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Apr, 06 2012


Here's some good news for all coffee lovers. After US-based Starbucks, it's now Dunkin' Donuts slated to make inroads into India. Check out how brands in coffee business are maneuvering their growth strategies to save their existing franchisees and tappin

WHO does not want to savour a cup of freshly brewed coffee at a nearby café? As coffee consumption in India flourishes exponentially, it is believed that money will start trickling in eventually. This conviction comes from the fact that this market is still under-penetrated and has a huge growth potential. A healthy growing Indian economy, increase in per capita expenditure on coffee in tier-II and III cities, besides the metros, and opening of commercial spaces like high-streets, multiplexes and malls are some of the factors that are encouraging the coffee moguls to invest in India.

Looking at the overall café market growth, industry analysts estimate India's organised café market at Rs 931 crore, growing at 25-30 per cent annually. It is further expected that the café market in India will thrive over the next few years. The current industrial data shows that there are about 6200 plus cafés in India today. Though India is recognised worldwide as a tea-consuming country, many organised players are upbeat about tapping the coffee industry. This optimism stems from the fact that consumer preferences are changing considerably from consuming tea to coffee at a fast rate swelling the community of café goers reasonably.

Seeing the changing consumption patterns, many international coffee chains such as UK's Coffee Republic, Malta's Café Jubilee and Australia's Coffee Club Group have been indulging in talks with India's franchise consultancy firms for spreading their wings in the Indian market. It is also believed that opening of Starbucks in India will eventually revolutionize the overall scenario of the café industry. On what he feels about the burgeoning coffee market in India, Santhosh Unni, CEO of Costa Coffee (India), says: “It is indeed booming and driving this boom is India's growing youth segment with growing disposable income and propensity to spend and for whom coffee is emerging as a lifestyle choice. About 50 per cent of India's 1.2 billion people are 25 or younger. By 2015, this is expected to increase to 55 per cent.”

Sushil Kumar, Retail Head, Concorde Cuppa Beverages Pvt Ltd, that operates “Cuppa,” says: The consumption of coffee in India is only 100 g per person per year compared to 4.5 kg in the US. Hence, we have a long way to go. We are in this space to increase consumption and drive the volumes and grow the market.” He further adds: “The coffee industry is growing fast in India compared to tea. We expect to become the second largest chain by next financial year.”

As the world's biggest brands have already contemplated their market-entry strategy for India, their Indian competitors are striving to get their strategies right. As Starbucks and Dunkin' Donuts enter the fray with a promise to deliver high-quality coffee to their Indian consumers with an initial focus on food for the latter in India, many Indian coffee chains in the coffee space are preparing multiple strategies to generate more revenues by looking for a larger footprint in the market.

Currently, India's café market is dominated by big-guns such as Café Coffee Day, Coffee Day Xpress, Barista Lavazza, Cuppa of Concorde Cuppa Beverages Pvt Ltd, Café Desire, with Hindustan Unilever's Bru World Café also launching its operations on a pilot basis to test the waters in a highly competitive Indian coffee market. Besides, many foreign brands have also set up their outlets here, including UK's Costa Coffee, The Coffee Bean & Tea Leaf, and Australia's Gloria Jeans Coffee and Di Bella.

Adapting to local market

For an international brand, customi-sation is a significant aspect while considering entry into a new market. For it to stand out in the market, an international brand must be tailored to conform to the local market demand and consumption patterns.

Pricing plays a key role in creating demand for a product in the market. This implies that the international coffee chains will have to modify the prices keeping in mind the Indian consumer's wallet share and market demand for the commodity.

Speaking about his modification of the Australian brand, Sachin Sabharwal, Managing Director, Di Bella Coffee India, says: “For India, the entire beverage menu (hot & cold) will stay the same as they are globally; however our food menu will be adapted to the Indian palate. This will include more vegetarian varieties and our dessert range to be mostly egg less.” About his franchise expansion plans for India, he adds: “We do envisage expansion via the franchise model; however we will have stringent guidelines for selection of our franchise partners.”

Unni, CEO of Costa Coffee, also feels the need for a successful pricing strategy. “The success of a pricing strategy is all about ensuring that the customer sees value for the money he spends. While we may be smaller in terms of store footprint currently, we are the preferred coffee brand in the locations and cities where we co-exist. We believe our coffee is a great differentiator. Also, we offer the best in class range of café food in the country today. While being within the broad contours of Western Café cuisine, our range of food is localised to suit the Indian taste profile.”

In the café business, coffee chains also form tie-ups with corporate clients to give leverage to their brands. Currently, Costa has a growing presence in the corporate sector and IT Parks, and it will be looking to grow its business significantly. For promotion of their brands, coffee chains introduce new products in the market. On introducing new products Sushil Kumar says: “As a part of our business strategy, we continue to develop new products / promotions on a regular basis, both internally and with brands that work with us.” For him altering the prices of products or services is a continuing exercise, as our input costs are increasing, especially in coffee.

