By A Correspondent
For all the coffee enthusiasts, the good news is that Starbucks is finally in India and opening its first store in Mumbai today. One doesn’t have to head to another land for your shot of Mocha Frappuccino. Or the signature hot chocolate. Yes, Starbucks enters India in a 50:50 joint venture with Tata Global Beverages and looks like the coffee retail chain business will only get more competitive with the entry of global behemoth.
On the launch, John Culver, President, Starbucks China and Asia Pacific, said, “We are delighted to be able to announce our progress toward opening our first store in India and to introduce locally sourced espresso. Being able to use the highest quality espresso, sourced and roasted in India, is an important part of delivering a locally relevant experience to our customers in the market. This is the first step Starbucks and Tata Coffee Limited are taking toward developing and improving the profile of Indian-grown arabica coffees around the world by elevating the stature of Indian coffee, as well as improving the quality of coffee through sustainable practices.”
Cafe Coffee Day or CCD as popularly known from Amalgamated Bean Coffee Trading Co Ltd (ABCTCL) is the leading coffee retail chain and has been rapidly growing in India. Barista, Costa Coffee, Mocha, The Coffee Bean and Tea Leaf and Gloria Jean’s are some other leading coffee chains India.
Euromonitor International, October 2012 in its study for Cafes/Bars in India points that specialist coffee shops continue to grow at the fastest rate of nearly 25% in current value terms in 2011. It also reports that Amalgamated Bean Coffee Trading Co Ltd (Cafe Coffee Day brand) continues to lead value sales, with a share of 1.1% in 2011. In terms of growth it offers that the Cafes/bars is likely to grow at a constant value CAGR of 3% to reach Rs725.6 billion by 2016.
The report also states that “Urban consumers, including professionals and youngsters, increasingly started to prefer Cafes as places to hang out in 2011. Cafes such as CCD and Barista emerged as the favourite destinations for casual business meetings. Further, the Cafe trend also started to gain huge popularity even in Tier II cities such as Ghaziabad and Hubli, where young consumers were the dominant consumers.”
The encouraging bit is that Cafes/bars value sales grew at a faster rate compared to the review period. The faster growth in 2011 was mainly due to the growing popularity of Cafes/bars as hang out zones for young consumers. Further, chained Cafe’s such as CCD started to include food on their menus to cater to the snacking needs of consumers. Such expansion of menus helped to increase the average spend and value sales even further in 2011. Specialist coffee shops continued to grow at the fastest rate of nearly 25% in current value terms in 2011. To cater to the growing consumer base, Cafe operators such as Cafe Coffee Day expanded the number of outlets drastically in 2011.
K.S Narayanan, CEO, Pan India Food Solutions (The Coffee Bean & Tea Leaf), “The coffee market, by all parameters, is set to grow further in India. While it’s a complex business to manage, given our division over choice of beverage in different parts of the country, the entry of these many brands means more choice for consumers, in addition to segmentation of the market. The growth story for CBTL has been encouraging since we started out in 2008. We’re focused on the premium coffee and tea consumer and strive to deliver the most premium Cafe experience to the customer in terms of product, ambience, and service. Our CBTL business continues to grow at a steady pace and we have added six outlets this fiscal year.”
Another important trend that Euromonitor quotes is that Coffee shops continued to have drinks as their major offering, accounting for nearly 60% of the value sales in 2011. However, most of the coffee shops started to expand their food offering to attract consumers to their outlets.
Independent Cafes accounted for nearly 96% of the total value sales of Cafes/bars in 2011. Independent Cafes continued to enjoy huge popularity amongst older consumers who prefer to have evening and morning hot beverages in traditional independent Cafes, such as Indian Coffee House and Airlines. However, independent Cafes continued to lose share to chained Cafes, which witnessed strong growth in 2011.
India’s Cafes/bars category is highly fragmented with no player constituting a double-digit share in 2011. Amalgamated Bean Coffee Trading Co Ltd (ABCTCL) continued to lead Cafes/bars with a value share of 1.1% in 2011. The company continued to enjoy an established presence across the country under the brands, Cafe Coffee Day and Coffee Day Xpress. Other Cafes/bars, such as Barista, Java Green, and Costa Coffee, also enjoyed huge popularity amongst consumers. It should be noted Amalgamated Bean Coffee Trading Co witnessed the fastest growth, mainly due to rapid expansion in the number of Cafe Coffee Day outlets in 2011.
Whitbread Plc’s flagship brand Costa Coffee witnessed strong regional and national growth across India’s chained Cafes category in 2011. The company enjoyed a value share of 5% of chained specialist coffee shops in 2011. Costa Coffee focuses on business professionals (i.e. expatriates) and affluent households in cosmopolitan cities such as Bangalore and Delhi.
Chained Cafes such as Barista and Cafe Coffee Day are likely to expand the number of outlets and also extend reach to Tier II cities during the forecast period. The expansion plans would allow Cafe chains to leverage on the growing preferences of Tier II consumers to go to Cafes to socialise. Additionally, chained Cafes are also likely to focus on expanding their food menus, including the introduction of value for money food items in their menus over the forecast period.
Increasing real estate rentals, overheads and food price inflation are likely to threaten the profitability of Cafe operators during the forecast period. Such an increase in costs is expected to force Cafe operators to pass on the costs to consumers who might choose to cut side orders.
On the space changing with the entry of Starbucks, Mr Narayanan said, “With the coming of international brands, the consumer will now get a wider choice of product offerings in the market place which would in turn enable the market to be more sharply segmented and grow at an accelerated pace.
Specific to CBTL he added, “Coffee Bean and Tea Leaf prides itself on the quality of teas and coffees it has on offer for its patrons. Our beverages (coffees and teas) are sourced from the world’s best plantations which comprises about 1% of the world’s produce. That quality experience that we offer to our consumers will continue as we have set out to do.”
Technopak Advisors, a management consulting firm noted that the café brands are moving closer to consumers for easy accessibility. Therefore, they are moving beyond traditional locations (high streets, markets, shopping malls) to other promising and high catchment venues such as offices, hospitals, educational institutions/campuses, airport etc. Besides new formats are being introduced beyond traditional dine such as kiosks, premium lounges among others.
They also outline the challenges in this business and real estate is the biggest one. More brands are now vying for the same space – consequently rentals are high and often a big part of operating expense. There is the issue of supply chain for new brands due to small scale of operations to start with; existing brands need to streamline operations for operational profitability as they grow in store numbers. There is a need for increased investment in resources, kitchen, quality audits, greater financial investment and technology. The challenge is also menu where bands need to standardise the production process in growth phase to provide quality food and beverages across cities. At Store Level, the challenges include that with the growth of the sector, managing store level operations will become increasingly important in terms of staff training, retention, quality of service and standardisation of café design among others.
Starbucks spokespersons were not available for comment on the eve of the launch to reveal their pricing.
Images from www.Starbucks.in