint venture with Starbucks is in line with Tata Global Beverages’ strategy of growing through inorganic growth focusing on strategic alliances in addition to organic growth,” stated R K Krishnakumar, vice chairman, Tata Global Beverages.

John Culver, president, Starbucks China and Asia Pacific said, "We look forward to bringing the Starbucks Experience to customers in India by offering high quality arabica coffee, handcrafted beverages, locally relevant food and legendary service.”

The companies have also agreed to jointly leverage assets and innovation to offer a premium tea product branded, Tata Tazo.

The development will bring more choice for consumers who are currently served by KKR-backed Cafe Coffee Day, Lavazza (which acquired the Barista coffee chain in 2007) and Costa Coffee.

The decision by Starbucks to go with a local partner comes even as the government has opened up FDI up to 100 per cent in single-brand retailing. This, in effect, allows Starbucks to float a wholly owned venture. Although some global retailers have expressed their reservations about the local sourcing norms for opening wholly owned retail ventures, Starbucks could have potentially met the local sourcing norms, given its tie-up with the Tatas.

In January 2011, Starbucks signed a non-binding Memorandum of Understanding (MoU) with Tata Coffee (a public-listed subsidiary of Tata Global Beverages) for sourcing coffee and also for retail business in India. The MoU was to create avenues of collaboration between the two companies for sourcing and roasting green coffee beans in Tata Coffee’s Coorg facility.

In a separate disclosure, Tata Coffee said that it had entered into separate agreements with Starbucks Coffee International, Inc., USA, and Tata Starbucks Ltd, for roasting coffee produced in the company’s estates using Starbucks’ know-how & technology, and packaging, sale and distribution thereof to Starbucks Cafes, to be set up by Tata Starbucks Ltd in India/Starbucks business operations overseas.

Tata Coffee scrip dropped 4.2 per cent to close at Rs 865.5 a share while Tata Global Beverages scrip was up 0.67 per cent to close at Rs 97.95 a share on the BSE on Monday, in a weak Mumbai market.

Starbucks had reportedly toyed with various potential Indian partners in the past, including Kishore Biyani's Future Group, Anil Ambani Group and Domino’s franchisee owner Jubilant Foods Ltd.

Howard Schultz, chairman, president & CEO of Starbucks Coffee Company, said last year, “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.”

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