Wednesday, December 25, 2019

The Café boom – Retail 2020 (Article #4)

When I was climbing up Vaishno Devi hills 5 years back late in the night, I saw to my pleasant surprise an outlet of Café Coffee Day midway known as “Ardh”. The café was quite popular among devotees and visitors and many regulars were savoring their favorite cuppa at this 24hr café. One can find over 1,700 such cafes across 450+ cities in India and the brand can be credited with creating as well as leading the “café culture” in India and introducing it to three generations since 1997 when the first one opened at Brigade Road, Bangalore.


A friend of mine asked me a few years back, “what’s it like to drink a cappuccino at Starbucks in India?” – I said, enjoying a great cup of coffee indeed. He replied, “No, one spends Rs. 350 to live their American dream while spending the 90-120 mins at the Café”. In hindsight, this is quite true. I had written in my article only yesterday that most Indians buy luxury products for the “Badge Value” it offers and not really for what the product stands for and the craftsmanship. Same is with eating out as well and no wonder, the café boom has been growing year on year in India. A Café (or a local F&B joint earlier) is the third most preferred place after Home and Workplace to have a social catch-up for most of us worldwide. 

The traditional tea shops in India, since the days of the Independence struggle, would play community radio and the entire neighbourhood would gather to listen to the latest updates. Later on, it was Ceylon FM and Geet Mala which attracted the locals only before independent Tea shops and local Restaurants started mushrooming across cities. The India Coffee House, stunningly still operational through a network of cooperative societies, is a glaring example of the gossip-gupshup culture of the 50s and 60s. And then came the trendier cafés which served Italian styled cappuccinos with local snacks and gourmet cuisines to attract the well-travelled as well as the aspirational customers of popular western culture. The rest as they say is History, rather, “History in the making”. For, we have a mere 4,000+ modern style cafés across 500 cities in India – for an estimated discerning customer segment of at least 30 million consumers in the age bracket of 18-45 years. 


Café Coffee Day is the largest café chain in India with over 1800+ cafes. In store count, second comes Starbucks which entered India in 2012 in a JV with Tata Group and operates around 180 outlets – approximately 10% of the market leader. Home grown café chains such as Barista and Java Green as well as Internationally acclaimed chains such as Costa, Gloria Jeans, Coffee Bean and Tea Leaf and many others entered India with much fanfare a decade or so back and have already exited with huge losses since they couldn’t get the business model right. While coveted brands like Illy Coffee are available only at select star hotels, many international café chains haven’t even entered India for obvious reasons. 

Meanwhile, India has witnessed a boom in the Tea Retailing models with a number of funded start-ups ruling the roost. Market Leader Chai Point has raised US $37.5 million and has 104 operational stores across India while Chaayos has raised US $18 million and operates 65 outlets. While these investments have largely gone into brand building, the Tea-Retailing business hasn’t been profitable even at an operating level as per market sources, thanks to the low perceived value of a cup of tea, its liberal availability across the length and breadth of the Country due to abundance of supply of raw tea leaves which are grown across the country unlike the Coffee Crop which needs a special soil and shade alongside to grow with high maintenance. Incidentally, most of the premium varieties of coffee and tea are exported for a hefty price and what we get mostly is of inferior quality. The ApeeJay Group created an innovative concept by the name “Cha-Bar” as part of the eponymous Oxford Bookstore, beginning from Park Street Kolkata to Mumbai, Delhi, Bangalore, Chennai and across India, although neither the book retail nor the tea-retail business took off as much as many other coffee chains took the country by storm at one time. 


A few years back Hindustan Unilever experimented with Bru Café at Mumbai as a brand experience center and the Tata Group has experimented with the Brooke Bond Café at Mumbai and Tata-Cha at Bangalore, both of which haven’t expanded for reasons best known to Tata Sons. Bru Café eventually never scaled since the instant coffee was not what the consumer was willing to pay a premium for. Bru and Nescafe Sunrise are the Top 2 operators in the Rs. 2,000 Crores pa Instant Coffee Market in India with over 40% market share together with numerous others such as ITC's Sunbean, Levista, Continental Coffee, Leo Coffee, Narasus Coffee and many others are stacked up one behind the other in one of the smallest Coffee Markets (by value) in the world, disproportionate to the population size. Nescafe has been able to open Kiosks at various establishments such as Airports, Railway Stations and Corporate Tech Parks while Bru has penetrated deep in to the small and medium size offices and corporates with over 25,000 installations cumulatively across all its formats.

With 50% of India’s population under the age of 35 years, a substantial exposure among the Gen Y, Gen Z and the Millennials to global culture and higher disposable incomes than the immediate previous generations, the Café boom is yet to even begin in my opinion. But it would be fraught with challenges. Getting the right real estate is the prime challenge. Then comes standardizing the F&B assortments so the crew at café can prepare with limited OTJ training. Third, deep pockets to keep consumers coming back for repeat visits. But the good news is that the potential Consumer is not just ready but is willing to pay a premium for discerning concepts. 

As I write this article, Gloria Jeans is making a comeback, CCD is about to get a new Investor cum Owner and a few interesting brands are scaling. Exciting space ahead. So I can write more interesting stuff about my favourite beverage, more often.


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