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Strategic Implementation Project |Submitted to Dr. Bala K | 01 December 2008

Group # 1 | MBA II Year | Division C

Bimlesh Kanth (220) | Harpreet Khandpur(221) | Nimmy Mathews (226) |

Vidhi Patel (231) | Arkaprabha Sircar (245) | Pulkit Vashishth (252)

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The Starbucks Global Coffee Revolution:

We arent in the coffee business, serving people.

We are in the people business, serving coffee

- Howard Schultz, Starbucks Chairman and Chief Global Strategist

The smell emanating from the neighborhood coffee retailer had successfully permeated the

streets of America long before coffee retail outlets had become a ubiquitous entity in India.

Caf Coffee Day, Barista and a host of other retail outlets present in India today, are a result of

the sweeping success of the Starbucks Corporation, which introduced the world to the taste of

Italian coffee in the retail format. In places across Europe however, much before the Starbucks

revolution swept the world, existed small traditional cafs such as the Kaffeehuser of Vienna,

Austria.

The original Starbucks was opened in Pike Place Market in Seattle, Washington, in

1971 by Jerry Baldwin, Zev Siegel and Gordon Bowker. The store sold only high

quality coffee beans and equipment; customers could get specially brewed coffee if

they wanted a taste. They were inspired by Dutch immigrant Alfred Peet, proprietor of Peets

and who had great knowledge of high-quality coffee beans. During their first year of operation,

they purchased green coffee beans from Peet's, and later, began buying directly from growers.

In 1983, Howard Schultz joined the company and, on a trip to Milan discovered

the espresso bar culture there. He felt that Starbucks had completely missed an

opportunity, and that it needed to serve fresh-brewed coffee, espresso, and

cappuccino in its stores, in addition to beans and coffee equipment. He

envisioned a retail outlet, where coffee would be an experience, and a meeting

place for friends.

On his return, he advised that the company sell coffee and espresso drinks as well

as beans. He also had visions that the company would one day be a national player,

operating in Canada as well, and wanted to expand the store beyond the four

Starbuck outlets at the time. The idea was however, rejected by the owners on the

grounds that the company would lose its focus of being a retailer of high end coffee beans; they

also did not want the company to establish itself on a national level. Convinced of his ideas

however, in 1985, Shultz left Starbucks to set up his own coffee bar chain named Il Giornale.

In 1984, Starbucks acquired Peets and in 1987, the original owners sold the Starbucks brand to

Shultz, who promptly rebranded the Il Giornale outlets as Starbucks. The Starbucks logo

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remained the same, but the color was changed from brown to green, which was the color of il

Giornale. The company began to expand as Starbucks opened its first locations outside Seattle

at Waterfront Station in Vancouver, British Columbia, and Chicago, Illinois, that same year. At

the time of its initial public offering on the stock market in 1992, Starbucks had grown to 165

outlets.

The year 1992 saw the company draw up a three year geographic expansion strategy largely

focused on a hub and spoke model. The company chose areas for expansion carefully; these

areas had to have large concentrations of the target demographic, and be able to support

company operations. In each region, a large city was selected as the hub, where more than 20

stores would be opened in the first two years. Once this area had been saturated, the company

would proceed to open stores in surrounding, smaller spoke areas. In fact, this strategy drew

a large amount of criticism, as the company used to operate many of these stores, even at a

loss, to make sure the competition could not establish itself in the area.

Starbucks Global Footprint

The first Starbucks location outside of North America opened in Tokyo in 1996. Starbucks

entered the U.K. market in 1998 with the acquisition of the then 60-outlet, UK-based Seattle

Coffee Company, re-branding all its stores as Starbucks. By November 2005, London had more

outlets than Manhattan a sign of Starbucks becoming an international brand.

Today Starbucks is the largest coffee retailer in the world with more than 16,000 outlets in 44

countries. Of these the US market alone accounts for more than 11,000 stores. The products on

offer include drip brewed coffee, espresso-based hot drinks, other hot and cold drinks, snacks,

and items such as mugs and coffee beans. The company also markets books, music, and film

through the Starbucks Entertainment division and Hear Music brand.

