Slide 1

1WEL COME

Coffee retailing in india2

Speaker AAGLODIYA IRFAN HAIDAR Reg.No.J4-01293-2014 PGIABM, JAU JUNAGADH

2

CONTENTIntroductionRetail trends in coffee marketIndian Retail Coffee Market: Advantage and DisadvantageMajor International Cafe chain Top coffee brand and players Coffee sector in IndiaAttitude coffee in IndiaKey player coffee market in IndiaChallenges Indian coffee industryConclusion

3

4

INTRODUCTION

4

COFFEE - HISTORYIntroduction of seven seeds by the holy saint Baba budan during 16 Century. when the legendary saint Bababudan brought seven magical beans from distant Yemen and planted them in the Chandragiri hills of KarnatakIt spread to other areas of Wynad in kerala, Shevaroys and Nilgiris in Tamilnadu. Commercial cultivation by British entrepreneurs in South India during 1820s.Setting up of Coffee Board in 1942.

5Source :Coffee Board in India

Traditionally, India has been a tea loving country.India has now become one of the fastest growing coffee markets in the world.A coffee boom in consuming countries with rising sales and profits for coffee retailers and roasters.Organized coffee retail business in India at over Rs 8 billion with the potential space for nearly 3,000 coffee retail outlets in India.According to industry sources, coffee consumption has shot up from 55,000 tones to 80,000 tones since the Liberalization of the economy in 1991.The Retail coffee trade is largely dominated by branded players, with Nestl and Hindustan Unilever being the categorys leaders accounting for approximately 60-70 per cent of the retail market (by value) in 2012. (Coffee Board of India)

6

Factors ArabicaRobustaSoilDeep, friable, rich in organic matter, well drained and slightly acidic.Same as ArabiaSlopesGentle to moderate slopesGentle slopes to fairly level fieldsElevation1000 to 1500 m500 to 1000 mAspectNorth, East Same as ArabiaTemperature15 C- 25 C, cool, equable25 C- 30 C, hot, humid Relative humidity70-80%80-90%Annual rainfall1600-2500 mm1000-2000mmBlossom showersMarch-April(25-40 mm)Feb-March(25-40 mm)Backing showersApril-May (50-75 mm); Well distributedMarch- April (50-75 mm); Well distributed

Table : Agronomical condition needed for coffee plantation Source: Pandy and Trivedi, 20107

Map of India showing the various regionsSource: Coffee Board in India8

Retailing is a distribution channel function, where one organization buys products from supplying firms or manufactures products themselves, and then sells these directly to consumers.

or

The sale of good individually or small quantities to consumer. What is Retailer9

Retail Trends in coffee market Specialist coffee shops continues to grow at the fastest rate of nearly 25% in current value terms in 2011.Cafs/bars is likely to grow at a constant value Compound annual growth rate (CAGR) of 3% to reach Rs 725.6 billion by 2016.Coffee shops continued to have drinks as their major offering, accounting for nearly 60% of the value sales in 2011. Most of the cafs continued to have a stronger focus on coffee than tea in 2011. Independent cafes accounted for nearly 96% of the total value sales of cafs/bars in 2011.

Source: India Agribusiness Report - Coffee Outlook , 201310

Figure 1:The Coffee Trade: Retail Market Construct

11 Source: Jain and Shukla, 2013

Table1: The Coffee Trade: Retail Market ConstructVARIANTBRANDSPrice RangeInstant Coffee (Coffee Powder)Nescafe Sunrise, Classic, GoldBru Green Label, Instant, Super Strong Gold, Exotica,LavazzaINR 250-Rs 4500per kgPremixesNescafe Cappuccino, Vanilla Latte, Choco Mocha BruINR 60-75 per pack of 5PodsNespresso, Lavazza, Fresh and HonestINR 30 each upwardsBeansLavazza, Caf Coffee Day, Starbucks, Coffee Bean and Tea Leaf, Fresh & HonestINR 500-Rs 5000 per kgReady-to-Drink (RTD)Starbucks, Nescafe Amul, Mother DairyINR 20-275 per bottleFilter CoffeeKaapiINR 750-800 per kg

