India Insight

People say we should’ve priced our coffee higher – Tata Starbucks CEO

April 4, 2013

At first glance, Avani Davda looks like any other young person standing outside Starbucks waiting for a cup of coffee. Davda, 33, is not your typical customer. In fact, she is head of the Starbucks-Tata joint venture that brought the U.S. coffee chain to a country that traditionally wakes up to tea.

Davda is getting used to coffee, but as a vegetarian, she has not tried most of the non-vegetarian items on Starbucks’s menu.

In an interview with Reuters on March 25, she spoke about the chain’s progress since opening its first India location in Mumbai. It now has 11 locations in Mumbai and Delhi.

(Read Ankush Arora’s related blog on Starbucks in India)

Q: What makes the Indian palate different than elsewhere?
A: India particularly perceives coffee to be very sour, (and) black coffee to be very acidic … (Also,) you don’t have availability of uniform milk, and our palates are trained accordingly. A lot of work went into building that and understanding, how do you make an Americano or a latte taste the same everywhere.

Q: You source your India coffee locally, though Starbucks coffees are supposed to have uniform tastes. How do you replicate the taste?
A: The main espresso blend that goes into most of the coffees that we do is what we focus on … Even internationally, they are sourced from certain places and then roasted. (Our people) understand that whether the coffee is roasted in the U.S. or in the Tata Coffee plant at Coorg, it has to taste the same.

Q: Why was it important to source locally?
A: A lot of people say that they are sourcing locally because of the coffee export duties. A lot of people come and tell me that you could have priced it higher and people would have still accepted it, but the idea is not just to make a business model work. If you are investing in India for the next couple of decades, you can’t have a myopic view and say, I’ll bring my coffee from outside. Local sourcing has a philosophy behind it, and I think Starbucks may take it to other countries as well — I am not privy to that, but I am hoping that they will.

Q: Some people told us that Starbucks is expensive and not always affordable on a student budget. Would you consider price changes?
A: If you deliver the experience and he values it, then he pays a value for it. If the consumer feels cheated — that the serving size is not right or that it’s not the serving size that I wanted, he will not come back to you, right? … I am not alienating the student population — it is an aspirational brand for them, and I think at some stage (they) want to make it part of their daily habit, but at this stage maybe they think it’s not affordable because they are looking at other competitors…

Q: So are you looking at pricing changes?
A: No.

Q: How will Starbucks do after the India hype fades?
A: I don’t believe in spikes and troughs. I believe that it has to, at the end of the day, hold steady for us. So our Fort store, even today, while it doesn’t have queues or anything, it still does very good business as it did when we started out.

Q: Have you achieved your initial number targets?
A: When the company is that the initial stage of their journey in a geography like India, we get over-hyped about numbers and I don’t think that’s the right way to look at a business. Yes, of course numbers are important and we are hired to deliver what we are expected to deliver, but you take out the passion completely if you only talk about numbers.

Q: You know what the numbers are though, so have you met those expectations?
A: As a person who leads this organization, I am very confident that we are here for the long term and that we will achieve our targets, but if you are asking me whether I have delivered, you should ask the person who does my KRA (laughs). We’ve achieved the goals that we set ourselves …

Q: How much of the coffee shop market do you hope to capture in the next couple of years?
A: I wish it were that easy. In India so much of the statistics you read are about the count of stores, and the retail industry still does not have published reports where you can gauge market size and all that. It’s an estimate depending on which banker or research agency you rely on.

Q: How much of your expansion can you hope to achieve without buying other companies?
A: If any opportunity comes up, we will assess it.

Q: How many stores do you hope to open in India by end of the year? Will your focus be on smaller cities?
A: If it makes business sense for us… we will go to the cities where we see the potential. … I don’t think Jaipur or Poona is any less attractive than NCR.

Q: Do you have a target for the number of stores by year-end?
A: Well, like I told you, we are not going to discuss numbers but we do have an aggressive target.

Q: What are the obstacles in your path?
A: I think one of the challenges that people don’t seem to talk about is getting the right people for the job. Real estate or equipment, how the pricing is done or service tax, those are regular business challenges … But a lot of time, people forget that even in a 1.2 billion country, the retail industry is dependent on people and there is a scarcity of good people there and how to find them and train them.

(Follow Shilpa on Twitter @shilpajay )

Comments
One comment so far | RSS Comments RSS

I am not a student but still I can’t afford Rs.100 for a coffee. For a family of 4, its too much to spend Rs.500 for just coffee. Even if I go every weekend once here, my budget comes to Rs.2000 a month which is way expensive. (I am willing to spend max 40 for a good coffee)

This price might be ok for young person going to spend hours in a coffee shop with a girl friend.

Posted by Aravind2 | Report as abusive
 

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