2/8/12 Starbucks bets on brand as it enters India - MarketWatch 1/3 www.marketwatch.com/Story/story/print?guid=509EE176-4FF4-11E1-A6« Reuters Starbucks Corp unveiled a deal that sets the stage f or the w orld's largest coffee company to bring its iconic cafes to India, hoping to replicate its success in China, w here Western-style coffee shops are increasingly popular. Photo: Reuters Feb. 8, 2012, 2:22 a.m. EST Starbucks bets on brand as it enters India By Nick Godt, MarketWatch MUMBAI (MarketWatch) — Starbucks Corp., which this past week signed a deal to open retail stores with India¶s Tata Global Beverages Ltd., is banking on its brand¶s attraction within a young and increasingly affluent middle class to face domestic competition and command higher prices. “The middle and upper middle class in India is growing very fast in size and income,” said DK Joshi, an economist at Mumbai-based CRISIL Research. “It will be expensive coffee, but a growing number of people can afford it and people who want to drink Starbucks will drink Starbucks.” Brand appeal has already worked in China for Starbucks (NASDAQ:SBUX) , which has opened up more than 500 stores there and just implemented its first price hike in five years. With an initial investment of about $80 million, the world¶s largest coffee chain and the Tata Group, one of India¶s largest conglomerates, plan to open as many as 50 stores within 12 months on the subcontinent, starting with New Delhi and Mumbai this summer. Tata Global Beverages (BOM:IN:500800) , whose shares jumped 22.5% on the Bombay Stock Exchange last week, will provide domestic coffee supplies for the stores of the joint venture, which will be called “Starbucks Coffee, A Tata Alliance”. “It¶s a benefit for [Starbucks] to have Tata source the coffee for them, bringing a good understanding of the local market and with a manufacturing base here,” says Sageraj Bariya, managing partner at Equitorials. India is the world¶s fifth-largest coffee producer and importing coffee beans from abroad is highly taxed. Domestic sourcing is also part of the requirements in India¶s foreign investment reform legislation passed late last year to allow foreign ownership of single-brand retailers. A similar reform for multi-brand retail, which would have allowed the likes of Wal-Mart Stores Inc. (NYSE:WMT) to own their operations in India, met with fierce resistance amid claims it would destroy local jobs and was eventually withdrawn. Starbucks, which had already reached a preliminary agreement with Tata Global Beverages nearly a year ago, still plans its Indian operations as a 50-50 joint venture. Now the coffee chain hopes to replicate the same success it has found in China, where sales jumped 20% last year.
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2/8/12 Starbucks bets on brand as it enters India - MarketWatch
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