Tata Starbucks accelerates outlet expansion but weaker demand hampers profitability

Tata Starbucks’ losses widened from Rs 23.9 ($287,000) to Rs 81 ($971,000) | Photo credit: Vaishnav Chogale

Tata Starbucks opened a record number of stores in India last year but cautioned that weaker demand for quick service restaurant (QSR) chains across the country had hindered profits. 
 

The coffee chain opened 95 net new stores across India during the 12 months ending 31 March 2024 – 24 more than the previous year – to reach 421 outlets across 61 cities. 

The 50:50 joint venture between US coffee giant Starbucks and Tata Consumer Products Limited is seeking to open a new store every three days to reach 1,000 sites by 2028. 

While Tata Starbucks achieved 12% year-on-year sales growth to Rs 1.2bn ($14.6m), the company said ‘softness in the QSR space’ resulted in ‘subdued' like-for-like sales growth and contributed to losses widening from Rs 23.9 ($287,000) to Rs 81 ($971,000).   

Higher inflation and pressure on disposable income since the pandemic have compelled many of India’s middle-class and low-income consumers to cut back on out-of-home food and beverage purchases. Food prices in India were 8.7% higher year-on-year in the 12 months ending 31 March 2024, according to HSBC economists. 

Tata Starbucks’ results come just a few weeks after Costa Coffee’s Indian franchisee Devyani International Limited (DIL) reported robust full-year outlet and sales growth for the UK-based coffee chain.   

New Delhi-based DIL opened 67 net new Costa Coffee stores in the 12 months ending 31 March 2024 to reach 179 outlets – also its highest annual addition since becoming the coffee chain’s exclusive India licensee in 2005. Costa Coffee’s full-year revenues in India grew 49% year-on-year to Rs 1.5bn ($18.2m). However, DIL – which also operates licensed KFC and Pizza Hut stores across India – saw net profit decline 82% in the quarter ending 31 March 2024, in what the group’s owner Ravi Jaipuria described as a ‘tough consumption year’.

Other western QSR brands, including McDonald’s, Domino’s and Popeyes, have also been negatively impacted by constrained consumer spend. However, economists forecast out-of-home expenditure to increase in the second and third quarters as the country begins its months-long Hindu festival season.