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In January 2008, Chairman Howard Schultz resumed

leadership of the company as President and Chief

Executive Officer after an eight year hiatus, replacing Jim

Donald. In the face of rapid expansion, and the diluting of

the Starbucks experience, Schultz's principal aim was to

refocus the brand on all things coffee. To this end, he

announced that the company would discontinue its

warm breakfast sandwich products, originally scheduled

to launch nationwide in 2008.

The Starbucks business model works largely through licensing arrangements with companies

such as HMSHost which operates Starbucks outlets at airports. The company has also

established its footprint across other locations which include theme parks, university campuses,

hospitals and grocery stores.

The company has been recently trying to set up shop in India, but has failed to do so, in the face

of opposition from the Foreign Investment Promotion Board (FIPB). This is because the

company tried to enter the country through the NRI franchisee route, and not the preferred FDI

one. Currently the government does not give approval for foreign players to open single brand

retail outlets. In December 2007, PVR started retailing Starbucks products at some of its

multiplexes in Delhi and Mumbai, with plans to expand its presence to 25 movie theatres in the

major metros.

Coffee Retailing in India

The cup of the domestic coffee retail industry is brimming over. The Coffee Board

of India1 says that Indias share in global coffee production is estimated to be

4.5% at 280,000 tonnes. Of this, domestic consumption is estimated to be around

29% (80,000 tonnes) and the balance is exported. The Coffee Board is making

efforts to increase the domestic consumption by at least 50%.2

1 The Coffee Board of India is an autonomous body, functioning under the Ministry of Commerce and Industry,

Government of India. Set up under an Act of the Parliament of India in the year 1942, the Board focuses on research, development, extension, quality upgradation, market information, and the domestic and external promotion of Indian coffee. Till 1995, the Coffee Board had a monopolistic control over the marketing of coffee in India. However, the winds of liberalization swept the Indian coffee industry and since 1995, marketing of coffee is strictly a private sector activity. The Board also runs 14 India Coffee Houses in the country. 2 http://www.coffeeclubnetwork.com/redes/form/post?topico_id=238

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According to Coffee Board chairman Krishna Rau, the domestic annual coffee consumption was

estimated at 80,200 tonnes as of 2005 and has been growing at 5% to 6% per annum since then

due to the mushrooming of cafes in major Indian cities.

Spilling The Beans: In a generic sense, cafs in India have existed for well over

a century in different avatars - the Udipi restaurant of the sit-down variety and

the stand-up avatars of Darshinis, as they are known in South India. India has

about 63,850 such outlets today offering great coffee to all those who desire it.3

However, the original exclusive coffee retailing establishments in the country were the India

Coffee Houses were started by the Coffee Board in early 1940s, during British rule. In the mid

1950s the Board closed down the Coffee Houses due to a policy change. The laid-off workers

then took over the branches, under the leadership of the communist leader A. K. Gopalan and

renamed the network as Indian Coffee House.4

The first Indian Coffee Workers Co-Operative Society was founded in Bangalore on August 19,

1957 and the first Indian Coffee House was opened in New Delhi on October 27, 1957.

Gradually, the Indian Coffee House chain expanded across the country and in the post-

independence nascent India, these outlets served as a safe rendezvous point for different

sections of society including intellectuals, politicians, academia, lawyers and so on, who would

sit for hours sipping filter coffee served by turbaned waiters in faded red and white uniforms and

discussing politics and society. Incidentally, the movement marked its golden jubilee in the year

2007 and there are 11 Indian Coffee Board Workers Societies in the country5 presently and

they have more than 300 restaurants. There are also three societies which are not affiliated to

the all-India federation.

