Sizing Down To Scale Up: Starbucks' New Strategy Targets India's Smaller Towns

Starbucks is adjusting its strategy in India to introduce smaller, more affordable drinks, targeting not just adults but also children. This initiative comes as the US coffee giant faces competition from local startups while expanding in smaller towns, despite being one of the first foreign coffee brands in the traditionally tea-drinking nation.

What Happened? Per Reuters, over the past 11 years, Starbucks has opened 343 stores in India. In contrast, local chains like Third Wave and Blue Tokai, supported by private equity, have launched about 150 outlets in just three years. To overcome the impression of being a costly brand, Starbucks CEO in India, Sushant Dash, sees their new pricing strategy as key to attracting new customers.

The company has introduced a six-ounce beverage named “Picco”, priced at ₹185, and milkshakes at ₹275, aiming at wealthy Indians who prefer smaller servings. Furthermore, an industry source suggested that Starbucks intends to launch more stores in smaller towns. These new offerings are exclusively available in India and not in China, Singapore, or the U.S.

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Luring chai lovers: In addition to these efforts, Starbucks is adding a local touch to its offerings, similar to strategies by McDonald’s and Domino’s. This includes “Indian-inspired” tea, laced with spices and cardamom, starting at ₹185, to attract non-coffee drinkers. According to Chas Hermann, a US-based restaurant consultant, this strategy shift could be a response to decreased customer traffic due to higher prices.

The competitive landscape includes other global brands like Canada’s Tim Hortons and Britain’s Pret A Manger, although they only have a few outlets. Nonetheless, local speciality tea and coffee cafes, which comprise a $300 million (₹2,479 crore) market growing by 12% each year, are giving Starbucks a run for its money.

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