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"Cutback? Where is the spending cutback?" asks an upbeat Ramakrishnan, president of marketing at Cafe Coffee Day (CCD), the country's largest coffee retail chain. "We haven't seen any slowdown in our stores," he says. About to open its 1,500th outlet, the company is substantially ahead of competition in store count. The combined presence of Barista, Costa Coffee and Tata Starbucks is about one-third of CCD's.
However, CCD, with its flagship format of cafes, targets the youth with pocket money and, as a result, has a lower revenue per store than some of its peers. While the management plans to continue focusing on its core customer, it is also thinking of ways to increase ticket prices in each of its stores.
A division of Amalgamated Bean Coffee Trading Company, CCD wants to refresh its attempts at increasing consumer spends on its food options, for one. It is working to ensure customers walk into its cafes for a 'chilli cheese toast' or an 'egg wrap', rather than have beverages alone hold on to the limelight at their well-distributed bright, crimson-themed stores.
"Anyone who walks into the cafe buys a beverage. Food and merchandise are great opportunities to maximise the value of the bill size for the same number of walk-ins. But over time, we want to create products in food which will by itself become the reason for people entering our cafes, and not just the beverage," Ramakrishnan says.
The market for cafes is estimated to be around Rs 1,500 crore, expected to grow at 20 per cent, according to Technopak Advisors. Ankur Bisen of Technopak Advisors says, "CCD has crossed the phase where widening presence is a retailer's only priority. Now, clearly, the focus has shifted to same store sales, which is a more healthy parameter of growth. If you want to maximise sales in existing stores, there is only so much that coffee can do to help in a tea-drinking nation. Its focus on food is welcome in such a case, as food is a much higher-margin business and also helps increase the ticket size substantially."
But the renewed focus also catapults the brand from fighting coffee shops to much larger quick-serve restaurants, food courts in malls and other eating joints. Competition may be rife in this segment, but potential also abounds. To provide an estimate of the potential, data from Crisil Research says the quick-serve restaurant industry in the country will double to Rs 7,000 crore in 2015-16. This quantum jump in spends in urban areas will be propelled by an increase in nuclear families, working women, steady growth in incomes, changing lifestyle and eating patterns, according to Crisil Research. In fact, growth in the food segment is expected to buck the economic slowdown and be largely driven by new outlets.
To fuel its food focus, CCD is betting on consumers who spend hours at its cafes as - an Indian phenomenon in cafes, unlike the West where consumers grab food or a beverage and walk out.
Even Starbucks, the epitome of the take-and-go model elsewhere, is focusing on creating themes and an ambience at its cafes to welcome a laidback cafe crowd.
Industry experts had frowned upon this trend, expecting it to cannibalise sales with the lack of free tables for new customers walking in. However, CCD believes its competitive edge lies in the fact that consumers can spend hours at its outlets without being shooed away.
"Yes, there are some people who order one cup for three and stay for hours but that is a small fraction. We have seen that the longer people stay, the more they consume. That keeps us relevant. Where else will they find a unobtrusive place for a conversation without any hassle?" says Ramakrishnan.
"As far as branding goes, this is CCD, version III.
Re-invention is is a reality we have to deal with," says Ramakrishnan. The company recently renovated about 400 of its cafes across the country to stay abreast of the ephemeral interests of those in the age 17-24 years, its core target.
But to retain the aspirational value, it has also ventured into two more formats - the 1,000 sq-ft Lounge and the 1,300 sq-ft Square. While the Lounge is priced at 30 per cent more than the 500 sq-ft Cafes, the Square is 15-20 per cent more expensive than the Lounge.
CCD has 47 lounges and two squares out of its total count. Ramakrishnan says the focus will always be on its cafes.
Bisen says "Brands have often experimented with lounges and other upscale formats in the past in a bid to premiumise their offering and brand value. Same with CCD, where the brand wants to inject in some sort of aspiration al appeal. Cafes will always be its core business, but this is like a premium edge to its offering - a niche it would like to maintain as a consumer connect."
CCD has come along way from its start as a cyber cafe that also served coffee in 1996. It moved on to making coffee the centre of its business.
But in a country with low per capita consumption of coffee at 82 gms, (versus consumers in the US who consume about 4 kgof coffee in a year), CCD was quick to break out of the 'coffee shop' mould. It introduced other hot and cold beverages and then went in for a menu overhaul that saw a whole new line of beverages, snacks and desserts. CCD is planning to open 500 additional stores by 2015.
