India’s Tata under pressure on Starbucks joint venture as consumers cut back on spending

(Reuters) – India’s Tata Consumer Products will postpone plans to open some new Starbucks stores to later in its existing schedule as fewer customers walk into cafes in the world’s most populous country, its top boss said on Monday. .

“We will adjust for the short term, maybe now we will open 80 instead of 100 and next year we will open 80,” Tata Consumer CEO Sunil D’Souza told Reuters 120 stores, not 100,” he said, adding that Tata Starbucks would remain focused on achieving its target of operating 1,000 stores by 2028.

India’s urban dwellers are cutting back on spending on everything from biscuits to coffee to fast food as persistently high inflation squeezes middle-class budgets while wages fail to keep pace.

Tata Starbucks is a joint venture between American coffee brand Starbucks and an Indian conglomerate. It operates India’s largest coffee shop chain with more than 450 stores.

As of the last fiscal year, the company had more than doubled the number of stores it had four years ago, but D’Souza said a lack of prime locations was a hurdle.

“In India, prime real estate and foot traffic…are a challenge,” he said, contrasting with “massive mall development” in China, Starbucks’ second-largest market and its third after India. The two most populous countries.

Tata Starbucks has strengthened a dedicated team to plan new store openings, keep an eye on upcoming real estate developments and screen locations in advance.

In the last fiscal year, Tata Starbucks’ sales increased by 12% to 12.18 billion Indian rupees ($143.6 million), while its net loss widened from 250 million rupees to 800 million rupees. In the first half of the year, revenue grew only modestly.

Tata Starbucks’ revenue more than doubled last fiscal compared with four years ago, according to business insights provider Toffler.

The Tata Consumer CEO still expects its bet on coffee to grow in the long term as the country’s coffee culture develops and cafe density remains low compared to other Asian countries such as Indonesia, Vietnam and the Philippines. Betting will pay off.

Separately, D’Souza said Tata Consumer’s revenue will achieve double-digit percentage growth in the second half of this fiscal year, with profits under pressure due to rising prices of raw materials including tea.

Tata Consumer declined to disclose specific figures. Four analysts surveyed by London Stock Exchange Group (LSEG) on average expected second-half revenue to rise nearly 16%.

Earlier this year, Yum Brands franchisee Sapphire Foods India also said it would be “extremely cautious” about opening more Pizza Hut stores this fiscal year.

(Reporting by Praveen Paramasivam in Chennai; Editing by Louise Heavens and Jan Harvey)