What Narasimhan’s appointment as global CEO means for Tata Starbucks?

Starbucks in India is operated by Tata Consumer Products Ltd (TCPL). The entity is a 50:50 joint venture between TCPL and Starbucks Coffee International Inc, formed in FY12.

Here’s how the company has performed in India over the years and the impact of the pandemic on its business.

Impact of the pandemic

The first store by Tata Starbucks was launched in FY13. The company currently operates about 275 stores in 30 cities across the country. While the company continued its store launch trajectory despite the pandemic, its growth was interrupted due to COVID-19-related restrictions. Tata Starbucks had over 170 stores in the country in FY20 and added about 35 stores in FY21 and 47 stores in FY22 despite the pandemic. It operates stores in various formats such as small engine stores, airport stores, highway stores, and drive-throughs in the country.

The performance, however, suffered during the period.

“Tata Starbucks was impacted adversely in FY21 by the COVID-19 pandemic, resulting in a 33 percent revenue decline. FY22 saw a strong recovery on a weak base (revenue over 76 percent), especially post-waning of the second COVID-19 wave. Per-store revenue in FY22 however, was still about 24 percent lower than pre-pandemic highs, which provides a low base for FY23,” said the Jefferies report.

The company’s management, however, is optimistic about the coffee chain’s growth prospects, going ahead.

“…..now we are at 275 stores, 99 percent of stores are reopened, we are in 30 cities, we had an EBIT positive quarter for Starbucks which shows the power of Starbucks, and therefore, the ability to generate value in the longer term. Given it is a 25 percent increase in same-store sales versus pre-COVID, we do feel good about the business,” the company’s management said after reporting the first quarter results for the financial year 2023 (FY23).

Analysts, too, indicate that the company has recovered from the impact of the pandemic.

“Business has recovered and is now tracking well above FY20 levels (almost two times) with normalised store operations, strong salience of delivery channel, new store openings, entry into new cities and continued innovation efforts in both foods and beverages menu. Business has turned EBIT positive for the first time in the first quarter of FY23,” said Himanshu Nayyar, analyst at Systematix Shares and Stocks.

Other QSRs in India

The café chain also lags behind several of its peers in terms of revenue as well as store count. For instance, market leader Jubilant Foodworks, which has the master franchisee of Domino’s Pizza in India, reported a revenue of Rs 4,330 crore in FY22, compared to Rs 630 crore reported by Tata Starbucks in India. Jubilant Foodworks operates 1,623 stores in India, compared to 275 by Tata Starbucks.

“Starbucks’ footprint is still much smaller compared to many QSR brands, suggesting a long runway for network expansion,” said the Jefferies report.

Narasimhan comes on board

According to experts, Narasimhan’s appointment bodes well for the future of the global major.

“Narasimhan brings nearly 30 years of experience leading and advising global consumer-facing brands. Most recently, he served as CEO of Reckitt where he led the company through a major strategic transformation. Known for his considerable operational expertise, he has a proven track record in developing purpose-led brands,” said Deepak Jasani, Head of Retail Research, HDFC Securities.

“While we don’t expect any radical announcements in the near term, we will continue to monitor any developments. The Indian market offers tremendous potential for QSRs and café chains due to favourable macro-economic factors,” he added.

Given the fact that Starbucks India forms a very small portion of its global size, analysts said, this appointment may not materially impact Indian operations.