Tata Starbucks plans to open around 100 Starbucks cafes in the country by next year to match up to established rivals and is building a war chest for expansion by more than trebling its authorised capital to Rs 220 crore.

The 50-50 joint venture between US cafe chain Starbucks Coffee Company and Tata Global Beverages will increase its authorised share capital from Rs 70 crore by creating additional 150 million equity shares of Rs 10 each, amounting to Rs 150 crore, the unlisted firm said in a board resolution filed last week with the Registrar of Companies.

While Tata Starbucks said it does not release financial information or future store count, its spokesperson said the company is committed to India. “The joint venture will invest over time, based on the demands of the business and the requirements of our customers, to build a strong presence in the market,” the spokesperson said.

The US coffee chain has already signed two dozen properties, including in the suburbs of Mumbai and Bangalore, a real estate official aware with Starbucks’ expansion plans said.

Starbucks is displaying an urgency to scale up at a time when most quick-service restaurant operators including Jubilant Foods and McDonalds have reported slowing sales growth in the country due to a consumer slowdown.

Experts say Starbucks has been very selective in opening stores in the country.

“Starbucks has been opening stores only at locations where the catchment area can value its premium positioning,” Ruchi Sally, director at boutique retail consultancy Elargir Solutions, said. “For them, the key strategy is return on investment from their stores and not just scale at the moment.”

Starbucks, which entered the Indian market in October last, currently operates 18 stores in the country.

In comparison, rival Cafe Coffee Day has more than 1,500 stores while Barista Lavazza and Costa Coffee has more than 100 stores each. The Indian cafe market is estimated at $230 million, or about 1,400 crore, and is expected to grow about 13-14% a year over the next five years. Globally, most cafe consumers are attuned to a takeaway culture, which helps retailers add margins with very little cost.

In India, however, many office-goers and students go to cafe to relax and spend hours on coffee and snacks. Also, real estate costs are high in India, making it important for retailers that average price realisation per square feet of space.

Starbucks in India seems to have done well on the profitability front. During Tata Global Beverages’ quarterly performance presentation earlier this month, the company said Starbucks stores are already making cash profit. In a shopping mall in Mumbai the average monthly business of a Starbucks outlet is double the combined sales of two other coffee chains on the premises, an official of the mall operator said.

Starbucks CEO Howard Schultz had last year said that he expected India to be one of the top five markets for Starbucks. “India represents one of the most significant opportunities that we have in all of Starbucks. India should be one of the largest markets in the world for Starbucks. I would say one of the top five over time,” he had said in an exclusive interaction with ET late last year.

source: http://www.articles.economictimes.indiatimes.com / The Economic Times / Home> News> News by Industry> Services / by Sagar Malviya, ET Bureau / August 19th, 2013