Barista's travails point to deeper malaise

India's second-largest coffee chain Barista might have a fifth owner in two decades. Speculation about a likely sale by its current owner Amtek Group, which is battling debt issues, has been mounting.

The Arvind-Dham-promoted Amtek Group, whose subsidiary Rollatainers bought Barista from Italian major Lavazza last year, had indicated it would step out of non-core businesses in a bid to pare debt. Carnation Hospitality, the wholly-owned subsidiary of listed firm Rollatainers, a packaging major, has not confirmed it is looking to sell the business. But if it does go ahead with the sale, it would be key.

India's first organised cafe chain was launched in India in 1997 by New-Delhi-based Turner Morrison Group. The latter held 65 per cent in Barista Coffee Company, while Tata Coffee, which stepped into the venture in 2001, held close to 35 per cent in the firm. Both Turner Morrison and Tata Coffee subsequently sold their stakes to serial entrepreneur C Sivasankaran in 2004, who then offloaded his entire stake in Barista along with his Fresh & Honest coffee vending business to Italian major Lavazza in 2007.

After seven years of owning Barista, Lavazza exited the business last year, selling its entire stake to Carnation Hospitality. The latter was a relatively unknown player in the coffee retail space and had indicated it had key plans to turnaround Barista. While Barista’s FY15 numbers have not been disclosed by Carnation yet, its net loss for FY14 doubled to Rs 20 crore from Rs 10 crore in FY13.

Carnation also closed a few stores soon after acquiring Barista, with total outlets pegged at 165 from 170 earlier. Market leader Cafe Coffee Day, whose listing debut on Monday was weak on the BSE, has around 1,500 stores in the country. Tata Starbucks, which stepped into India in 2012, has nearly 75 stores in seven cities.

Tata Group chairman Cyrus Mistry had recently said his firm Tata Global with whom the US-based Starbucks Coffee Company has a 50:50 joint venture would be cautious when opening stores in the country. Mistry's sense of caution comes at a time when India’s organised coffee chain market is battling a slowdown. Retail consultancy Technopak pegs the organised cafe market at Rs 1,800-1,900 crore, representing 27-28 per cent of the Rs 7,000-crore overall cafe market.  

Arvind Singhal, chairman of Technopak, explains, “While fast-food chains see quick takeaways and home deliveries besides in-store footfalls, in the case of cafe chains, people come to lounge and have fun or organise their meetings with the ticket-size not commensurate with the time spent.”

With the pressure to launch stores ever-present, implying that overhead and allied costs including real estate are huge, this has resulted in cafe majors booking losses over the years, Singhal adds.