Deal with Starbucks non-exclusive: Tata Coffee

Starbucks Corpo unveiled a deal that sets the stage for the world's largest coffee company to bring its iconic cafes to India, where Western-style coffee shops are increasingly popular.

The Seattle-based chain signed a pact with India's Tata Coffee, part of the Tata group conglomerate, to buy coffee from India and explore opening retail stores in the country. The Tata Coffee stock has been brewing despite a weak market and has gained over 25% in the last three trading sessions on the back of this deal. In an interview with CNBC-TV18, Hameed Huq, MD, Tata Coffee gave his perspective on the contours of the deal with Starbucks and the road ahead. Below is a verbatim transcript of the interview. Also watch the accompanying video. Q: Could you explain if this is just a loose MoU or is there any possibility of some kind of an equity alliance in the Joint Venture (JV) through which Starbucks will eventually enter India? A: It is not a loose MoU, it is very structured. We are actually looking at sourcing of coffee initially. Tata Coffee has been supplying to Starbucks in the past and Starbucks has got a very high quality profile. We have met their standards. So we have been in talk with this company and finally we finalized the MoU for supply of Arabica Coffee for their stores in India which are proposed to come sometime down the line and also look at supplying to their stores in South-East Asia. The second thing is that we have a state of art roastery at our Kushalnagar Works. Startbucks has traditionally been doing their own roasting. We are actually looking at using our facilities at Kushalnagar Works for roasting of that coffee for supply to their stores again in India and outside. The third thing which we are looking at closely with Starbucks is promoting Indian origin coffee. Indian origin coffee, Indian Arabica is of very high standard but it has not got the recognition globally for various reasons. Maybe our volumes are very small and traditionally we are a tea growing and drinking country and not coffee. So one of the things we are looking at is if we can have an Indian origin blend which will be taken up by Starbucks and marketed globally. These are the three things we have with them immediately. As far as your question on equity, that will come further down the line. We are at a stage where we are just working up the structure, building on the business and that will come at a later stage. Q: The reason I asked you this question is we need to know or try to figure out is this is an exclusive alliance of sourcing the coffee that Starbucks has put in place or if they go with another equity partner for their retail thrust into India. Could they also look at sourcing it from other coffee companies? A: At the moment, it is not an exclusive MoU. It is in a very preliminary stage and we are working towards it. How it pans out in the future is difficult. But at the moment the MoU is very clear, there is no exclusivity on either side. Q: It is non-binding in terms of the retail opportunity as well that both companies will explore - does that mean Starbucks is open to entering into a retail agreement with a whole other entity? A: Yes of course that is understood. It