When Starbucks entered India, expectations were high. The global coffee giant, known for its premium pricing and mass appeal abroad, seemed poised to dominate the market. Yet, despite its rapid expansion across 97 cities, profitability remains elusive.
In a recent podcast discussion, Zerodha co-founder Nikhil Kamath and the founders of Blue Tokai and Subko Coffee dissected why the brand is struggling to break even in India, despite its global success.
Rahul Reddy, co-founder of Subko Coffee, pointed out that Starbucks' positioning varies dramatically by country. “In India, Starbucks is the biggest specialty coffee brand even though me and Matt would not refer to it as a specialty coffee brand,” Reddy noted. “What’s fascinating is that, price point-wise, Starbucks is sometimes more expensive than we are.”
Despite its premium pricing, Starbucks faces unique market challenges that limit its profitability.
Matt Chitharanjan, co-founder of Blue Tokai, highlighted Starbucks' aggressive location strategy as a major factor.
“Their cost structure is quite different in India versus other places,” he explained. “It goes back to real estate—they pick the most prime locations in every market they operate in, so the rentals they’re paying are incredibly high.”
While premium locations drive visibility, they also inflate operational costs, making it harder to turn a profit.
A key difference between the Indian and American coffee culture is how customers use cafe spaces. “In America, a lot of people buy a coffee and walk,” Kamath observed. “In India, if you sell somebody a coffee for 200 rupees, they’re going to sit there for an hour.”
This shift in consumer behavior means fewer transactions per table, directly impacting sales volume. As Kamath put it, “If I were to open in America, 100 people will come in the morning, buy, and walk. In India, if five people come and I have eight tables, and five are occupied, I can’t service any more.”
Reddy stressed that brands like Starbucks need to go beyond being an aspirational name and actively change consumer habits to scale profitably.
“All the stuff I keep saying about differentiation becomes hyper-important,” he said. “It has to be about changing the habituation towards coffee.”
He credited brands like Blue Tokai and Cafe Coffee Day for having already played a role in this shift. Chitharanjan also pointed out that Indian consumers no longer have the same blind affinity for international brands as they did decades ago.
“That idea that I can just be an international brand and automatically I’ll have a line is no longer applicable,” he said.