Harish Bijoor
And so, Starbucks is here! Well, almost here. The inking of the recent agreement between Starbucks and Tata Global Beverages, and the birth of Tata Starbucks Limited, is an interesting turning point in Indian coffee at large. The entry of Starbucks in India is really the final stamp of globalisation. In many ways, it says that India has arrived, and ready to be delivered. On a platter. With profits to share, sourcing arrangements to capitalise upon, and most certainly profits to repatriate to the mother company as well.
What’s different with the entry of Starbucks in India? After all, Coca Cola was in India for decades, was sent out in 1977, re-entered in 1993. And McDonalds’s unveiled their golden arches in India in 1996. KFC did it noisily in Bangalore in 1995. Why does Starbucks represent more?
Because it is the ultimate representative point of modern retail, which propitiates the “third place syndrome” dominantly. The chain offers, just as any other cafA© chain in the world does, a third place away from home and office, a third place away from school and home. And there are 17,000 plus of these sprinkled across street-corners around the world, making it the most ubiquitous point of retail in the world. Even more ubiquitous than the biggest chain of super-markets of the world.
Just as Coca Cola and McDonald’s, Starbucks represents the capitalist movement of a free world, where eating and drinking are flaunted, touted and branded aggressively at a price and a premium. In many ways these three brands have emerged as the trust-marks of the world. And all three are now in India. Well, nigh nearly there. And, curiously, none of them have needed 100% FDI in retail as a clause to make this happen. And every one of them has aggressive partners. Partners who have and will make money, create local jobs, create local sourcing opportunities and prosperity for all at the end of it.
Starbucks, for many around the world, represents the ultimate climb in the coffee value chain, while many of our Indian companies still struggle at the bottom of the value chain supplying to make the entire enterprise of coffee happen. Look keenly at the coffee value chain. Right at the bottom is the green bean. The coffee-grower sells most of what he grows as green bean. He defines his core-competence to be plantation activity. He defines for himself the tight lines drawn by agricultural practice, planting, nurturing, pruning and plucking. The value realisation for the green bean is therefore the lowest. The pricing is agricultural in its mindset.
Just one rung up in the value chain is the market for the roasted coffee bean. Roast & Ground coffee outlets that offer coffee in this form make more. They invest in a roaster, a grinder and a retail front. The coffee value-add process has begun. This segment is today dominated in south India by as many as 8435 small roasteries in a Dindigul, an Arokkonam and equally in the Holenarsipuras of India.
One rung higher is the terrain occupied by the Roast and Ground filter coffee marketers of this country. This space is dominated by the small and the big. As much as 62,000 tonnes of the coffee we produce in India is used up by the likes of HUL and Tata Coffee in the organised segment, and by a whole host of smaller players with a solid base of local brand equity such as Narasu’s and Leo’s in Tamil Nadu and Cothas in Karnataka.
As we climb higher in the value-chain of coffee, we discover instant coffee. The dominant brands of Nescafe and Bru are growing at a frenetic 18% per annum as the country discovers the joy of convenience coffee that doesn’t take ages to prepare with cumbersome devices such as the coffee filter and percolator.
Thus far the value chain of coffee has been of a solid avatar. Time to move the chain over to the liquid avatar. Out here are the vending machines that dispense coffee, the home and office coffee-maker and more.
In many ways the future is liquid, and not solid. Liquid coffee has this exciting habit of delivering bigger margins and bigger degrees of made-to-order satisfaction to consumers alike. And that’s a combination no one will ignore. Liquid coffee, through vending machines for outdoor locations, and home coffee makers for in-home and in-office locations, make coffee climb the value chain higher.
And that’s not the end of the coffee value chain journey. The sit-down and take-away cafes represent the ultimate peak in this value chain. Here, a coffee you could make at home for 2.60 per cup (with foam and froth and all), will cost you 50 or 100 or, in the future, even 150, if you will. The entry of Starbucks in many ways creates a caste system in the cafA© chains within India at large. You will have coffee that will come at 1$ a cup (CafA© Coffee Day), $2 a cup (Costa Coffee) and maybe at $3 a cup (Starbucks?).
With the entry of Starbucks in India, the coffee-value chain has touched the peak it has always wanted to. But never got to.
(The author is the Ex-VP, Tata Coffee Limited and ex-member of the Coffee Board of India)
source: http://www.economictimes.indiatimes.com / THE ECONOMIC TIMES / Home> Opinion> Guest Writer / February 04th, 2012
