‘Not in the business of coffee, we’re in the people business’
Starbucks is putting to test new store formats, with the most recent addition being its first experiential store in New Delhi. According to company CEO Sushant Dash, this new concept is a tribute to India’s rich and diverse flavour traditions. In an interview with Geetika Srivastava, Dash shares insights on industry trends and the company’s expansion plans. Edited excerpts:
Is your experiential coffee store in Delhi only about a new look and feel or something deeper?
The product offerings, store design and the service experience, all of it at the concept store is inspired or dedicated to India. If you look at it in terms of the beverages, we have the Malabar Coconut Cream Latte, which is inspired by Kerala’s unique delivery profile. We also have the Cinnamon Jaggery Latte, where the jaggery is organic, sourced from Maharashtra. Add to that the Cocoa Birds Eye Chilli Latte, inspired by the chilli from Meghalaya. We are paying tribute to all of these flavours through our drinks. We are bringing in the expertise of the Starbucks world, sourcing coffee from the best places and matching the profile of Indian flavours to give to the consumer.
This is one part of it. The other part of it is the store design, which captures the essence of the local community, including the artwork. In the case of Punjabi Bagh, we have used motifs and jewellery from Punjab because a lot of people in this area are immigrants who came in from the state and settled down in Delhi. The store design is a tribute to that.
But why so many different formats? Do more options mean more consumers?
As we grow in size, it is about catering to different requirements. One of the ways to do it is to look at different formats. So we have constantly innovated in terms of products, store formats, and food. I think it is going to be critical in order to cater to different segments of the Indian consumers.
So we have a Reserve store and another that is the first to be opened at a metro station. We have doubled down and increased the number of stores that we have on highways and airports. India is not one homogeneous segment, many categories are growing simultaneously. People are asking for newer formats, newer kinds of coffee, coffee-forward offerings, and a rich Indian coffee tradition. We want to celebrate the country while being true to what the brand stands for in terms of the coffee connect and expertise. If we can marry the two, we have a great winning combination.
So the fact that Starbucks is seen as a premium brand doesn’t stand in the way of expansion, does it?
Across categories, Indians are not cost-conscious, Indians are value-conscious. If you give the right value, Indians are willing to pay money for it, and that’s what I think we have done well over the past 10 years. We have created a premium imagery and aspirational value. I think our store’s look and feel, benefits that we give to partners, our sustainability agenda, and taste help our cause. As of now, our strategy seems to be working. At a store level, we have been cash flow positive for many years now. That is the most important criteria in retail. In India, the revenue distribution is largely split between 70% coming in from beverages, 20% from food and 10% from remaining categories.
How do you decide on the locations of the stores as well as their formats?
Our current focus is twofold: expanding into newer cities and deepening our presence in markets where we already operate, with a strong emphasis on penetrating across Tier 2 and Tier 3 cities in India.
We look at locations where our consumers are most present, leveraging both quantitative and qualitative research methodologies. Our quantitative analysis involves data mining across key factors such as consumer segments, purchasing power, traffic patterns, seasonality, and real estate principles to identify optimal locations. Complementing this, our qualitative research focuses on the nuanced variations in demand and consumer behavior. The evolving preferences of our customers have driven us to refine our approach, ensuring that our store formats are purposefully designed to meet demand effectively in each location.
What trends are you witnessing in the industry?
There are multiple trends because coffee as a category is still being created. We are a tea-drinking nation today, and coffee penetration is 15% to 20%, even among the affluent. Within the top, affluent class, it would be around 25%. At the top end, people who have been exposed to coffee and have been drinking it for the past 10-12 years, are now looking to evolve. They are talking about specialty coffee, about checking out different kinds of regions, origins, and small lots. We see the growth of specialty coffee among this segment of consumers.
We see among the youngsters a clear movement towards cold brew, which is why one of the things that we’re trying to do is double down and create more cold brews and flavours. We promote them in a more substantial manner as well. It also makes sense, given that we are a tropical country.
Gen Z is moving towards non-dairy, lighter coffee brews and beverages. The refresher, which we launched in the summer, is seeing a lot of traction. It is non-dairy, lighter, fruit-based, colourful, and highly Instagrammable.
You just said, coffee as a category is still being created… In such a scenario what are your immediate challenges?
We have been attempting to win over tea drinkers over the past 10 years. To do that, first and foremost, we need to do what we are good at, which is in terms of the experience and the connect. Starbucks is not in the business of coffee but in the people business. People come for the coffee but they stay back for the connection, stay back for the warmth. We need to constantly innovate. These new store formats and beverages help people find a reason to have coffee and make it easier for people to shift. Last year, we launched a smaller size of drink (Pico) because in India, consumers are not used to drinking large quantities of beverages. When we drink chai, we drink small quantities. The last part, that I think is equally important, is the food, because in India, we don’t just have a beverage. Even at home, we always serve a drink with snacks. The food attachment and what we serve in the store becomes critical.
Has the presence of small artisan coffee shops affected your brand in any major way?
We have always welcomed competition and are proud of the significant role that we have played in shaping India’s coffee culture. With the growing base of coffee consumers in the country, we believe there is space for everyone, including independent stores and chains, to grow and thrive along with us. At Starbucks, we offer our customers something no one else has – exceptional coffee, knowledgeable and engaging baristas, and innovative, locally-relevant products that come together to form the ‘third place’ experience – providing a space between work and home.