The enthusiasm for Starbucks among India’s growing middle class is a sign of the increasing purchasing power of this demographic. A boom of consumerism is taking place in India as the formerly frugal and mostly rural population transforms into an urban middle class. As a result, there is a new awareness of and demand for internationally known brands, and the success of Starbucks in India, a country of tea drinkers, is just one sign of this.
Starbucks is taking advantage of the increased discretionary spending among Indians, which is expected to reach 70% of household income by 2025. It has entered slowly into the country, opening just four stores so far. To minimize risk, the company is working through a joint venture with Tata, the huge conglomerate that owns, among other things, hotels, chemical companies, and car companies such as Jaguar and Land Rover. Tata is also one of Asia’s largest coffee producers.
The contrast with Starbucks’ entry into China is stark. The company already operates over 700 stores there. The different approaches to these two giants with populations of over 1 billion people are largely attributable to problems with India’s infrastructure. For example, poor roads make it very difficult for companies to bring their goods to market throughout the country.
However, the company expects that India will eventually become one of its top five markets and is therefore taking a measured and long-term approach to entering the Indian market.
The example of Starbucks in India very clearly shows how helping raise people out of poverty in the developing world is beneficial for global businesses. The potential for the development of the Indian market is staggering, but in order for it to be realized, further improvements will need to be made. Right now, the average income of an Indian person is $1,490 per year, compared to $48,429 for average Americans. This huge gap will greatly affect the ability of average Indians to purchase $3.35 frappuccinos.
Investments in poverty reduction efforts as well as education and infrastructure will go a long way to helping raise average wages in India, thereby increasing the size of the middle class and increasing consumption of products produced both by local and foreign companies. It is clearly in the interest of US companies, therefore, to make sure that these improvements are made. Starbucks, for one, is counting on it.
– Caroline Poterio Martinez
Source: Seattle Times
Photo: The Epoch Times