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Coffee Is Not a Smartphone: Starbucks (NASDAQ:SBUX), India, and the Myth of Untapped Markets

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Why does every big company think it can go everywhere?

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The British East India Company kick-started the commercial production of tea back when it took over the region of Assam in the mid-1820s. Since then, tea has been cheap, plentiful, and of extremely high quality throughout the country. The years of British occupation created a place for tea in Indian national culture.

India does grow coffee although it exports nearly all of it-especially to Europe, where they like milder monsoon-grown stuff rather than the liquid lightning from Brazil and Colombia that we Americans prefer. Coffee consumption rose only 3% in India last year, which isn't saying much considering that the country still drinks a tiny fraction of what most Western nations consume per capita.

In short, there's no reason for Starbucks to assume that coffee consumption will continue to grow even at that slow pace.

As Africa continues to develop, smartphones will certainly become more prevalent, which, by logical extension, makes Facebook Zero a good move. Whether India will start drinking coffee as it develops, though, is anyone's guess since coffee consumption is not necessarily tied to economic growth.

Starbucks' decision to expand into India might be a stroke of brilliance. In a nation of over one billion people (at least some of whom like to drink coffee), there's at least some money to be made. But the idea that a company should expand into any of the large developing nations-India, China, Brazil, Turkey, much of Africa-simply because it's "time" is one that ignores the cultural reasons that Starbucks didn't come from India in the first place: They may just not like coffee much there.
No positions in stocks mentioned.
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