Even as other coffee chains like Cafe Coffee Day are on an expansion spree, UK-based Costa Coffee is going slow on this front, mainly due to prohibitively high rentals in metros and absence of coffee culture in India.
"The biggest challenge here is the rentals. We would like to put more coffee shops here but rents in parts of Mumbai and Delhi are higher than that of London or New York. Therefore, a big challenge for us is in the way property prices move here," Costa Coffee managing director for Europe, West Asia and India, Andy Marshall, told PTI here.
Citing high property prices in big cities as a hurdle to faster expansion, he said prohibitive rentals are detrimental to long-term business interests.
On the company's expansion plans, he said, "Our plan is very much to move into markets when the customer is ready for it. You can choose to go ahead of the market and say we are pan-India, but the market has to be ready. You see that happening in the top 10 cities and therefore we want to be there. But the other cities will come later".
Costa Cafe is bullish on the youth and plans to open 50 outlets each year in the big cities.
"We have a vision to open about 50 shops a year from now on. If more is available then, of course, we will take up that opportunity. We will focus on key top five cities and make sure our brand establishes itself in those cities and then we will look at the next tier cities," Marshall said.
Costa Coffee currently has outlets in Mumbai, Delhi NCR, Bangalore and Pune and is planning to tap markets in other cities as well.
The world's second-largest coffee chain entered the country in 2005 and currently runs 100 stores through its master franchise Devyani International. It enjoys third position among the organised players.
Against this, market leader Cafe Coffee Day (CCD) has 1,300 stores, while the number two, Barista Lavazza operates 160 outlets in the country.
The CCD is also on a rapid expansion drive and planning to open 700 more stores by 2014 to take its strength to 2,000 stores.
The entry of US-based Starbucks will add more competition to the super-premium coffee market. Starbucks had last year formed an equal joint venture with Tata Global Beverages and is planning to open 50 outlets by March while its first will come up by August-September in Mumbai.
Meanwhile, when asked about the second phase expansion plan of Costa Coffee, Marshall said that the company will move into other metros like Chennai, Hyderabad, Kolkata and Chandigarh in the next 18-24 months.
On the investment front, he said a store requires nearly Rs 1 crore, this making their investment this year about Rs 50 crore.
Costa Coffee's India business is growing at 40% and at present contributes to 5% of its global sales, which he expects to increase substantially in a decade.
"India's revenue contribution is relatively modest and is about 5% of what we do globally in a year. Our aspiration over the next 10 years is that we get 20-25% of our revenue from here and I am sure it will happen," Marshall said.
In 2011, the Bedfordshire-based Costa Coffee, which is a wholly-owned subsidiary of Whitbread Plc, reported a worldwide sale of 819.3 million pounds, an increase of 24.3%.
The company believes that there is a huge opportunity in India as consumption is quite low. While coffee intake is growing at 5% annually and the coffee to tea ratio is about 1:7, the per capita coffee consumption of the brew is 80 grams compared to Italy with 6 kg and US at 4 kg.
Asked whether the company will increase its prices here because of high input cost, Costa Coffee India chief executive Santhosh Unni replied in the negative.
"We normally go in for a price hikes twice a year. We did one in March when we increased prices by 8%," Unni said.
Food has a significant weightage in the beverage player's portfolio as it contributes close to 35% of its revenues.