Starbucks brews following in India, where tea is supreme

MUMBAI, India – For a country known for its love of tea, India certainly has given Starbucks coffee a warm reception.

In the days after its first store opened in October in a chic area of Mumbai, lines stretched so long that security guards were forced to implement a one-in, one-out policy.

Two months later, the lines outside the flagship store were gone, but not the enthusiasm.

Srishti Sinha made an hourlong trek to Starbucks one December evening, bouncing with excitement all the way on the back of her boyfriend's scooter. Sinha checked out the menu online and chose their dinners: murg (chicken) tikka panini, lemon jazz cheesecake, a cappuccino and a Frappuccino. They even bought two Starbucks tumblers.

Upstairs in the same busy store, Akshi Chilana sipped her Americano, then took a picture of the cup's Starbucks logo to post on Facebook.

"It has a brand. It has esteem," Chilana explained.

The consumer wave now sweeping India includes an infatuation with branding on everything from cars and mobile phones to gourmet coffee. The phenomenon is part of India's transformation from a mostly rural, frugal population to an economic world power with a growing middle class that can afford $3.35 Frappuccinos.

Not that the coffee shops are edging out the chai wallahs. India's love of tea abides. With incomes increasing, people support both: Grab a cup of chai on the street and hang out in coffee shops, particularly in the evenings.

Figures show discretionary spending is growing fast and expected to reach 70 percent of average-household consumption by 2025, according to the McKinsey Global Institute.

That's the same year India, now with 1.2 billion people, is expected to pass China as the world's most populous country, according to projections from the U.S. Census Bureau.

Starbucks is keeping quiet about how many stores it wants in India.

It has 767 in China and plans to reach 1,500 there by 2015, part of a push into Asia that includes its debut in Vietnam this month.

"I personally believe the potential couldn't be less than China," he said.

Starbucks owns its Indian stores in a joint venture with the Tata Group, an Indian conglomerate that is one of Asia's largest coffee producers. It also has steel, chemical and hotel operations and owns the company that makes Jaguar and Land Rover vehicles.

The Seattle coffee-shop chain is "taking a very long-term view of India," partly because of India's substandard infrastructure, said John Culver, Starbucks' president for the Asian-Pacific region.

Despite its economic gains, India remains a developing country where many roads are more pothole than pavement, making it difficult for companies to get goods to market.

Still, Culver said he expects India to someday be one of Starbucks' top-five markets.

It has 2,000 locations mostly in India, with plans to reach 5,000 stores worldwide in the next five years.

V.G. Siddhartha, Coffee Day's founder and chairman, oozes confidence and enthusiasm about the future for coffee shops and India.

He does not even mind if Starbucks makes a huge dent in the market he has cultivated for almost 20 years.

"I don't have any ego on that. If they put thousands [of stores here], it is good for me. The market will grow," Siddhartha said.

Siddhartha admits Starbucks' arrival "will improve the standards in the industry, because we have to make sure our service and ambience and offerings are better."

Starbucks, aware of its reputation for high prices, is attempting to offer value in India.

In contrast to central Beijing, where Starbucks charges $4.34 for a 12-ounce cappuccino, in Mumbai it costs $2.14.

"A lot of people were truly surprised by our pricing strategy," said Avani Saglani Davda, CEO of the Starbucks and Tata partnership.

The lower prices are part of its long-term plan to operate stores beyond a handful of major urban areas, she said.

"If the Indian consumer doesn't see value, then it tends to be a temporary commitment to the brand," Davda said.