12 Source: Jain and Shukla, 2013

Indian Retail Coffee Market: Advantage and Disadvantage13

Advantage Expansion driveIncreasing disposable income and expansion of consumption cultureDifferent formats to catch every consumer segmentDisadvantageThe struggleTwo player battleThe economic impact

Source: www.businessinsider.in14

Major international caf chains

15

Diedrich in the US, Costa coffee in the UK Doutor, founded in Japan in 1962 Tchibo, founded in Germany in 1949 Second Cup, founded in Canada in 1975 Doutours and Nestle chain of cafes in Japan Douve Egberts chain of coffee shops in the Netherlands Caribou coffee tim hortons in the USCoffee bean & Tea leaf in the US Coffee Beaney in the USSeattles bestPeets coffee in the USTullys in the USDunn bros. coffee in the USPort city java in the US

16 Source: Pandy and Triwari, 2010

Top Coffee Brands in India17 Nescafe

Tata Coffee

BRU

Source: www.businessmapsofindia.com

18BrandCompany2010 Retail value US$ billionNescafeNestle SA10.3JacobsKraft food lnc2.0Maxwell HouseKraft Food lnc1.5FolgersJm Smucker Co1.2TchiboTchibo Gmbh1.2LavazzaLavazza spa,luigi1.2NespressoNestle SA1.1Carte NoireKraft food lnc1.0MelittaMelitta Unternehmensgruppe0.9StarbucksStarbucks crop0.8

Table 2: Global top 10 coffee brand Source: vegas, 2011

Major coffee players in India19

Source: www.infobharticom

Table 3: Coffee Outlets in India20NoNameCurrent No. of outlets1Caf Coffee Day12702Barista Lavazza1603Starbucks504Total outlets3000

Source: Coffee Machine Industry, 2013

Coffee Sector in IndiaIndia is the worlds sixth largest producer of coffee ,with about 4% share in global production (304 thousand MT in 2013).Robusta and Arabica coffee from India is also well received in international market.Most coffee in India is grown in three states: Karnataka, Kerala, and Tamil Nadu.These states accounted for over 92 percent of India's coffee production in the 2011-2012 growing season.Coffee is an important export commodity from India with ashare of around 5% of worlds exports. Indias domestic coffee consumption is estimated to have risen to about 1.9 million bags in the year2013.

21 Source: Anonymous, 2013

22 Source: Venkatesh, 2010-11 Karnataka, India

Table 4: Top Indian coffee exporters for financial year 2009-10NoExporterQuantity exported(MT)% to total quantity% Cumulated1NKG Jayanti Coffee PVT. LTD.27756.714.214.22CCL Products (INDIA) LTD.,20454.810.524.73Allanasons LTD19538.610.034.84Nestle India LTD182151.19.344.15Tata Coffee LTD.12740.76.550.76Amalgamated Bean Coffee Trading Company11910.56.156.87Ned Commodities India Pvt. LTD.,11811.26.162.88Olam Agro India LTD.,9913.15.167.99S.L.N. Coffee Pvt. LTD8616.64.472.310Narasu' Exports6764.83.575.811Others47121.724.2100.012Total194843.8

22

23Source: Coffee Board of India23TABLE 5: India's coffee exports during 2008-09 to 2012-13Sr.No.Destination2008/092009/102010/112011/122012/13QuantityQuantityQuantityQuantityQuantity(MT)(MT)(MT)(MT)(MT)1Italy44,03769,03074,34478,01068,4092Germany11,07923,45944,69625,72628,2953Russia18,85130,58933,48929,38119,5964Belgium8,16911,43923,18618,00717,9715Jordan4,3107,1087,4257,50610,3376Slovenia3,6804,6017,59213,13310,2437Malaysia4,0313,8884,8388,3286,7408Spain6,9607,91415,4777,9826,4219Greece4,6304,5906,2306,4915,79610USA2,5566,1775,8926,3765,78111Others68,78087,624112,470109,318110,791TOTAL177,083256,419335,639310,258290,380

23

Coffee Consumption in India

The total pure coffee volume in India is 304 thousand metric tons in 2013, of Which 125 thousand MT is the domestic consumption with the per capita consumption being ~90 gm per year. Urban consumption dominates with about 73 per cent of total volumes and the remaining 27% accounts for rural consumption. In the North, East and West zones, consumption of instant coffee is more predominant than filter coffee. South alone consumes nearly 80,538 MT (78%) of total coffee consumed in India. Among the south Indian states Tamil Nadu accounts for 36 per cent of consumption while Karnataka, Andhra Pradesh and Kerala account for 31%, 18% and 15% respectively.

