Starbucks Records Slowest Growth Since Pandemic In India Last Fiscal
Starbucks faces challenges not only in India but also globally, with analysts expecting new store openings rather than an increase in sales at existing ones to drive growth.
Starbucks Corp., the world’s largest coffee chain, posted its slowest sales growth in India since the pandemic. The coffee giant is struggling to bring in as much business as it has in the past as consumers reduce their visits even as it prepares for ambitious store expansion in a tea-drinking nation.
The India unit formed in partnership with the Tata Group clocked net sales of Rs 1,218 crore, a growth of 12%, during the year ended March 2024, according to Tata Consumer Products Ltd.'s latest investor presentation.
The Seattle-based retailer experienced a compounded annual growth rate of 21.89% between FY17 and FY23 in the world's most populous nation. The only exception to this trend was in FY21, when sales plunged by 33% as shops were forced to shut down due to the impact of Covid-19.
"Tata Starbucks had a subdued quarter given the overall trends that we're seeing in the QSR [quick service restaurants] business," said Sunil D'Souza, managing director and chief executive officer at Tata Consumer Products.
He, however, indicated that March was an improvement over February, and April was even better than March. "So, we see a better trend right now, and we remain focused on the larger India opportunity."
Tata Starbucks Pvt. took 11 years to scale its operations to a revenue of over Rs 1,000 crore. Although the joint venture turned positive at the Ebitda level for the fiscal year 2023, it continues to be loss-making. In the year ending March 2023, Tata Starbucks posted a net loss of Rs 25 crore on a turnover of Rs 1,087 crore, according to filings with the Registrar of Companies. The net profit figures for fiscal 2024 are not available yet.
The coffee chain has seen its popularity take a major hit over the last two quarters, ending in March and December, with a meagre 7% increase in sales during each period. This is a marked shift from its historical track record of double-digit growth, suggesting that consumers are now looking for more budget-friendly cafe experiences.
"Consumers have turned slightly more conservative with their spends, which is affecting both the frequency and value of transactions," according to Devangshu Dutta, head of retail consultancy Third Eyesight.
According to him, new store openings rather than an increase in sales at existing ones could drive growth.
The other reason is that the coffee market is more competitive today, with most local peers selling at price points lower than Starbucks, Dutta said.
Starbucks competes with Bengaluru-based Cafe Coffee Day and foreign entrant Barista, among others, in the country's $400 million market. It also faces competition from private equity-backed Third Wave and Blue Tokai, which have opened about 200 stores between them in the last three years.
Since opening its first cafe in October 2012, Tata Starbucks' store count has grown to 421, implying that on average, each outlet generated roughly Rs 3 crore in revenue from coffee, snacks, and merchandise sales in FY24.
Source: TCPL investor's presentation.
The dwindling sales come at a time when the company plans to open 1,000 cafes in India. To meet the target, it seeks to open one new store every three days.
Starbucks added 29 net new stores between January and March, achieving a record of 95 stores opening in a year, according to the presentation.
The coffee chain had earlier said it plans to enter tier-2 and tier-3 cities in the country and increase the number of its drive-through, airport-based and 24-hour cafes. It also aims to double its headcount to 8,600.
To lure consumers back after a rough start to the year, the coffee giant is launching new products like a boba-inspired summer beverage.
“Over the past 11 years, the India market has grown to become one of Starbucks’ fastest-growing markets in the world," Laxman Narasimhan, chief executive officer, Starbucks, said in a statement during his India visit earlier this year. "With a growing middle class, we are proud to help cultivate the evolving coffee culture while honouring its rich heritage.”
Starbucks faces challenges not only in India but also globally. A disastrous fourth quarter that saw a slowdown in store visits promoted Starbucks Corp. to lower its expectations for its full-year sales and profit. Its revenue for the January–March period dropped 2%, the first since the end of 2020.
