Starbucks Corp., SBUX +0.64% in a joint venture with a Tata Group unit, Friday opened its first café in India–one of its last untapped markets.
“This is a major milestone for us,” said Chief Executive Howard Schultz, adding that India and China would be the largest growth markets for the company, which plans also to open 200 stores a year in the U.S. for the next five years and double its presence in Mexico.
Seattle-based Starbucks, which has operations in 61 countries, has been looking at India for almost five years now, but there was “a lot of frustration and regret before we met the Tatas,” Mr. Schultz said.
“What a lot of people have asked is what took us so long to come to India. I can only say that we couldn’t find the right partner before the Tatas. Without finding the right partner, getting into a complex market like India would be very difficult.”
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Another reason why Starbucks delayed its entry into India was the country’s restrictions on foreign direct investment, Mr. Schultz said.
After years of prevaricating, the Indian government late last year allowed 100% foreign direct investment in single-brand retail. Recently, it allowed 51% FDI in the multi-brand retail–or supermarket–sector as well.
This January, Starbucks entered into a joint venture with Tata Global Beverages Ltd.,500800.BY -2.36% a unit of the Tata Group conglomerate, which owns Eight O’Clock Coffee in the U.S.
At the time, Starbucks said the two companies would start with an investment of $80 million, adding more funds as needed, and that it would aim to open its first store in July or August.
It had said then that it plans to set up 50 stores by the end of this year.
But the company is behind schedule and Mr. Schultz said it won’t disclose the number of stores it eventually plans to open in India. But it will open two more cafes in Mumbai next week, including one at the Taj Mahal Hotel & Palace.
While the typical Starbucks cafe is 1,500 square feet, the flagship store in Mumbai opened Friday is three times that size at 4,500 square feet.
Housed in a historic building owned by the Tata Group in Mumbai’s Horniman Circle area–a park-like commercial setting near banks, residential neighborhoods and luxury hotels–it has two storeys.
The cafe has high ceilings with wooden beams, all restored by Starbucks. Apart from locally sourcing and roasting the coffee that it will serve in India, the company has also used local artisans to craft all the furniture in the store.
“There’s no other Starbucks cafe in the world like this one,” Mr. Schultz said.
The company has also tweaked its menu to suit the Indian palate and pocket, with the most expensive Frappuccino priced at $3.76 (200 rupees).
“We want to be accessible to everyone,” Mr. Schultz said. “We are coming in to be the winner.”
While India is a nation best known for its tea drinkers, sipping coffee and socializing at coffee shops is becoming increasingly popular. Domestic consumption of coffee rose to an estimated 108,000 metric tons in 2010, up 80% in the past decade, according to government figures.
India sees about $230 million in revenues from cafes, a figure that will likely grow 13-14% annually over the next five years to about $410 million, estimates Technopak, a New Delhi-based consultancy.
There are currently 1,950 cafes in India, two-thirds of which were added in the past five years, says Technopak. It estimates that another 1,000 will be added over the next five years.
Local chain Cafe Coffee Day is the market leader in India with 1,350 cafes, followed by Barista at a distant second with 338 and the U.K.’s Costa Coffee with 100 outlets in third place, says Technopak.
Starbucks rival Dunkin’ Brands Inc. DNKN -2.53% last year entered into a pact with an India-based company to open up to 30 Dunkin’ Donuts outlets over the next three years. It opened its first cafe in New Delhi earlier this year and now has five cafes.