24CONT..

There is more potential in the non-south, where the occasional consumers are high in number.Occasional drinkers contribute to 52% of total, this essentially means that people have started experiencing this beverage, which should be advantageously used to increase in consumption. Converting them to regular coffee drinkers is an opportunity for growth. Between 2003 and 2009, there is a large reduction of non-drinkers but the proportion of occasional drinkers have increased. The potential for growth lies with occasional drinkers and more so in East zone: 80% , North zone: 75% and Western zone: 63%

25Source: Coffee Board of India

26Factors affecting demand of coffee

27Nature of the product Self life, seasonal crop, , Bitter test, Quality parameterAvailability of the substitute Substitute Like Tea Which is easily available of lower pricePrice level of coffee Price of coffee is very high compare to other beverage products i.e. Rs 60-250 for a cup of coffee.Income of the consumer Mostly higher income level consumer only preferred to consume coffee.Taste and preference More bitterness in taste camper other beverage like teaPrice of the related goods Price of other beverages product like tea is very less than coffee price Source: Anonymous, 2012

Attitudes to coffee in IndiaCoffee at home is significantly different to coffee outside.It is interesting to observe that rating for coffee outside home is better than tea outside home, specifically in the North and the east.Restaurant coffee is rated better on quality in the West and South, particularly when compared with the East.In the weak coffee markets defined as the markets in the North, East and West because of its bitter taste (East) as well as its inconsistent taste.High price of coffee is also felt as a barrier in the South and the North.

28

Consumer in the North also believe that making filter coffee is time-consuming. The knowledge levels on coffee appear to be relatively weak in the North and East where consumers 1. Do not know how to make filter coffee 2. Do not know what chicory. Respondents in the North, followed by East, appear to be most positively inclined to consume more coffee at home if 1. The price was less. 2. They were reassured on health. 3. They could try new/ different recipes.

29 Source: Pandy and trivedi, 2012

Domestic market Indian domestic market is protected by importation taxes and almost reduced to the consumption of Indian coffee. It is fast-growing and in mutation. From 30% of the national production consumed today, the Indian coffee board expects more than 50% to be consumed by 2017. The coffee consumed out of home is mainly consumed in restaurants 40% and in hot-tea shops 35% that are usually found on the road sides. The broad majority of coffee is consumed at home 80%, mainly in the shape of instant coffee 65% and filter coffee 35%. 30Cont

Instant coffee industryInstant coffee industry is a highly concentrated sector in India (5 current players) and only 2 players share a broad part of the market (Nestle and Hindustan Unilever) with one brand each.

The main motive in this segment is the recognition of the brand.

There is a huge entry barrier due to the investment in advertising required to compete with current market leaders.

The instant coffee industry is still at a stage for brand recognition and has not really diversified its supply strategies. 31Cont

FILTER COFFEE INDUSTRYFilter coffee industry is not a homogenous segment.

There is an important number of small roasters (more than 100)

It provide coffee in small shops or in supermarkets in small packages (50 to 250g).

This coffee is mainly a mix of coffee and chicory, with supply strategies depending on the industry location.

Industries located in cities supply themselves from curing works through agents or at the ICTA auction.

32 Source: Vignault, 2008

Key players in Indian coffee market33

Major coffee retailerDescriptionBarista lavazzaThe Barista Lavazza is a chain of espresso coffee bars that operates around 160 outlets across India. Barista offers menu items like , lattes, cappuccino and various pastries, in addition to basic coffee.Cafe Coffee Daythe opening of the first store in Bangalore in 1996, Caf Coffee Day has grown to become India's largest coffee retailer and is now exporting coffee to Europe and the Middle East. Caf Coffee Day currently has over 1500 outlets in 200 cities.Costa Coffee:The British franchise has been in India since 2005 and has 100 locationsCafe PascucciItalian coffee brand Caf Pascucci opened its first outlet in Bangalore in 2013. The master franchisee reportedly has plans to set up 60 outletsDi Bella Coffee IndiaThe chain is currently operating three outlets with reported plans to open 10 outlets in Mumbai by end of 2014.

