Starbucks, the well-known American coffee brand, has significantly tempered its ambitious expansion strategies in India, responding to a shift in consumer spending patterns among the country's middle-class population. The company, which announced in January of last year its intention to nearly triple its number of outlets in India to a total of 1,000 by the year 2028, has recently experienced a downturn. Specifically, during the last quarter of 2024, Starbucks opened just over half of the 30 new stores it had initially planned for that period, as confirmed by Sunil D’Souza, the chief executive of Tata Consumer Products, which is Starbucks’s joint venture partner in India.

In an interview with the Financial Times, D’Souza noted, “We saw traffic dropping.” This observation prompted him to suggest a more measured approach to expansion. “So I told my team, let’s moderate a bit. We’ll continue to grow and we’re still opening outlets, but we’ve slowed it down momentarily.” This cautious strategy reflects the broader economic challenges faced by consumers in India, where stagnant wages and rising inflation have led to reduced spending, creating a ripple effect throughout the economy.

According to the Indian government, the nation’s GDP growth is projected to decline to 6.5 percent by the end of March, a noticeable drop from the previous fiscal year’s growth of 9.2 percent. This economic slowdown has resulted in decreased consumer spending, with consumption accounting for nearly 56 percent of India’s GDP in the last fiscal year, falling from 58 percent the year prior. Punjab National Bank, a state-owned financial institution, has cautioned that this downward trend creates “ripple effects across consumer goods industries.”

Despite these challenges, D’Souza expressed optimism about the future of Tata’s consumer business, which includes brands like Tetley’s Tea and Eight O’Clock Coffee. He remains hopeful about achieving the goal of 1,000 Starbucks locations in India, although he acknowledged that the timeline for reaching this milestone “might go up or down by a year.” Currently, Starbucks operates 473 outlets across 74 cities in India. However, it saw a net increase of only 16 stores in the last three months of the year, a stark contrast to its post-pandemic peak when it opened 29 stores in the January-March quarter of the previous year.

Interestingly, while experts warn of a slowdown, others speculate that India’s economic growth may soon rebound. The Reserve Bank of India indicated last month that a decline in overall inflation could potentially bolster a recovery in consumer spending. D’Souza remarked, “This quarter we are seeing numbers starting to look a lot better. There’s a long runway — it’s just that in a country like India, you’ve got to have a slightly longer perspective.”

Analysts recognize the vast potential for Starbucks in India, a market that the company entered over a decade ago with aspirations of becoming one of its largest international markets outside the United States. In comparison, in neighboring China, Starbucks has established more than 6,500 stores across over 250 cities since its entry in 1999.

However, the current slowdown in India mirrors a broader trend affecting Starbucks globally. The company reported in January that it faced its fourth consecutive quarterly decline in same-store sales, attributing this slump to a drop in customer traffic in key markets such as the United States and China. In China, Starbucks is facing stiff competition from local rivals like Luckin Coffee.

In India, the competitive landscape is particularly challenging, as the nation has a rich tea-drinking culture and a preference for strong filter coffee, especially in the southern regions. The rise of café culture has been fueled by the emergence of local specialty chains such as Blue Tokai and Third Wave, as well as the introduction of international brands like Canada’s Tim Hortons and the UK’s Pret A Manger. Costa Coffee, owned by Coca-Cola, has been operational in India for two decades.

In response to local tastes, Starbucks has adapted its menu to include popular Indian flavors, featuring items such as chili paneer sandwiches and smaller “Picco” cup sizes, along with its milky “short” masala chai priced at Rs320 ($3.70)—a considerable premium compared to local street vendors.

Looking ahead, D’Souza revealed that Starbucks intends to focus its new branches in major urban centers such as Mumbai, Delhi, and Bengaluru. Furthermore, he mentioned that the company would be evaluating its pricing strategies to make the brand more accessible to a wider audience, particularly in smaller cities where some potential customers view the coffee chain as a luxury destination. In an effort to make its cafés more inviting, the brand has also moved away from darker color palettes commonly associated with premium brands in India, opting instead for lighter, more approachable designs. “One of the things we had done was we had started to use lighter colours,” D’Souza concluded, highlighting Starbucks’s commitment to adapting its brand image to resonate better with Indian consumers.