Highway on his menu

Barista's Sanjay Coutinho is eyeing the lucrative food market for growth - he's rolling out eateries along highways that compete with local dhabas.

When Luigi Lavazza bought a little grocery store called Paissa Olivero in Turin for 26,000 Lire (then around $20), there is no way he could have told that his venture will one day sell parathas at village Murthal on the busy highway that connects Delhi with Karnal in Haryana. It is the favourite breakfast spot for people who travel from Delhi to Karnal, Chandigarh and Shimla. A dozen-odd dhabas dish out traditional fare like paratha, dal makhani, tandoori roti and, of course, lassi. The place will soon have a new eatery on either side of the road run by coffee chain Barista Coffee Company. Apart from coffee and cake, it will have on its menu entries that will rival the dhabas — paratha, butter milk and so on.

Travellers will get more choice and Barista, owned now 100 per cent by Lavazza of Italy (the stores are now banded Barista Lavazza), a whole new position in the market place. The coffee chain has decided to test the market for food, though the core brand promise remains coffee and related products. The reason is not hard to find: The coffee chain market in the country is worth around Rs 400 crore but the food market is limitless — estimates range in thousands of crores but these could be gross underestimations. “Coffee is and will remain the core promise that Barista Lavazza delivers on,” says Barista Chief Operating Officer Sanjay Coutinho. “We will continue to deliver on the core promise of a truly Italian coffee experience in a warm, friendly and relaxed environment.”

That is an attempt to ensure that the brand does not lose its core properties. But the food market is too lucrative to resist. Last few months have shown that the economic slowdown has in no way impacted food chains that are reasonably priced. Expensive fine dining restaurants, on the other hand, have seen sales dwindle. To be fair, non-coffee products like tea, sparkles, chocolates and smoothies already account for almost 20 per cent of Barista’s sales. The numbers will only go up in the days to come.

Coffee and more
Though it is a bold move, it could provide Barista a differentiator or a unique selling proposition in the market place which has well-entrenched and aggressive rivals like Café Coffee Day, Costa Coffee, Gloria Jeans and Coffee Bean & Tea Leaves. At present, Café Coffee Day is by far the leading coffee chain with over 750 stores, Barista Coffee Company is second and Costa Coffee third. Analysts say that Café Coffee Day has six formats as compared to Barista’s two and Costa Coffee is good in the aspiration value it lends. The new initiatives undertaken by Coutinho begin to make sense.

Best known for its Espresso bars, Barista has opened 15 lounge format Crème cafes in the last few months with an elaborate food menu — breakfast options, sandwiches, salads, pastas, pizzas and lasagna. These open for longer hours than the 215 Espresso bars and are spread over 1,600 sq ft. The Espresso bars in comparison are 1,200 sq ft. Of course, the investment in a Crème cafe is higher — around Rs 1,600 per sq ft — than in a bar which requires about Rs 1,000 per sq ft to set up.

Like the Espresso bars, the Crème cafes cut about 100 tickets (bills) daily and 175 tickets on weekends. The average ticket (bill) size in a Crème cafe is Rs 300, about 60 per cent more than Rs 190 in an Espresso Bar. About 40 per cent of the sale is food. In some of these cafes, says Coutinho, coffee liqueur will also be served shortly. The cafes will be opened only in select high-income areas which can support such a store.

Highway to growth
Another growth opportunity is along highways. Coutinho says that he has identified 15 highways where there is sufficient movement of travellers who could stop at a Barista store. Like the one at Murthal, search is in full swing for the right property along the highways that connect Delhi with Agra and Jaipur and Mumbai with Pune, Ahmedabad and Goa. “We plan to open on both sides of the highway,” says Coutinho. The key challenge for Coutinho will be to get the branding and visibility of the stores right so that travellers do not miss it while cruising at high speed on the highway.

Barista actually runs a store on the Bangalore-Mysore highway — Murthal will be its second. The rent is just 5 to 7 per cent of sales, compared to 20 per cent in cities, while the number of tickets is more or less the same as in cities — highway stores run round the clock. The average ticket size is Rs 275, way above the average for Espresso bars and close to that of the Crème cafes. Of course, the store is bigger, about 2,000 sq ft, because large toilets need to be provided for the highway travellers.

Barista Lavazza has begun to experiment with its menu on this store. It has, for instance, introduced filter coffee there in steel tumblers. If successful, it could be made available in Bangalore too. Similarly, stores in Gujarat and Gujarati-dominated localities of Mumbai (Borivli and Kandivli) have decided to test full vegetarian menu complete with dhokla. If the menu gains traction, it could be spread to all over Gujarat. Recent brand extensions also include ice-cream and chocolates at select outlets.

Sector experts say that a highway store is a good idea because roads have improved and Indian families have begun to travel like never before. The orders here are meal-oriented and are hence bigger in size. But some are not sure if Barista can pull it off. “The company will need to start from scratch in terms of backend operations and supply chain management,” says Technopak Advisors Associate Vice-president Purnendu Kumar. “The business model is different. It will need to make investments as customers expect consistency from a large retail chain across all its stores. Every paratha will have to be of the same quality.”

Adds another food sector analyst: “There is a certain amount of risk involved when you leverage an existing brand for an altogether new model. Why does it need to merge its coffee equity with food where more consumer interaction and brand-building is required? Why not create a new brand for this?”

Cost matters
Experiments, of course, cannot be carried out at the cost of profitability. How many of its stores are actually making money? “At Barista, we work on a store-wise profit and loss account. Each store has to break even on an MCM-basis (manager controllable margin) in the first month itself, EBT-basis (earnings before tax) between 12 and 15 months and has a payback period anywhere between 24 and 36 months,” says Coutinho. “This model is broadly followed across the chain. Some stores could be kept for strategic branding reasons, though they don’t hit the EBT breakeven in the first year. These would be exceptions and have been looked at in this manner from the first day itself.”

Barista, mind you, does not advertise in the popular media, though it does in-store promotions now and then. This is a huge cost saving which helps in early breakeven. Large chains in the food category are known to spend up to 12 or 13 per cent of their sales turnover in advertising.

Still, Coutinho has put in place a brand new real estate strategy for the company which will help it save serious money. Rents have been renegotiated down 35-40 per cent at ten or 12 sites. More could follow. The company plans to open 100 new stores in the next one year. “We don’t want to grow in a mindless way. We want to be profitable without giving up our key attributes,” says Coutinho.

Interestingly, Coutinho says that Barista has decided to give malls a skip in the future. “There are only four malls in the country which get the right traffic: One each in Delhi and Mumbai and two in Bangalore. Others are a losing proposition,” says he. Within malls, Cutinho finds the atrium a better option. “The investment required to get started is low and visibility is high. And if the business doesn’t work out, the exit is easy. It takes very little time to wind up and move,” adds he. Clearly, the business is fraught with risks.

(Suvi Dogra contributed to this article)