Kerala has the largest number of Indian Coffee Houses where the Indian Coffee

Workers Co-Operative Society Federation today has 52 such coffee shops

employing 1,809 employees clocking a turnover of Rs 3.2 crores but arguably the

most famous Coffee House branch in Kolkata (see picture below) popularly known

as the College Street Coffee House6. Before Independence, the place was famous

as Albert Hall. Situated opposite the Presidency College, Kolkata in the academic district of the

city, it has been for a long time a regular watering hole for students of the Presidency College,

University of Calcutta, and other institutions in College Street. The College Street Coffee House

3 http://www.thehindubusinessline.com/catalyst/2007/07/05/stories/2007070550140400.htm

4 http://en.wikipedia.org/wiki/Indian_Coffee_House

5http://economictimes.indiatimes.com/Features/The_Sunday_ET/Companies/Fifty_piping_hot_years_of_Indian_C

offee_House/rssarticleshow/2848703.cms 6 http://cities.expressindia.com/fullstory.php?newsid=185955

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is of historical significance for being the rendezvous of innumerable versatile people (regular

patrons to this establishment included doyens of the stature of Satyajit Ray, Manna Dey,

Amartya Sen, Mrinal Sen and Aparna Sen), from its inception to date and is widely known for its

adda sessions, and as the breeding place of several political and cultural personalities and

movements.

However, despite the Coffee Houses, coffee drinking in chai crazy India7 was largely confined to

the Southern States (see table below) that were also the principal coffee producing states as

illustrated by the map below) and organized coffee retailing was dormant till in the late 1990s

when a silent caf revolution swept across urban India.

Statewise Per capita Consumption of Coffee in India (in Cups consumed) (Source: The Coffee Board of India)

State / Year 1981 1991 2001

Tamil Nadu 0.633 0.425 0.493

Karnataka 0.498 0.37 0.350

Kerala 0.179 0.07 0.143

Andhra Pradesh 0.109 0.062 0.077

Total South 0.362 0.237 0.267

Total for Non-South 0.009 0.004 0.005

Total for all States 0.094 0.076 0.062

7 India consumes the largest quantity of tea in the world, accounting for nearly 14% of global retail volume sales.

Geographically, tea is widely consumed in the North, East and West of India, and is popular with a wide variety of social classes and consumer age groups. However, it ranks 7th in value terms, due to relatively low unit prices. Black standard tea constitutes nearly 80% of value sales, although green tea has seen its popularity rise.

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Source: www.mapsofindia.com

Storm in the Coffee Mug: The late 1990s heralded a new generation of young and

upwardly mobile Indians, for whom coffee drinking was increasingly becoming a more social

and discerning activity. As coffee bars such as Barista and Caf Coffee Day sprung up in most

major cities, Indians were increasingly warming up to the idea of paying upwards of Rs. 50 for a

cup of Cappuccino.

The shift in the attitudes of the Indian consumer towards coffee is well captured in the

contrasting results of the surveys done by the Coffee Board of India in 2001 and 2005. (Please

see Annexure)

Brewing Business Success:

According to Harish Bijoor, CEO of Harish Bijoor Consultants and coffee expert:

there are three critical stages in the Indian coffee retail revolution. In the early

phase' which started in 1996, the outlets would largely serve the basic needs of

the customer.

The mid-phase is probably the one that the industry is witnessing now, with international

brands such as Starbucks showing a keen interest in the Indian market. The phase would also

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be marked by a high rate of setting up of coffee pubs. This is the time when the traditional

players such as CCD and Barista would expand in a bid to keep up with each as well as to stake

the local market ahead of international entrants. There would be increased differentiation in

terms of service offering, hygiene, ambience, array and quality.

According to Mr. Bijoor, the third phase is one we would entering some three to five years from

now and this would be the phase when the numbers would have crossed 2,000 in the country.

The cafes offerings would be largely different, and in order for the companies to survive, they

would have to track the changing needs of the customer.8

In 2004, coffee consumption in India increased from 55,000 tonnes

to 75,000 tonnes in the past three years after decades of stagnation

(as illustrated by the graphic below) - Coffee consumption had

shown a laboured annual average growth of 2.14% between 1951

and 2003! And when Karan Johar started his show Koffee with

Karan, he served a clear reminder of tea-loving nations newfound

love for coffee beans.

Source: The Coffee Board of India

The year 2004 also saw some new names in the coffee retail business, lured by the

consumption prowess of the Indian youth. Retailers such as Craze Coffee largely sprung up in

multiplexes and malls. Tata Coffee Limited, after selling its stake in Barista, has opened up Mr.

Bean Coffee function in Kochi, Kerala, to understand the market. Others like Cha Bar, Coffee

8 http://www.thehindubusinessline.com/catalyst/2007/07/05/stories/2007070550140400.htm

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World and Passion also jumped on the bandwagon. Fueled by a burgeoning fast food segment

growing at 40% a year, coffee consumption was set to grow further.