34Cont

The Coffee Bean & Tea LeafThe franchise has 17 outlets across major cities.Java greenJava green is an Indian chain of in-store cafes started by the Reliance Group in 2003. It is now operational across eight cities with 40 locations in India. MochaCaf Mocha started in Mumbai in December 2001 and now has 20 outlets.Brewberrys CafeOpened in 2008 in Vadodara, Gujarat and presently has 37 stores across India. Coffee N UThe first Coffee N U outlet opened in 2008 in Bangalore, they now have a presence in 35 locations all over IndiaBRU World CafHindustan Unilever has extended its only coffee brand BRU to a caf chain, the BRU World Caf. The chain currently has six outlets across Mumbai.

35Cont

StarbucksThe American coffee chain entered the Indian market in October 2012 in a joint venture with Tata Global Beverages. Currently the chain has 40 outlets in New Delhi, Mumbai, Pune, and Bangalore.Mc CafeMcDonalds India has announced to implement its Mc Cafe brand in certain existing restaurants.Qwikys CoffeeQwikys Coffee has 22 company-owned outlets concentrated in southern IndiaCoffee WorldThis chain currently has seven outlets across IndiaReliance Time Out and Desi Cafe Retail players like Reliance Retail and Shoppers Stop are also retailing coffee from their multi-products outlets like Reliance TimeOut and Desi Cafe respectively

Source : Global Agricultural Information Network36

37Indian coffee trade channels

Small GrowersLarge GrowersHulling stationsPurchasing agentsCuring WorksInstant coffee manufacturers for ExportExportersICTA AuctionDomestic Roasters and instant coffee manufacturerForwarding agentsInternational marketDomestic MarketCherry onlyDry Cherry30%70%

38Figure 2:Indian coffee trade channels Source: Vignault, 2008

Figure 3 :Trade channels of Estate-branded coffee

ConsumerSmall or medium roasterBlendSpecialty trade houseEstate branded producer39 Source: Vignault, 2008

Figure 4 : Main Indian coffee outputsExport marketMainstream coffeeDifferentiated coffeeSustainable coffeeEstate- branded coffeeDomestic marketHome consumptionBranded filter coffeeInstant coffeeOut-of-home consumptionCaf barsRestaurants, tea stalls, canteens40 Source: Vignault, 2008

41Price Spread and value addition

FarmCuring worksExporterFreightImport and Trade RoastersRetail

42 Source: Vignault, 2008Figure 5:Value added on the price on dry processed coffee

Price Spread and Value AdditionFor the analysis of price spread, two marketing channels have been considered.

Farmers Agents Curers Local Roasters

ii) Farmers Curers Exporters

43

44 Source: Venkatesh, 2010-11 Karnataka, IndiaTable 6: Price spread of marketing in channel-1(Domestic market)

Sl.No.ParticularsRs./tonnePercentage1Farmers cost15281.792Price received by producer5000058.583Agents purchase price5000058.584Cost of Agents9341.095Net margin to the agent28503.346Curers purchase price5378463.027Cost incurred by curers35254.138Net margin to the curers5446.056.389roaster purchase price62755.0573.5310roaster cost958011.2211net margin of roaster13014.9515.2512roaster selling price85350100.0013price spread3535041.42

44

45Source:Venkatesh, 2010-11 Karnataka, IndiaTable 7: Price spread of marketing in channel-2(Domestic market)

No.ParticularsRs./tonnePercentage1Farmers cost32004.072Price received by producer5000063.527Curers purchase price5378468.328Cost incurred by curers38254.869Net margin to the curers48916.2110Exporter purchase price6250079.3911Exporters cost52506.6712Net margin of exporter10970.513.9413Exporters selling price78720.5100.0014Price Spread28720.536.48

45

TESTING OF HYPOTHESISDr. s. Murugan and Dr. A. Peer khan in there paper Marketing of Coffee is in a Difficult Path An Analysis under Global Environment tested the hypothesis Domestic Consumption for Coffee is not Elastic by applying Chi-Square test.Degrees of freedom = n-110-1 = 9X 0.05 with degree of freedom = 16.919The calculated value of X2 =1.130. Here the calculated value of Chi-Square is less than the table value at 0.05 levels, Hence the hypothesis is accepted.

