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Tatas to sell off stake in Barista

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August 14, 2004 11:14 IST
More than three years after Tata Coffee acquired a 32.5 per cent equity stake in Barista Coffee, the Tatas want to exit the business, a senior Tata group executive told Business Standard that talks with C Sivasankaran, the non-resident Indian businessman who now runs Barista, would begin on the subject, adding that an international coffee chain was also a contender for the Tata group's stake in Barista. Asked whether this was Starbucks, he replied, "possibly".

However, the road to any deal is full of difficulties. Asked whether Sivasankaran would be buying the Tata group's stake in Barista, a senior executive of Sivasankaran's Sterling group said, "We have no such plans at the moment."

However, according to informed sources, Sivasankaran is keen on expanding the chain both at home and overseas. That calls for money, and the NRI businessman right now evidently prefers putting his cash into Barista's expansion than into buying the Tatas out.

The coffee chain company was promoted by Turner Morrison. In April 2004, Turner Morrison sold its 65.45 per cent stake in Barista for roughly Rs 30 crore (Rs 300 million) to Sivasankaran's Chennai-based Sterling group, which owns the Fresh and Honest coffee vending brand.

Sivasankaran had then told the media that he intended to make Barista the 'Starbucks of India' and expand the number of Barista outlets from around 100 (now over 130) to over 3,000 in the next three years, mainly through franchises.

Barista now has a small presence in three countries, including an outlet in Dubai in the United Aab Emirates, but Sivasankaran wants to take the chain to 100 countries.

Also on Sivasankaran's agenda is changing the menu by introducing many items that are typically available today in five-star hotels and are expensive otherwise, and launching a range of teas at Barista outlets.

For Sivasankaran, Barista makes sense because the business is in sync with his Rs 60 crore (Rs 600 million) Fresh and Honest coffee vending machine business.

The company has installed over 1,300 vending machines in India, a number he wants to raise to 6,000, and the Sterling group gets buying power if it buys coffee for both Barista, and Fresh and Honest.

So while Sivasankaran may eventually buy the Tata group's stake, a deal is unlikely to materialise in the immediate future.

Also, the Tatas cannot hawk the group's stake to an international coffee chain, because the government frowns on foreign direct investment in retail businesses.

Finally, as a senior Tata Coffee executive pointed out, international coffee chains would want to import coffee and the 109 per cent Customs duty on imported coffee would serve as a deterrent.

It is not clear why the Tatas want to sell the group's stake in Barista. The group had originally seen its investment as a logical extension of its Tata Coffee plantations business.

A good chunk of Tata Coffee's coffee would flow to Barista, a senior Tata Coffee executive had then explained to Business Standard. Observers speculate that the Barista business is too small for the Rs 51,000-crore (Rs 510 billion) group.

Reeba Zachariah & Surajeet Das Gupta