In 2005, the coffee chain market in India, at 6.5% cent of the total coffee retail market9, was

valued at Rs 400 crore by KSA Technopak. It was growing at the time at 25-30% and the market

was estimated to grow much more with the entry of new players. This growth is largely a result

of the large disposable incomes of the patrons who include mostly tech and BPO workers. India

has around 11 lakh software engineers and BPO executives; the average age being 27. Also,

disposable income of the middle class has been growing at 20.9% since 2003. The high middle

income population is growing at over 10% per annum according to KSA Technopak. According

to research, teenagers constitute 25% of the customer profile while 38% of them are between

20 and 24 years and another 23% belong to the age group of 25 to 29 years. Students and

young professionals comprise around 72% of the customers.

According to a 2007 study conducted by Harish Bijoor Consults, by December 2008 the country

would have 1,135 organized cafes, growing at 63% per annum in terms of number of outlets.

India has eight big cities, 53 towns with a one-million population and 3,410 urban

agglomerations of below one-million populous. Hence, India has the potential to accommodate

3,000 coffee retail outlets.10 Colman Cuff, director (trading & operations), Starbucks Coffee

Company, said, "With a large base of young working population, India will emerge as the

fastest-growing coffee retail market."

The urban working Indian youth is wooed as prime target customer group. According to Barry

Chi Tak Yuen11, founder, Coffee & Tea Academy, Hong Kong, all these factors make India a

prime destination for domestic and global retailers looking at cash rich, time poor, young,

affluent, working men and women and other coffee lovers."

The number of branded coffee outlets in India is expected to increase to 2,600 stores in the

next two years from present 1,250 odd outlets. Retail industry sources say the niche coffee

retail format is growing at 10 to 12% a year. Coffee sold through branded outlets is estimated

to be worth Rs 600 - 700 crore a year at present and that market is expected to business of over

Rs 10,000 crore in the next five years.

9 Source: Business Standard

10 http://timesofindia.indiatimes.com/articleshow/1727072.cms

11 http://timesofindia.indiatimes.com/articleshow/1727072.cms

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Competition Analysis:

Major Indian Coffee Shops in the Retail Business in India presently:

Caf Coffee Day: Backed by 130 years of coffee growing heritage, CCD was the

first chain to enter the coffee retail space in India by incorporating Amalgamated

Bean Coffee Trading Company Ltd (ABCTCL) in the year 1994. Two years later the

company introduced Indians to Italian coffee, when it opened its first caf at

Brigade Road in Bengaluru. Today the company has the distinction of being India's largest

coffee chain, one of Asias top 500 companies and aims to be among the top three coffee

retailing companies in the world. It currently operates 683 cafs in India, Pakistan and Austria.

ABCTCL also has an ambitious growth plan of opening 1,000 cafes by 2010 marking its presence

across 102 Indian cities and also establishing 50 cafes in 10 foreign countries12. It is an ISO 9002

certified company and has multiple caf formats that include music cafs, sports cafs, highway

cafs, lounge cafs, garden cafs, cyber cafs and book cafs13.

Barista Coffee Company: Barista, which operates 220 stores (including 17

overseas) currently in three countries namely India, Dubai and Sri Lanka, is set to

expand to 300 by the end of fiscal year 2008-09, says India Retail Report 2009. The

company is focusing on different business models for expansion - corporate ones

[Store outlets on-campus], high street area of high footfalls such as malls and company owned

exclusive stores. Barista has seen a series of management changes, and is currently owned by

Italy's Lavazza Group.

According to FICCI Journal 2007-08, CCD (41%) and Barista (20%) together command 61%

market share of the Indian Coffee Retailing Industry.

Qwikys: The company is one of the many remaining players who fight for residual

market share after CCD and Barista, both duopoly players. Qwikys today is a niche

player. According to Mr Shashi Chimala, the CEO of Chimayo Chains, which runs

Qwiky's, their growth has been "low-key and slow and steady" as there was "much

hype after the first coffee bars opened and aggressive growth plans have backfired, with some

chains having to close some outlets".