46

47 Source: Murugan and khan, 2005Table 8: Testing of hypothesis of coffee

YearConsumptionE=530/10O-E11935553240.07519945553240.07511955053390.17011965053390.17011975053390.17011985553240.07511995553240.07520005553240.07520015053390.17020025553240.0755301.130

/E

X2 0.05 with degree of freedom = 16.919

47

Figure 6: Global Retail coffee value Sales 2005-201048Source : Coffee Trends in the OCS Channel

49 Source: Euro monitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources Table 9:Global Brand Owner Shares of Chained Cafs/Bars 2007-2011

% value Company20072008200920102011Amalgamated Bean Coffee Trading Co. Ltd29.134.736.137.138.0Lavazza Spa,Luigi10.511.313.013.214.1Whitbread Plc2.22.72.23.33.1Others58.351.348.546.645Total100.0100.0100.0100.0100.0

49

50 Source: Euro monitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources Table 10: Brand Shares of Chained Cafs/Bars 2008-2011

% Brand valueGlobal Brand Owner2008200920102011Cafe CoffeeDayAmalgamated Bean CoffeeTrading Co Ltd30.231.232.432.6BaristaCoffee CoLavazza Spa, Luigi11.31313.214.1Costa CoffeeWhitbread Plc2.72.23.33.1Others55.853.451.450.4Total100100100100

50

51 Source: Coffee Board of IndiaTable 11: Retail Prices of Coffee Beans in Major Coffee Consuming Centers, Rs. Per Kg.

YearBangaloreChennaiHyderabadArabicaRobustaArabicaRobustaArabicaRobusta2007137871709115089200815011415711816412720092101052151092291192010217982251042331102011297131300134314141201224715629814830917020131991572291822501902014228148258196253NA

51

52 Source: Foreign Agricultural Service, Office of Global AnalysisTABLE 12: MAJOR COFFEE PRODUCING COUNTRIES IN 2014-15

Production2010-112011-122012-132013-142014-15Brazil54,50049,20057,60056,00051,200Vietnam19,41526,00026,50029,83328,167Colombia8,5257,6559,92712,07512,500Indonesia9,3258,30010,5009,5008,800Ethiopia6,1256,3206,5006,3456,475Honduras3,9755,6004,7254,4005,200India5,0355,2305,3035,0755,100Uganda3,2123,0753,6003,8503,550

52

53Sources : Directorate of Economics and Statistics ,Ministry of Agriculture , Coffee Board of India , Food and Agriculture Organization of United Nation (FAO), Table 13: Changes In Area Under Coffee Plantation During Pre And Post Liberalization Periods.Area : 000 Ha

YEARPre-LiberalizationYEARPost-LiberalizationCoffeeCoffee1970-71140.001990-91223.501971-72140.001991-92223.501972-73150.001992-93223.501973-74160.001993-94226.501974-75160.001994-95228.501975-76170.001995-96242.001976-77140.001996-97251.281977-78150.001997-98285.651978-79160.001998-99302.231979-80170.001999-2000308.431980-81190.002000-01313.431981-82190.002001-02320.731982-83210.002002-03320.611983-84210.002003-04325.121984-85210.002004-05333.331985-86214.472005-06341.351986-87215.502006-07343.041987-88218.002007-08344.501988-89221.002008-09350.501989-90221.002009-10355.50MEAN181.9MEAN293.16S.D30.84S.D49.79C.V16.94C.V16.98C.G.R0.023C.G.R0.023

53

54Sources : Directorate of Economics and Statistics ,Ministry of Agriculture , Coffee Board of India , Food and Agriculture Organization of United Nation (FAO), TABLE 14: CHANGES IN PRODUCTIVITY UNDER COFFEE PLANTATION DURING PRE AND POST LIBERALIZATION PERIODS.AREA : 000 HA

YEARPre-LiberalizationYEARPost-LiberalizationCoffeeCoffee1970-718141990-917591971-724981991-928051972-736201992-937581973-745551993-949361974-755921994-957881975-764901995-969211976-777121996-978161977-788401997-987991978-797061998-998771979-808891999-009471980-816242000-019591981-827852001-029371982-836462002-038391983-845072003-048311984-859362004-058261985-865712005-068031986-878912006-078401987-885632007-087611988-899722008-097481989-905342009-10826MEAN687.25MEAN838.80S.D157.53S.D68.11C.V22.92C.V8.12C.G.R-0.021C.G.R0.004

