Starbucks Brews Up India-Sized Growth Potential With Tata Coffee Alliance

by Trefis Team
+3.83%
Upside
79.44
Market
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Trefis
SBUX
Starbucks
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According to Starbucks’s (NASDAQ:SBUX) spokesman Corey duBrowa, Starbucks’ talks with the Tata group are “moving forward” and it hopes to make an announcement about the partnership soon. [1] The partnership aims to take advantage of the various businesses running under the Tata group. The group’s business spans across hotels, retail chain, steel, chemical, tea, software and automobiles among others. This partnership could provide Starbucks instant access to Tata’s vast presence through out India. Starbucks’ competitors in the broader market for specialty coffee include McDonald’s (NYSE:MCD), Caribou Coffee (NASDAQ:CBOU) and Peet’s Coffee (NASDAQ:PEET).

See our full analysis for Starbucks stock here

India Has a-Latte Potential

Over the past several years, Indians and especially the younger generation, have developed a liking for coffee every now and then. The overall domestic consumption of coffee rose to approximately 108,000 metric tons in 2010, witnessing an enormous growth of 80% in the past decade, according to government figures. [1]

In January, Tata Coffee and Starbucks signed an initial agreement for sourcing and roasting premium coffee beans in India. [2] The Starbucks outlets are likely to be located in retail stores and hotels associated with the Tata group.

However, Starbucks would have to face competition from already existing coffee chains in India. For instance, Cafe Coffee Day, a unit of Amalgamated Bean Coffee Trading Co., runs the largest coffee retail chain in India. Other competitors include the Luigi Lavazza run Barista Lavazza chain and Whitbread operated Costa Coffee stores.

We believe Starbucks brand should work wonders for the company at the onset of its India operations. It has an excellent brand image especially among the younger generation. Presently, there are few prominent players in India operating in this sector and the space doesn’t look that crowded. We believe India’s coffee industry is poised for further growth and this partnership could be a key growth driver for Starbucks in coming years.

Our price estimate for Starbucks stands at $37, implying slight downside to the market price.

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Notes:
  1. See: Tata Coffee, Starbucks Near Deal for Stores, WSJ [] []
  2. See: Starbucks, Tata Coffee Near Deal to Plan India Venture, Fox Business []
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