Elaborating on adopting a different strategy, Kumar says: “We offer more variety of teas, and all in leaf-tea experience, both locally and in international flavours. We customise the food based on the city we are opening, like we offer VadaPav in South and Irani Tea in Hyderabad. The food is freshly made upon order, this is our major USP, which helps us cut down the wastages and keep our customers happy, as they are getting a great value for money. Our pricing is kept in such a way that we target customers from 24 plus to 40 years, which includes families too. Incidentally, we are the first café to offer wine in our menu.”

With an eye on targeting consumer footfall, Di Bella will become the first café chain to have initiated a full digital interaction platform throughout its outlets. There will be a Samsung Galaxy Tab on each table for customers to read the menu and place orders.

Amid the frenzy in the café space with strong competition, tweaking the brand's growth strategy according to the market demand and consumer preferences is the only way forward for international brands anticipating a larger base in the market. So, adopting new strategies for spreading wings by customising a brand according to the needs of the local market is the only way out to survive in this cluttered coffee market.

Spreading footprints

In a competitive coffee market, brands anticipate enduring profit and sustainable growth. Currently, Costa Coffee operates 95 units with presence in cities such as Delhi, NCR (Gurgaon, Noida and Ghaziabad), Mumbai, Bengaluru and Pune. According to its CEO Unni, plans are afoot for the brand to enter key cities in Punjab as well as major cities in South India, besides expanding its presence in existing markets. On growth projections for the brand he says: “Over the next two years, we aim to add 50-60 stores every year.” Cuppa Beverages also has similar aspirations for expansion. Says Sushil Kumar: “We are looking to double our existing number of stores. We have plans in pipeline to enter Chennai, Mumbai, Kolkata, Bengaluru, Hyderabad, Delhi and Pune. We are looking at Mall options too.”

Challenges ahead

Finding an ideal space, managing costs, striving to deliver services on a par with international standards are the major challenges that all café players have to face. Moreover, the entry of coffee giants like Starbucks, Dunkin' Donuts and a few others have made the ride bumpy for existing coffee players who were earlier sipping the flavour of success.

For brands like Starbucks that have entered the Indian market late, the biggest challenge would be to deal with inflated real-estate prices. As Sushil Kumar, says: “The biggest challenge is to ensure the franchisees are profitable, and once they are, they help us in bringing more franchisees to us. We provide a 360 degree support to our franchisee in terms of finalising a location, design, interiors, equipment, food supplies, staff recruitment, training, in-store promotions, branding revenues and a complete handholding.”

For Sachin Sabharwal, Managing Director, Di Bella Coffee, the real challenge in India is to educate the Indian consumers to discern the uniqueness of a coffee brand.

However, Santhosh Unni, CEO of Costa Coffee, looks at the issue differently. He maintains: “The biggest challenge facing us today is the relatively small size of the cafe market.” He, therefore, considers the entry of new coffee retailers into the market as a positive development for market expansion and growth.

With competitions becoming intense in this market, from kiosks to refined café lounges, renowned coffee chains have been fighting hard to tempt India's growing middle class. With more and more customers splurging on coffee, they are also expecting a lot from a coffee outlet in terms of menu, products and services, and the ambience it offers. This has ramifications for the competing brands that will vie for winning over the hearts of more consumers, thereby making the competition fierce.

Sushil Kumar, Retail Head of Concorde Cuppa Beverages Pvt Ltd, was unfazed by the anticipated competition in the coffee space after the entry of brands like Starbucks and Dunkin' Donuts into India. A.G. Puttaraj, President, Coffee Day Xpress adds: “Our plans at Coffee Day have and will always continue to be youth/consumer preference centric and not competition. We are looking forward to the Starbucks experience which will help to expand the overall coffee retail market, which is still growing in nature.”

Amit Maheshwari, General Manager-Operations, Coffee Bean and Tea Leaf (Pan India Food Solutions Pvt Ltd.), has a different viewpoint. According to him, in the coffee scenario prevailing in the country, a set of many factors, rather than a single factor, will determine who stays on top in the market. “It's a set of many thing,” he says, “the target within which you operate and their (consumers) familiarity with your product, what they seek in a cafea good product, the ambience, consistency, overall service, loyalty points or value for money. We look at it as a set of attributes that each brand has to offer to each consumer. There are consumers looking for a more evolved and sophisticated cafe experience. The Indian market is diverse enough to let each brand thrive.”

The brands, however, need to lay stress on maintaining their overall standards. This is echoed by Costa Coffee's CEO Santhosh Unni, who says: “ The coffee chain business is all about maintaining the brand standards that have been defined, and delivering that consistently. Costa's coffee experience is based on delivering the perfect espresso-based drink combined with great coffee-shop food served in a comfortable and chic environment. As long as we continue delivering to this statement, it will always keep us ahead of competition.”

The bottomline is, to survive in a competitive coffee market, for sustenance of its growth and to earn enduring profits, a brand, whether it is home-grown or international, must pay attention to its quality, adhere to the value of consistency over time, and offer unparalleled service to its customers.

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