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Gourmet coffee isn't new to India, but American coffee chains are just now starting to brew there. As Starbucks closes in on a deal with Indian coffee company, Tata, Dunkin' Donuts is preparing to open the first of its 500 locations planned for the world's second most populated country. The two major coffee peddlers may have a bit of catching up to do, however; Café Coffee Day and other European chains, including Barista and Costa Coffee, have been supplying India residents with their caffeine buzz for several years.
"The coffee shop craze has been quite active in India for a while now, and arguably the U.S. majors are joining the party a little late," said Sandeep Malhotra, a project manager with Technomic.
The Indian demand for coffee beans has more than doubled in the last 10 years as overall domestic coffee consumption rose to 108,000 metric tons in 2010, up 80 percemt over a decade, according to Zacks Equity Research.
Although analysts have been writing all week about Starbucks taking on India, the company hasn't made an official announcement – yet.
"We are excited about the great opportunities that India presents to Starbucks and look forward to offering high-quality coffee, handcrafted beverages, legendary service and the unique Starbucks experience to customers in India," John Culver, president of Starbucks China and Asia Pacific, wrote in an email to FastCasual.com. "Early this year we signed a MoU with Tata Coffee for sourcing and roasting high-quality green coffee beans. We are moving forward with MoU discussions and planning, and hope to make an announcement soon."
Starbucks made a play for India in 2007 but put the entry on hold a few months later.
In the meantime, India's local cafes have become hotter than ever.
Café Coffee Day, a division of India's largest coffee conglomerate, the Amalgamated Bean Coffee Trading Company Limited, already has 1,100 cafes in India. The first opened in 1996, in Bangalor, and the coffee chain has recently opened a spinoff lounge concept geared toward young professionals. The Coffee Lounge, which now has 19 locations and 80 more planned by 2013, will serve coffee, wine and upscale food. Its website features a video demo of young adults drinking, chatting and listening to music with a caption that says:
"The lounge is for discerning young connoisseurs who know their beiges from their blues. Where music looks beyond just the hits. Where conversations sparkle with wit. Where menus don't dictate orders, but open themselves up for you to craft your own."
The younger audience this market is targeting is one of the major reasons why the coffee craze has taken over India, Malhorta said.
"Close to 50 percent of India's population is under 30 years old – and this young population has taken to the coffee shop culture strongly," he said. "The all day and 'hang out' culture that these shops stand for is very popular."
Café Coffee Day's lounge concept is designed to offer the next lifestyle product to its core customers, Malhorta said.
"As the young population who throng to these cafés during their high school and college years grow up, the lounges, which will have wine and better food, will meet the needs of this population as it enters the work force and has more grown up needs," he said.
Can the European cafes compete with Starbucks?
That's a good question, said Malhorta, who suggested that Starbucks may have a tough time competing with the local guys.
"Café Coffee Day is a solid local brand, and understands the consumer and the culture," he said. "While it is in the mold of a coffee shop, its product offerings and marketing is based on local traditions and expertise."
Malhorta admits that Starbucks, which boasts 16,800 stores in more than 50 countries, has chosen its local partner (Tata Group) very well, but doesn't expect conquering the local coffee competition to be a cake walk for the coffee giant.
"Tata is a huge conglomerate, but they are not necessarily a consumer savvy company," he said. "(There are) lots of resources between Starbucks and Tata, but I think it will be an interesting, and a lot of innovation will be happening. Their local strategy will be something to watch. Coffee Day is owned by a vertically integrated coffee conglomerate, so its supply chain and resources are also very strong."
Starbucks will not only have "local" cafes to compete with; another major American coffee great – Dunkin' Donuts – has plans percolating in India. It announced in February that it will open more than 500 units throughout the country within the next 15 years.
"India presents a tremendous growth opportunity for Dunkin' Donuts," Dunkin' Brands' CEO and Dunkin' Donuts president Nigel Travis said in a recent announcement.
Although neither Dunkin' Donuts nor Starbucks have announced official launch dates for their entries into India, both companies are moving ahead with plans. Malhorta said it's too early to predict a winner; however to compete with the local chains, American cafes must fully understand the Indian market.
"As McDonalds, KFC and Domino's have learned over the last decade, a local product and marketing strategy is very critical in India," he said. "If you look at McDonald's menu in India, the only similarity you will find is french fries and the fact that they use buns."
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