Java Green: These are built in the shop-in-shop format and are set up in

Reliance Group (now ADAG) retail stores., and serve as customer

convenience centres and broadband connectivity outlets offering video conferencing and multi-

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http://www.indiaretailing.com/coffee-retail.asp 13

http://relianceretail.blogspot.com/2008/11/india-coffee-chains-exclusive-review.html

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player online gaming facilities, among others. This brand has the advantage as following the

success of Reliance in the GSM arena, these retail outlets are fairly ubiquitous in most Indian

cities. About 70 Java Green cafes are also cropped up across nine cities in 2003. The brand has

currently spread beyond the Reliance Broadband centers and is present in 12 cities.

Coffee World: Coffee World is a premium specialty coffee house that offers a

comprehensive range of hot, iced and ice blended beverages. The brand is known

for its premium quality products and its signature Frappes ice blended

coffees.

Mocha: Mocha was opened in Mumbai in December 2001. Mocha Coffees &

Conversations has 20 units out of which 12 are franchised.

Caf Nescafe: The concept of Caf Nescaf was piloted in India by Nestl in

2000, and since then, over 350 outlets have been opened in metros, mini-metros

and major cities. During the year 2003, more than 40 million cups of beverages were sold from

these outlets. The company follows a flexible model with regards to the Caf Nescafe outlets

and the choice of module is adapted to cater to consumer needs in that location.

Besides, retail players like Reliance Retail and Shoppers Stop are also retailing coffee with

their multi-products offering outlets like Reliance TimeOut and Desi Caf respectively.

Major Foreign Coffee Shops in the Retail Business in India presently:

Costa Coffee: UK based cafe chain Costa Coffee entered in India in 2005 through

master franchisee tie-up with Ravi Jaipuria owned Devyani International Limited (DIL),

the company that owns the franchisee for Pizza Hut and KFC in India. It has around 36

stores in India and more than 850 stores worldwide.

Coffee Bean and Tea Leaf: California based coffee houses like Coffee Bean and Tea

Leafs operations are concentrated mostly in Delhi, with plans to open outlets in

almost all the major metros and at prominent and prime locations. The company

plans to open 60 stores in five years and with investment of Rs 100 crore. Blue Foods

has franchise agreement with California-based coffee chain Coffee Beans & Tea Leaf.

Barnie's: US based coffee chain Barnies Coffee and Tea Company started its

operation in India in August 2005. Barnie's opened its first store in Noida. Victoria

Impex Pvt. Ltd. is the master franchisee of Barnies Coffee. Barnies Coffee & Tea

Company Inc was found in 1980 in the US.

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Gloria Jean's Coffees: Australian Coffee house Gloria Jeans (GJC) entered in India

through master franchise agreement with Citymax India, (part of the Dubai based

global retail giant, Landmark Group), a leading hospitality, leisure and food retail

company.

Illy Cafe: Italian coffee brand Illy Cafe has partnered with Narang Group, distributor of

high end beverages, as master franchisee. The cafes will carry the "espressamente illy"

brand name. It also operates espressamente illy at Bangalore international airport

followed by its first flagship outlet in Mumbai.

Clearly, with India's coffee retail market is on the verge of entering the crucial third phase and

the burgeoning middle class aspiring to be in sync with global culture, coffee retailers are

learning to look beyond the coffee, and offer the total package to the customer. The third

phase would also be marked by the imminent entry of the $ 3 billion Starbucks into the fray,

thus changing the rules of the Indian coffee retailing game, and making early movers like

Barista, CCD and Nescafe sit up and take notice. Starbucks has entered into a distribution tie-up

with India's leading multiplex operator, PVR Limited for its selected products. PVR has started

retailing Starbucks products at its three multiplexes in Mumbai and Delhi and plans to extend

the arrangement across major metros in the future. Other international chains like UK based

Coffee Republic, Italian coffee major Caff Nero and Germanys Cup & Cino are also looking for

retail partners in India to make their foray into the market while Costa Coffee, Gloria Jeans and

Coffee Bean & Tea Leaf are among the foreign brands that have already opened stores in India.

