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BW Businessworld

Brewing A New Partnership

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You can smell the coffee. Well, almost. By September, Starbucks, the legendary coffee chain, would have cut the ribbon for the first of its outlets in India (at Mumbai or Delhi). For Tata Group, with whom Starbucks has set up a 50:50 venture called Tata Starbucks, this will be a second shot at cappuccino glory. The group was among the first investors to take a stake in Barista, India's first coffee chain. But Tatas did not stay in that venture for too long.

However, this time the agenda for the Tatas could be more than just learning the twists and turns of coffee retail. It gives the group one more opportunity to build on the ‘global' part of Tata Global Beverages, the group firm that is at the forefront of this venture. Says R.K. Krishnakumar, vice-chairman, Tata Global Beverages: "It opens up exciting business opportunities and new formats for Tata Global Beverages."

Through this joint venture, both firms have agreed to jointly leverage assets and innovations. The first off the block will be in the form of a premium tea product branded, Tata Tazo. Globally, Starbucks retails the Tazo brand of tea leaves, tea bags and concentrates. The new venture also provides the Tata group with an opportunity to retail bottled water brand Himalayan through the global retail franchise of Starbucks that has more than 17,000 outlets.

For the past many years, the Tata group has been attempting to get scale in its distribution muscle. Globally, and in the US in particular, the beverage supply chain is controlled by what's described in industry parlance as the red line and the blue line (Coca-Cola and PepsiCo). The acquisition of a stake in Glaceau in 2006, and the news that the Tatas were reportedly in talks with Schweppes Beverages (the beverages business of Cadbury Schweppes) were steps in that direction. But with Coca-Cola acquiring a controlling stake in Glaceau and Schweppes brand getting taken over by the Dr Pepper Snapple Group, the Tata Group was back to building its global beverages supply chain, one mile at a time.

A significant milestone came into sight when Tata Global Beverages announced a joint venture with PepsiCo in 2010 to manufacture and market ready-to-drink, tea-based beverages. A separate team was formed for the same and PepsiCo marketing veteran Punita Lal was made CEO of that venture. Will the joint venture with Starbucks lead to some blurring of lines with the PepsiCo venture? Krishnakumar is quick to clarify that the joint venture with PepsiCo is in bottled beverages alone. He adds that the first product from that joint venture will be out next month and provide enough clarity on the nature of that venture.

"We are excited about the opportunities the alliance presents to innovate in the retail space and bring new beverage experiences to more consumers in India, leveraging the global in-home expertise of Tata Global Beverages and the global out-of-home expertise of Starbucks," says Krishnakumar. There seem to be many takers for that line of thought: Tata Global Beverages' stock is on a four-year high post the announcement.

(This story was published in Businessworld Issue Dated 13-02-2012)