Starbucks and Tata Enter into New Agreement

Interesting article in yesterday's Toronto Star about a new deal between Seattle-based Starbucks and India's Tata Coffee Ltd..Starbucks is planning to open up business in Asia's third largest economy. In India, western-style coffee shops have become increasingly popular in recent years, the article went on to say.

Starbucks will likely open its first store in July or August of this year. "Acquiring real estate is currently a challenge in India, but Starbucks will hopefully overcome that," says Krishna Kumar, chairman of Tata Coffee. The two companies said they will also explore opening cafes at retail outlets and hotels associated with the Tata Group.

In India, an increasingly affluent and urban population with western tastes are embracing cafes like Starbucks, paying much more for a cup of coffee than at traditional restaurants. A cup of plain coffee at a basic restaurant in India costs about 10 rupees (or .22 U.S. cents), compared to 50 or 60 rupees at one of the Western-style restaurants that began appearing about 10 years ago.

Profit margins of global coffee retailers like Starbucks were under pressure in 2010 after coffee prices rose 77 per cent during the year due to shortages of supply. The alliance with Tata could help ensure steady supplies.

Under the terms of the agreement, Starbucks and Tata Coffee will consider jointly investing in additional facilities and roasting green coffee for export to other markets. India, the world's fifth-largest coffee producer, exports 70 to 80 per cent of its coffee output. The organized coffee market in India accounts for about $140 million of the country's total domestic consumption of $667 million.