BURGEONING MARKET - Coffee chains line up to cater to young India

BY DEEPTI CHAUDHARY, PAVITRA JAYARAMAN & RASUL BAILAY


At least three international coffee chains are preparing to enter India, adding to a crowded mar- ket that is set to bulge some more.
The UK's Coffee Republic, Malta's Cafe Jubilee and Aus- tralia's Coffee Club Group have given mandates to retail consultancies in India to scout for franchise partners.

“We have identified real growth opportunities in India as (the) cafe culture is taking hold,“ said Tariq Affara, chief executive, Coffee Republic Trading Ltd. “We have interna- tional experience, a very strong brand offer, and we are excited and confident about our prospects in the Indian market.“

More than 1,200 cafes have sprung up across India in the past decade, mostly from six organized chains, clocking an average annual growth of around 40%. They have made the cafe industry--currently capped at Rs1,000 crore--one of the fastest growing organ- ized retail segments.

Chains such as Cafe Coffee Day (CCD)--which recently acquired Czech label Cafe Em- porio--Barista and Costa Coffee plan on opening hundreds of outlets in major cities over the next two-three years, pin- ning their hopes on the deep pockets of India's growing class of young professionals and students.

According to industry esti- mates, there is scope for an- other 5,000 or so outlets strate- gically located close to offices, colleges and shopping malls.

That's the space the foreign chains want to tap.

Coffee Republic is working with consultants to identify a partner who can expand its business across India. Affara didn't name the consultant.

Cafe Jubilee and Coffee Club Group are working with New Delhi-based consultancy Franchise India Holdings Ltd for strategizing their entry into the country.

Starbucks Corp., the world's largest coffee retailer, is also eyeing the Indian market, after having dropped the plan a few years ago following some regu- latory hurdles.

“At some point in the near future, we will make the right announcement and the right partner in India,“ chief execu- tive Howard Schultz had told Reuters in April. “We are en- thused about India.“

The country is a big draw for international cafes, four of the six organized coffee chains in India being foreign players.

“It is important for the glob- al players to drive strategies by making the campaigns more product-centric than the desti- nation, in addition to the given mandates to flourish in India,“ said Gaurav Marya, president, Franchise India. “This poses a huge challenge to bring the re- quired shift in Indian consum- erism.“

Their biggest challenge will come from India's largest cafe chain, CCD, which has 917 outlets in 150 cities and towns.
It is looking to launch another 200 cafes to add to its presence on highways and inside malls and corporate offices by March.

CCD also plans to open 100 lounges in Mumbai, New Del- hi, Chandigarh, Hyderabad and Chennai to add to its single lounge in Bangalore, as well as Coffee Day Squares in major cities.

“With lounges, we hope to address young professionals who grew up on CCD and want to indulge a lot more,“ said K.
Ramakrishnan, president of marketing.

“It's a market that needs to be created. Geographical ex- pansion has huge possibilities.
Cities are not saturated yet and the market is not limiting at all,“ he said.

Barista Coffee Co. Ltd, In- dia's second largest organized cafe chain with 210 outlets, plans to launch 40-45 outlets a year in the next two-three years.

It will be followed closely by Costa Coffee, the UK's largest coffee brand, which entered India in September 2005 through an exclusive fran- chisee tie-up with Devyani In- ternational Ltd.

The company has opened around 50 outlets in northern and western India, and plans to invest Rs250 crore in the next four years to take its store count to 500.

But experts point out the chains are targeting the same locations and clients, with lit- tle other than price to differen- tiate them.

Clients agree. Prakash Chan- dra, a 25-year-old software en- gineer, said his loyalties don't lie with any particular chain, as he sat with a couple of friends, sipping from a Barista cup in Noida, a New Delhi sub- urb. “I go to these coffee chains very often. I go to Baris- ta, I go to Cafe Coffee Day; anything will do for me.“ Australian cafe chain Gloria Jean's Coffees, which entered India in 2008 through the Landmark Group's hospitality section, Citymax, positions it- self at the upper end of the market.

The chain, which has 12 out- lets across India, offers a pre- mium cup of coffee at 10-15% more than a cup at Barista, which is priced at around Rs60. It is looking to add an- other 18 outlets by March. The prices at Costa Coffee are also 10-15% above that at CCD, where a regular cup costs Rs40.

“In the cafe business, it is a question of which market and segment one is targeting,“ said Pinakiranjan Mishra, partner and national leader, retail and consumer product practice, Ernst and Young. “One needs to see if they are offering value for that money. In future, it would become more service- led than price-led differentia- tion.“

Outlet managers also say that with cafe chains vying for the same strategic locations, their sales are being affected.
In Noida's Sector 18 market, for instance, there are four Ba- rista outlets competing with five outlets of CCD, two of Cos- ta Coffee and five or six small independent cafes within a ra- dius of half a kilometre.

In Bangalore's Indiranagar locality, there are four cafes on a 1km stretch. “I wish they were not here,“ said the man- ager of one of the Indiranagar cafes, requesting anonymity.
“Since they opened, we have lost at least 20% of our regular customers.“

deepti.c@livemint.com