54

55 Source: World Bank and Coffee Board of India , 2003TABLE 15:RISKS FACED BY COFFEE PRODUCING HOUSEHOLDS IN INDIA (N=498)Type of RiskNumberPercentRainfall/weather18336.7Fall in price19439Unstable prices8817.7Crop pest/disease61.2Changes in government policy132.6

Withdrawal of credit81.6Fall in other crop income10.2

Illness51Loss of off-farm income00

55

TABLE 16: COFFEE PRODUCTION BY STATES - 2013 / 2014 Source : coffee Board in IndiaSl. No.StateArea (ha.)Production (MT)Productivity (kg/ha)ArabicaRobustaTotalArabicaRobustaTotalArabicaRobustaTotal1Karnataka100323113063213386784401326602111007821,1739892Kerala38658054884413200064675666755178037903Tamil Nadu2446155352999613950482518775570872626Traditional Areas128649199146327795943902021602965507341,0159054Andhra Pradesh470992684736772507073201542611555Odisha33170331744004401330133NTAs Total504162685068476907077601532611536North Eastern Region2064761282512070190589267Grand Total1811292001753813041022002023003045005641,011799

56

Challenges- Indian Coffee Industry57

Lack of infrastructure, Loan facilities and lack of re-plantation and harvesting facilities.There is a definite need of fostering awareness of coffee quality among the coffee growers, curers and exporters.There is a definite need to improve working condition in coffee plantation. As well as use the latest technology to increased production in the existing are itself.How to bring coffee consumption close to tea consumption is a major challenge.The consumer view remains the coffee is an expensive beverage to partake.

58

The transport facilities as like container trucks, automated warehousing is yet to take root in India. The result: significant losses and damages during shipping. Indian Robusta is the best in the world. However, We face stiff competition from a low-cost Robusta producer like VietnamOur Arabica which are classified in the other milds category have to compete on the quality front with central American producer like Costa Rica, Mexico and Guatemala.

59Source: The Agribusiness Book: A marketing and value chain perspective

SWOT ANALYSIS: Competitive Caf Coffee Day and Barista

60

Strengths Taste & Quality of their products. Grow their own coffee beans Projected as an "affordable" brand.StrengthsStrong Brand ImageExcellent Human ResourceAmbience and DecorStrong base for expansion and growthWeaknessLacks the power and strength expected to maintain brand loyalty. Average rating for their behavior and service. No tie ups with big international brandsWeaknessAverage taste and quality of products An expensive brand. Inconvenient Delivery Process.

Cafe Coffee DayBarista

61

OpportunitiesOver 40% of the population is under the ageof 20, hence untapped market share andpotential for growth.The use of clever collaborations(bookstore,etc)OpportunitiesStrong Brand recallPresence of large number of outletsPricingLarge number of untapped marketThreatsThe brand doesn't project a clear image to customers about what Cafe Coffee Day is all about.Brand Loyalty is not so strong.ThreatsCoffee substituteRise in the cost of coffee products and substituteCompetition from national and international products

Source : CCD: A case analysis62

FUTUR POLICY FOR COFFEEProduction subsidy Rainfall Insurance Scheme- Coffee (RISC)Processing SubsidyExport Incentive SchemeSupport for Mechanization of Farm OperationsCoffee Development Programmer in North Eastern Region

63

CONCLUSION64India is sixth largest producer of coffee in the world with about 4 % share in global production (304 thousand MT in 2013). Coffee shops in India continue to grow at the faster rate mean while coffee would option both in rural and urban area. The major coffee player in India are Caf coffee day(1500 outlets), Barista lavazza(160 outlets), Costa Coffee(100 outlets), star bucks(40 outlets), Brewberrys caf(37 outlets). Price level of coffee and Income of consumers are the main factor affecting demand of coffee. High price of coffee is also felt as a barrier in south and north. Lack of infrastructure, loan facilities and lack of re-plantation and harvesting facilities are challenges faced by Indian coffee industry. From 30% of the national production consumed today, the India coffee board expects more than 50% to be consumed by 2017.

65