Based in Seattle, Starbucks Corporation (SBUX) recently announced that India will see its first Starbucks store in the Horniman Circle area of Mumbai, by the end of October 2012. The store will be owned and operated by Tata Starbucks Limited, a 50/50 joint venture between Starbucks Corporation and Tata Global Beverages Limited.
According to the agreement with Tata Global Beverages Limited, the store will use high quality coffee produced and roasted in India. The store will offer the same ambience and high quality espresso that Starbucks stores are known for. The joint venture is expected to promote the brand identity of the Indian-grown arabica coffee in the global market.
India is one of the fastest growing markets with a large consumer base and increasing consumer spending. With the growing numbers in the middle income group, India has a huge potential for growth in the confectionery and beverage market.
As a leading retailer of specialty coffee in the global market, Starbucks believes that global expansion is necessary for long-term growth. The company intends to capitalize on the growth opportunities in the Indian market. In fiscal 2013, the company intends to open 1,200 stores in the global market, out of which 500 stores are to be opened in the China-Asia-Pacific (CAP) region..
On the other hand, this joint venture is an extension of Tata Global Beverages’ strategy of expanding through joint ventures.
Starbucks carries a Zacks #3 Rank in the near term (Hold rating). We have a Neutral recommendation on the company.
We appreciate Starbucks’ strong market position, new product launches, rapid growth in China as well as a solid turnaround in its U.S. business. However, Starbucks’ results in the third quarter of 2012 have been weaker than expected, due to soft consumer traffic trends in the U.S. in June and a weakening global consumer environment. Further, poor sales in Europe due to depressed macroeconomic conditions concern us.
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