Starbucks in Accord With Tata Coffee as U.S. Chain Weighs Entry Into India

Starbucks Corp., the world’s largest coffee-shop operator, signed an accord with India’s Tata Coffee Ltd. to source coffee beans and to explore opening stores in the country, as the retailer ramps up expansion outside the U.S.

Starbucks and Bangalore-based Tata, Asia’s largest publicly traded coffee grower, announced the non-binding agreement in a statement today. Tata, majority-owned by Tata Global Beverages Ltd., a unit of India’s second-biggest industrial group, has supplied coffee beans to Seattle-based Starbucks, the companies said.

Starbucks Chief Executive Officer Howard Schultz plans to open 400 outlets, of 500 new stores, outside the U.S. in the fiscal year that began in October. Starbucks operates more than 16,800 stores in more than 50 countries, with about one-fifth of its sales coming from non-U.S. locations.

The agreement “is the first step in our entry to India,” Schultz said in the statement. “We believe India can be an important source for coffee in the domestic market, as well as across the many regions globally where Starbucks has operations.”

The first Starbucks store in India will open in six to seven months, Tata Coffee Chairman R.K. Krishna Kumar said today in an interview with Bloomberg-UTV. A spokeswoman for Starbucks, Trina Smith, said today in an e-mail that it’s “too early” to give a timetable.

New Locations

In addition to working together to source beans for Tata’s Indian facilities, the companies will look to develop Starbucks stores in retail outlets and hotels. Investing in roasting facilities for export will also be considered, they said.

Starbucks is seeking to tap a market where consumption of coffee has more than doubled to 100,000 metric tons from a decade ago. Cafe Coffee Day, India’s biggest coffee-cafe chain, Barista Coffee Co., a unit of Italy’s Lavazza SpA, and rivals have opened more than 1,200 shops in the past 10 years as people in the world’s largest tea-growing nation develop a taste for cappuccinos, according to G.V. Krishna Rau, a former chairman of the state-run Coffee Board.

The Times of India reported last month that Starbucks was in talks with some Indian retailers about setting up shop there. Starbucks was in discussions with Jubilant FoodWorks Ltd., the Indian franchisee of Domino’s Pizza Inc., for a possible alliance, the Economic Times newspaper reported last year.

Increased Exports

Coffee exports from India, Asia’s third-biggest producer, gained 56 percent last year on an increased crop and as demand recovered in the leading importing countries, the Coffee Board said earlier this month.

Tata Coffee and its domestic rivals shipped 292,550 metric tons, compared with 187,326 tons a year earlier, Deputy Director N.V. Nagarajaiah said Jan 3. Exports fetched $644.9 million, up 58 percent, he said. In 2006, Tata Coffee acquired New Providence, New Jersey-based coffee retailer Eight O’Clock Coffee Co. to enter the U.S.

Starbucks’ Schultz is also moving into China, which will be the company’s major growth market in two years, he said in November. The coffee chain aims to increase the number of outlets in the world’s most populous nation to 1,500 from about 400 by 2015.

Starbucks generated 22 percent of its revenue outside the U.S. last year, up from 17 percent in 2007. Profit almost doubled last quarter, helped by increased sales of Via instant coffee and foot traffic in stores. Sales climbed about 10 percent in the year ended Oct. 3, topping $10 billion.

Starbucks rose 21 cents to $32.41 at 4 p.m. in Nasdaq Stock Market trading. Tata Coffee fell 2.85 rupees to 464.55 rupees in Mumbai.