Starbucks Corp. (SBUX) and venture partner Tata Global Beverages Ltd. (TGBL) will open their first store in India by August to tap rising coffee consumption in the world’s fastest growing major economy after China.
The equal venture will open outlets in Mumbai and New Delhi this year and have 50 locations within the first 12 months, Tata Global Vice Chairman R.K. Krishna Kumar said at a press conference in Mumbai yesterday.
The Indian stores will build on the world’s largest coffee- shop chain’s expansion outside the U.S., where stores are less profitable than those in the Asia-Pacific region. Starbucks will compete with Barista Coffee Co., a unit of Italy’s Lavazza SpA (LAVA), and Cafe Coffee Day, run by Amalgamated Bean Coffee Trading Co. in India, where consumption of the drink almost doubled in the decade through 2010 to 108,000 metric tons.
“We are going to bring the Starbucks experience that is known around the world to India,” John Culver, Starbucks president for China and Asia Pacific, said in an interview. “All the coffee we serve here will be locally sourced.”
The Seattle-based restaurant operator has an agreement to source beans from Bangalore-based Tata Coffee Ltd. (TCO), a unit of Tata Global.
Asia Operating Margin
Starbucks plans to accelerate growth in the Asia-Pacific region, where revenue rose 38 percent in the quarter ended Jan. 1, Chief Financial Officer Troy Alstead said on a Jan. 26 conference call.
The company predicts an operating margin of almost 30 percent for the Asia-Pacific region this fiscal year, according to the call transcript. That compares with the Americas which is expected to rise to “slightly” more than 20 percent. The U.S. had an operating margin of 19 percent last fiscal year, according to data compiled by Bloomberg.
Starbucks rose 1.3 percent to $48.48 yesterday, boosting its gain so far this month to 5.4 percent. The stock climbed 43 percent in 2011, the third straight year of gains.
Tata Global gained as much as 6.2 percent to 104 rupees in India trading today and Tata Coffee rose as much as 1.5 percent to 878.70 rupees.
India Retail Rules
India’s government on Jan. 10 raised the ownership limit to 100 percent for foreign retailers selling a single brand, a decision benefiting companies including Starbucks. The new rules require the overseas companies to procure at least 30 percent of their products or inputs from small Indian companies if they own more than 51 percent in the venture.
The Indian economy will expand an estimated 6.5 percent this year, the fastest pace among developing Asian economies excluding China, according to January estimates from the World Bank. The Reserve Bank of India projects 7 percent growth for the 12 months ending March.
Starbucks is expanding in markets outside the U.S., whose sales contribution has fallen in the past decade to less than 70 percent in the last fiscal year, according to data compiled by Bloomberg.
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