Starbucks India Overhaul: Eyes Cheaper Beverages, Smaller Town Expansion To Tap Price Sensitive Customers

Starbucks Corp SBUX looks to attract value-conscious Indians, including children, with smaller, cheaper beverages as it taps small towns under its latest overhaul.

The American multinational coffee chain took almost 11 years to launch 343 stores in the tea-loving nation, contrasting with private equity-backed chains Third Wave and Blue Tokai, which opened about 150 in the last three years, Reuters reports.

Sushant Dash, the CEO of Starbucks in India, highlighted the need for newer customers as the company grows and saw the chain's "pricing play" shatter a perception that it is expensive.

Starbucks launched a six-ounce drink, "Picco," which starts at $2.24, and milkshakes for $3.33 to target affluent Indians who prefer smaller servings.

Starbucks plans to open more stores in smaller towns. India's specialty tea and coffee cafe market is worth $300 million and likely to grow 12% each year, as per Euromonitor.

Devangshu Dutta of Third Eyesight said if adjusting portion sizes down to what is more normal helps make prices accessible, that's a double win.

Although Starbucks still dominates in India, the rivalry is fizzing in the capital, New Delhi, and the technology hub of Bengaluru, thanks to the Third Wave cafes.

Starbucks launched "Indian-inspired" tea offerings with spices and cardamom, starting at ₹185 ($2.24) to tap tea lovers.

Soon after Starbucks' May launch of $3.33 milkshakes, designed to attract children, Third Wave launched its range, a fifth cheaper at $2.71.

In Bengaluru, startup investors and founders hold meetings in Third Wave outlets. As per CRE Matrix, Third Wave has over 40 stores, exceeding the 35 of Starbucks.

Third Wave's CEO, Sushant Goel, shared plans to add 60 - 70 stores yearly, focusing on big cities. He saw Starbucks' cheaper, small-sized drinks as a response to competition in "an incredibly price-sensitive market."

Matt Chitharanjan, CEO of Blue Tokai, said it had "seen success in converting customers from Starbucks," partly because of lower prices.

In one lease deal for a Bengaluru mall, Starbucks inserted a "cafe exclusivity" clause barring the mall owner from allotting space on the same floor to rival "premium" brands.

Price Action: SBUX shares traded higher by 0.10% at $98.32 premarket on the last check Wednesday.

Photo via Wikimedia Commons