Analysis of the Success of CCD Vs. the Failure of Barista in the Present Market Scenario:

CCD (Caf Coffee Day)

Caf Coffee Day, more popularly known as CCD, is Indias largest cafe retail

chain. In 1994, the Amalgamated Bean Coffee Trading Company Limited,

popularly known as Coffee Day was incorporated. The first outlet was set up

at Brigade Road in Bangalore, in 1996 and the company has not looked back

ever since. CCDs strategic advantage arises from the fact that the company

sources the beans from its own plantations spread over 5,000 acres at Chickmagalur, one of

Karnatakas coffee-growing districts.

ABCTCL started off as being the exporters of coffee and to selling coffee directly to the

consumer and eventually exited both these businesses considering that the returns in both of

them were not tremendous. They finally entered into the coffee retailing, opening up coffee

shops and started the new trend of the Coffee Drinking Experience. The move from exporting

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coffee beans to retailing coffee made financial sense, as margins on exported green coffee

beans was low, and the prices were dependent on the fluctuations in the global market.

However, a cafe operates at the highest end of the value chain. Its margins can be 35% to 40%

higher than those of bean exports.

When the first store was opened, in 1996, it was positioned more as an Internet cafe. This was

a very tactful move which laid the foundation for the success of the brand in the years to

follow. Those days were the very early days of the Internet in India, and customers trooped in

to Coffee Day to experience the Internet. Coffee was just an extra.

This underlying strategy has remained fairly the same throughout the different formats of CCD.

Recognising the fact that the target customer is between the ages of 15 and 29, the products at

CCD are fairly affordable, and are easily within reach of students as well as those on the first

job. According to Sudipta Sen Gupta, Marketing head, Caf Coffee Day, "Although

demographically, a typical consumer would be male or female between 15-29 years of age,

belonging to middle or upper middle class, we call our consumers young or young at heart. We

are about juke boxes, good and affordable coffee and food. The brand fit is with youth or the

young at heart. So we often look out for brands that are aspirational in nature." This is a critical

success factor of CCD, which is its main differentiating point from Barista, which speaks to the

more elite customer. CCD today has become the largest youth aggregator, and from a

marketing stand point, the success has come by focusing on the 3As: Accessibility, Affordability

and Acceptability.- Bidisha Nagaraj, the Marketing president of Cafe Coffee Day14.

CCD had the first mover advantage when it opened the first ever coffee retail outlet in 1996.

However, even though their closest competitor Barista only opened shop in 2000, by 2002,

Barista was clearly the winner in terms of revenues, Rs.65 crores in sales as opposed to Rs. 10

crores of CCD. This is largely attributable to the fact that Barista had roughly 3 times the

number of stores (105 stores) when compared to CCD (50 stores). Also, in its early years, Coffee

Day had neither clear positioning nor significant presence. Barista at the time had a clear

positioning of being a premium cafe and targeted working executives who felt this was a more

economical option when compared to meeting at 5 star hotels.

However, the Bangalore based coffee retailer soon pulled up its socks, and started positioning

itself as a third place away from home, workplace or college, primarily for those who were

young at heart. This clear positioning turned the situation in favor of CCD, and helped it to zero

14 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4300#

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in on the 15-29 year old target group. According to Mr. Siddhartha, owner of CCD, "With the

advent of cable television and growing consumerism, the urban youth in India were exposed to

the lifestyles of youth across the world," he says. "They were seeking an experience which was

world class in nature and yet easily accessible -- an urban youth 'hangout venue' that allowed

them 'their culture'. We fulfilled this latent demand."

CCD is clearly a company which has done its Segmentation, Targeting and Positioning well. A

clear definition of the target age group has helped the company come up with the magic

combination of pricing, food, ambience, music and promotions. Says CCD's president of

marketing, Bidisha Nagaraj: "We have a single-minded commitment to the young in India and

everything we do is centered on that. We see our cafs almost like a brick and mortar social

community network where people can express themselves in a friendly, clean, non-inhibitive and

non-intimidating environment that offers an excellent range of products at affordable prices."

Revenues for ABC are estimated to be in the region of around Rs 600 crore ($140 million)15, of

which Rs 400 crore is contributed by the caf business, which turned profitable a few years ago.

