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Coffee Industry in India

Coffee Industry in India

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Published by Tanoj Pandey

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Published by: Tanoj Pandey on Sep 23, 2012
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02/20/2014

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Coffee industry in India
The coffee industry in India is the sixth largest producer of coffee in the world, accounting for over four percent of world coffee production, with the bulk of allproduction taking place in its Southern states. India is most noted for itsMonsooned Malabar variety. It is believed that coffee has been cultivated in Indialonger than anywhere outside of the Arabian Peninsula.The café culture was brought into this country by Café Coffee Day, theChikmanglur based brand which opened the first café in 1996. Since then it hasestablished 1250 outlets with 150 outlets operating out of Bangalore itself. Add
Barista’s 200 and Costa Coffee’s 70 along with new entrants like Aromas, and you
are looking at 2000 crore market with 1500 cafés
. Now that’s quite a big market,isn’t it? And obviously despite all the regulations in FDI, Starbucks couldn’t sign
off this country for long.In the US, Starbucks is like their Café Coffee Day present at every nook andcorner. But in India, they have already indicated that they would initially start their
operations by sourcing coffee beans from Tata Coffee’s plantations and set up shop
in Tata run Taj Hotels. A good idea obviously because of the high
 – 
end premiumpositioning they have in the minds of the Indian consumers.There are over 171,000 coffee farms in India, cultivating nearly 900,000 acres of coffee trees. Most coffee production in India is on small farms, with over 90percent of all farms consisting of 10 acres or fewer. However, such farms accountfor just over half of all land used for coffee production and a minority of all coffeeproduced .Most coffee in India is grown in three states: Karnataka, Kerala, andTamilnadu. These states accounted for over 92 percent of India's coffee productionin the 2005-2006 growing season.India exported over 440,000 pounds of coffee in the 2008-2009 season, slightlyless than in 2007 and nearly 5 percent less than 2005. Over a quarter of the India'scoffee exports go to Italy. Russia is a distant second place, importing nearly 15percent of India's exports
.
 
Starbucks and Tata Coffee, a part of the Tata conglomerate, officially announcedtheir partnership to source premium coffee beans in a non-binding memorandum of understanding earlier this year. Additionally, the agreement will explore thepotential for future development of the Starbucks brand in retail spaces owned byTata in India, with the first outlet likely to open this summer. Related reports havealso suggested that the partnership may form into a joint venture within whichStarbucks will hold 51 percent equity share within a year. The traditionally tea-drinking society of India has been steadily increasing its coffee intake as the youngand middle-class aspire to have more Western tastes. Group networking isembracing the practice of meetings over coffee as professional and recreational
clubs alike gather routinely at coffee shops in India’s major cities to discuss
business and pleasure. The Indian market is now home to multiple coffee brandsincluding Café Coffee Day, Barista Lavazza, Java Green, Costa Coffee, and Gloria
Jean’s Coffee, but the market is still young. Though India is the sixth largest coffee
producer in the world with an annual output of 300,000 tons (4 percent share of global production), it consumes only 100,000 tons a year
 – 
a relatively tiny volumefor a population of 1.2 billion. As market estimates predict at least 100 million new
coffees
.
Drinkers
are to emerge in India in the near
future;
the potential for moreinternational and domestic entry into the industry is high.
 
The government did allow 100% foreign investment in single-brand retail. Untilnow, single-brand foreign retailers such as Nike Inc. could hold only 51% of anIndian joint venture. Starbucks is classified as a hospitality business rather than aretailer and was allowed to have 100% ownership in India prior to the new policyfor single-brand retail. Analysts said Starbucks arrival will be viewed positively byother foreign brands that may have become skeptical about India's prospects.Starbucks had been looking for a partner in India since about 2007 .A few yearsago; India's Gross Domestic Product was seeing almost double-digit growth. Thegovernment expects GDP for the year ending March 31 to come in at around 7%and few economists think it'll do much better in the coming year.

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