As Starbucks, the world's largest coffee house chain, prepares to roll-out its first store in India by August-September, rivals are gearing up. UK-based Costa Coffee has launched its 100th store in India in the suburb of Bandra, Mumbai. The plan, according to Santhosh Unni, chief executive, Costa Coffee India, is to launch another 100 stores in the next two years. Interestingly, the 100-store-mark for Costa comes after nearly seven years in India. Costa started in 2005 with Ravi Jaipuria’s Devyani International as its master franchisee. After a slow start, its expansion gathered steam in the last two years, with nearly 65 stores in Mumbai, Pune, Bangalore and Delhi-NCR.
The next phase, said Jaipuria, who is the chairman of RJ Corp, the Gurgaon-based group which owns Devyani, will see stores in Chennai, Hyderabad and Punjab. “The idea is to expand our footprint rapidly,” he says. “Now that we understand what the consumer wants, the pace will be faster,” he adds.
Costa is among the international players ramping up quickly. Indian coffee chains are not far behind. The Bangalore-headquartered Cafe Coffee Day, which is the largest coffee chain player in India with over 1,200 outlets, proposes to add 1,000 stores by 2014, taking up its store count to over 2,000.
Australia’s largest coffee chain, Di Bella, with six outlets in Mumbai, will, according to its founder and chairman Philip Di Bella, have 50 stores in the next three years in places that include Pune, Hyderabad, Bangalore and Delhi. “There is enough room for all. So, I am not worried,” he says. “If anything, the expansion activity of players will help grow the market,” he adds.
At Rs 1,000 crore, the coffee chain market in India is growing at a clip of about 30 per cent per annum. According to Saloni Nangia, president of retail consultancy Technopak Advisors, the top 40 cities in India have 1,600-1,700 outlets. “These cities can accommodate another 2,000 cafes in the next few years,” she says.
This projection is based on a simple math: India has been adding around 200 cafes per annum for the last five years, says Nangia. “If this pace of growth is maintained, then 2,000 more cafes will see the light of day,” she says. And given that all players have plans to expand their operations, there is no reason why this number should not be achieved, she adds.
Lavazza, owners of Barista, which has 154 outlets in India, proposes to get aggressive with its flagship format Expression, which was launched recently in Delhi. Attilio Capuano, Asia & Pacific director, Lavazza, in an earlier interview had said at least two more Expression cafes would be launched in Bangalore and Mumbai, respectively, with plans to increase the number.
Then, there is Dunkin’ Donuts, which launched its first outlet in Delhi in May. The company, headquartered at Massachusetts, plans to set up eight to 10 stores this fiscal in Delhi. It has a joint venture with Jubilant FoodWorks, a master franchiser of brands and will look to set up 90 more stores in the next five years.
Challenges remain
With the expansion spree of so many coffee retailers, finding good properties, say experts, is a challenge. The rentals are steep. For every Rs 100 worth of sales at a cafe, the costs work out as follows: Rs 35 is the consolidated cost of the product including food & beverage, the balance Rs 65, which is the gross margin for a cafe, has to cover operational expenditure such as rent, staff, utilities, store-level promotions, delivery charges and food wastage. The net margin works out to about Rs 20, which, though reasonable, is not very big.
Retailers say owing to the demand-supply mismatch in properties, managing rentals is becoming a problem. Another hurdle is staffing costs, which, due to the churn in the food & beverage industry, is nothing less than 30-40 per cent.
With so many players ramping up, the accent is now shifting to differentiation in offering. “The players who stepped in early have done the basic job of educating consumers. At least in the tier-I and tier-II cities, people know what a cafe is all about,” says Di Bella. “Consumers now are becoming more discerning, so the accent is on what novelty you bring to the table.”
Di Bella, for instance, has Samsung Galaxy tablets placed at every table in its six outlets across Mumbai. Consumers who walk in can place orders with the help of these tabs without having to crowd at the main foyer of the cafe to place their orders. Most cafes are sprucing up their menus to offer a wider choice of food, besides ice-creams and deserts. Sale of branded merchandise is also emerging as a viable revenue stream for coffee chains.
