Devyani wants to remain sole filter for Costa

Both firms meet next month to discuss UK chain's reported desire to alter the exclusive recipe after 9 years; Indian franchisee believes it tastes better as it is

Devyani International (DIL), which is the sole franchisee of  UK cafe chain Costa Coffee in India, is expected to fight hard to  retain its exclusive status even as speculation mounts of a breakdown in relationship between the two partners.

Executives of Costa Coffee and DIL are meeting next month and the focus of the conversation will be on this very point, persons in the know said. DIL is expected to draw the UK retailer’s attention to the work it has done so far especially in the last three years, where it has steadily added atleast 20 new stores per annum, taking the overall store count to 118.

In the last nine years, DIL has pumped in Rs 120 crore to set up these stores and has maintained the UK retailer's high standards  across  outlets, despite mounting real estate and allied costs, persons in the know said. Typically, a cup of coffee at Costa costs nothing less than Rs 100, higher than Cafe Coffee Day, which charges Rs 75 per cup. Costa's price point is on par with Starbucks in India. The two retailers are fierce competitors in a number of international markets.

A LOT HAPPENING OVER COFFEE

• In the last nine years, DIL has pumped in Rs 120 crore to set up these stores and has maintained the UK retailer's high standards  across  outlets
• Costa’s price point is at par with Starbucks in India. The two retailers are fierce competitors in a number of international markets
• While the Indian cafe market is pegged at Rs 1,500-crore, growing at a clip of about 15 per cent anually , global majors such as Starbucks and Dunkin Donuts have steered clear of having multiple Indian operators managing their business

Costa is expected to extract a commitment from DIL to put in further money into the venture for retention of the exclusive tag. DIL officials did not indicate how much they were willing to put into the venture. But persons in the know said that Costa’s expectation would be around Rs 50-100 crore, which would be utilised primarily to ramp up store count. “We are looking at a viable solution to work together. There is no negativity at all,”  Virag Joshi, president & Group CEO, DIL, said. “We have been together for nine years. It doesn't make sense for any of us to exit at this stage,” he said.

While the Indian cafe market is pegged at Rs 1,500-crore, growing at a clip of about 15 per cent per annum, global majors such as Starbucks and Dunkin Donuts have steered clear of having multiple Indian operators managing their business. Starbucks has a 50:50 joint venture with Tata Global Beverages, while Dunkin Donuts has Jubilant FoodWorks as its sole franchisee in India. Barista is owned by Lavazza, which operates the over 150 stores of the brand in the country. The McCafe format, on the other hand,  is such  that it is housed within existing McDonald's stores in the south and west of India, where it has been opened by franchisee Hardcastle Restaurants. In the north and east, McDonald's is waging a legal battle with franchisee Connaught Plaza Restaurants, with McCafe yet to roll out within McDonald's stores there.

"The cafe market is not so large that you can have multiple  business operators for one brand," a Mumbai-based retail analyst said. "Costa could actually find it quite difficult dealing with multiple franchisees  from appointing them for different regions to keeping a track of their operations. It is easier said than done," the analyst said.

DIL, persons in the know said, is expected to use this point in its negotiations with Costa next month.