Starbucks has introduced a ‘Classic’ coffee menu in select stores across India, offering discounted prices to counter declining footfalls in the food services industry. Launched in September, this new menu aims to attract price-conscious customers.
The Classic menu features hot and iced coffee starting at INR 150 for a small serving, representing a 20-30% discount compared to Starbucks’ regular coffee offerings.
As the eating-out industry grapples with a slowdown, Starbucks’ discounted ‘Classic’ menu aims to revitalize sales. The wider industry downturn is primarily attributed to soaring food inflation, which has constrained household budgets and diminished consumer appetite for dining out.
Starbucks reported a modest 2% revenue increase for the quarter ended September 30, aligning with the soft demand trends currently affecting the sector. This growth is reflected in the quarterly filings of Tata Consumer Products Ltd, Starbucks’ Indian partner.
“Same-store sales growth was a bit of a challenge, and it’s been a challenge for a couple of quarters now. Towards the end of the quarter, we launched a ‘classic menu’,” Sunil D’Souza, managing director and chief executive officer, Tata Consumer Products, said in an interview on monday.
“This is a different coffee and a different set of food items, but it so happens that they’re also far more affordable. We will use this to draw more consumers into the store.” he further added.
Starbucks, which entered India in 2012 through a 50-50 joint venture with Tata, expanded its presence with 19 new stores in the September quarter, bringing its total count to 457 stores across 70 cities.
“If a consumer walks into the store, they are spending as much as they used to spend earlier as well. The catch is there are lesser people coming in. That is why the impact on sales and same-store sales. We are going to use this classic menu to draw people into the store,” said D’Souza.
Starbucks is set to introduce a revamped menu, featuring select sandwiches, in stores experiencing significant declines in customer footfall, described as “visible stress.” “We are going to ensure we are locally targeting communication around it,” he said. This strategic move follows the successful launch of a new menu last year, which included the introduction of the compact 6-ounce ‘Picco’ cup size and bite-sized food options tailored to appeal to a broader customer base.
Starbucks is mirroring the broader quick service restaurant (QSR) industry trend, where major burger, pizza, and fast-food chains have introduced attractive in-store promotions and revamped their ambiance to entice customers back to physical locations. Despite the continued strength of delivery services, these chains aim to revitalize in-store traffic and sales.
Jubilant Foodworks, Domino’s Pizza operator in India, introduced the ₹99 lunch feast earlier this year to entice in-store diners. Despite short-term challenges, India’s cafe market remains promising, with D’Souza affirming, “India’s cafe market remains a long-term opportunity.”
He reiterated the company’s ambitious expansion plans, unveiled last year, aiming to open 1,000 Starbucks outlets by 2028. “We continue to expand. In the short-term, you will have some hiccups as you go through these various cycles,” he noted.
India’s cafe market is witnessing intensified competition, with homegrown chains expanding across metros. According to D’Souza, this trend is expected to continue, driven by India’s growing consumer base. “There will be moments when a new entrant comes in, opens a store for some time, there is a bit of a disruption, especially because some of them would use pricing, etc., to draw consumers,” he noted.
Despite potential disruptions, D’Souza remains confident in Starbucks’ market position. “But as long as we remain focused on offering value to consumers, building our brand, building the consumer experience in store, I don’t think I would be worried about it.” The coffee chain’s financial performance reinforces this optimism, having reported revenue of INR 1,218 crore in fiscal 2024.
It is worth noting that Starbucks is reporting continuous losses amid the ongoing global anti-Israel boycott over the alleged involvement of American companies in the Israel-Palestine war that started in October last year. Besides Starbucks, Pepsi, Cola-Cola, Burger King, Domino’s, and McDonald’s are some of the major companies that have been witnessing the heat of the boycotts for a long time.
Besides this, Starbucks’ Indian-origin CEO, Laxman Narasimhan stepped down from his position in August after 18 months of his hiring in the company.
According to the latest reports, under the new CEO Brian Niccol who joined the company in September, the company has reported a 7% decline in global sales for the third quarter, with a 6% decline in the U.S. and a 14% drop in China. As a result, the company has suspended its financial targets. Consequently, the stock prices of the company were dropped by nearly 5%.
Niccol has indicated that the company requires a fundamental strategic shift to restore its financial performance.