Each caf averages around 500 footfalls per day, with 80% of consumers in the 15-29 age

group.

The rest of ABC's revenues come from its other business groups, all of which operate under the

Coffee Day brand. These include Coffee Day Exports, Coffee Day Xpress (fast food and beverage

outlets that are much smaller than the cafs and are franchised), Coffee Day Take Away (coffee

vending machines), Coffee Day Fresh 'n Ground (ground coffee retail outlets) and Coffee Day

FMCG (packaged filter coffee powder). ABC has 775 Xpress outlets, 7,000 vending machines in

diverse locations such as railway stations, hospitals, gas stations and office campuses, and 400

Fresh 'n Ground outlets.

CCD is a brand which has been successful in establishing its footprint in India as well as abroad,

through the sheer number of stores which is being bet up. As of now, the company operates

620 cafes, and is currently drawing up plans to establish more than 900 cafes by the end of FY

08-09. Even though this seems like a tall order, as established in the report, the potential for

coffee bars in India is pegged at around 5000, but currently the organized retail sector together

accounts for only 1000 stores. By 2012-13, CCD plans to be a big global chain both with organic

growth and acquisitions. Even though the coffee retailer has a large number of formats, efforts

are taken to make sure that the brand essence is not diluted. To this end, in August 2008, the

15 http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4300#

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company sought help of international brand consultant Landor to help the brand reinvigorate

itself, keeping in tune with its tagline-A lot can happen over coffee. The logo would also

remain unchanged. CCD will now focus more on projecting a feeling of togetherness

(friendship, romance or office meeting in an informal environment) and celebration which are

critical core values. Accordingly the cafe ambience, the look and feel inside will be changed.

As part of its future plans, ABC intends to make a foray in the Hospitality Industry as well as a

part of its diversification. The company intends to open up its coffee estates to visitors and to

this end 30 designer villas with amenities such as private pools, picturesque views, and

exclusive Spa facilities have been set up on 70 acres of the estate at Chikmagalur.This would

bring the customer further up the value chain and would have a tremendous impact on the

brand CCD. Coffee Day Resorts director M Venkatesh says the hospitality venture will be run by

a subsidiary firm. "Over the next 16 months, we plan to invest over Rs 200 crore to set up six

properties. The first resort would be operational very soon, and it will be on a 70-acre pristine

plantation in India's coffee-growing heartland of Chikmagalur in Karnataka with 30 cottage-

villas -- each having a swimming pool and a common spa," he said.

We think that the following are the reasons which can be attributed to the spectacular

success of Cafe Coffee Day in India. The following section also details how the brand has

maintained service leadership in the coffee retailing sector:

Strong and Stable Parentage: After faltering initially, the CCD brand regained focus, and has

subsequently targeted all efforts at its 15 - 29 year old target demographic. This includes

features such as pricing, ambience and the food. According to ISB's Bijoor, "Coffee Day has

mastered the core competency of opening outlets, building a strong brand, and making a strong

emotional connection with its target group." Barista lost its initial advantage because of

multiple ownership changes and a consequent change in focus.

Constant Management: Unlike Barista, which has witnessed

ownership change hands many times, the management of CCD remains

fairly constant, which brings a consistency to the brand image. The

brand is incorporated with ABC and is owned by Mr. Siddhartha.

However, after its CEO Malhotra left in June 2007 to join Starbucks, it is

not clear if another CEO has been appointed. This could lead to

problems down the road, as Siddhartha juggles a variety of other professional commitments

which include being the founder and managing partner at Global Technology Ventures and

founding chairman of Way2Wealth, an investment consultancy, being on the board of

MindTree, Ittiam Systems and Liqwid Krystal.

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Process: One of the major reasons for the success of CCD versus its competitor Barista is the

fact that the brand recognizes the fact that Indians like to sit while they eat. Hence, the waiters

take the order and deliver the food, very much like a traditional sit down restaurant.

Formats: The Company employs fairly interesting formats, which are built around its tagline

A lot can happen over coffee. The various formats that the company employs are

Music Cafs which give the customer the unique option of playing their

favorite tracks on Digital Audio Jukeboxes installed at the caf, they could also

watch music videos on the Video Jukebox. These cafes number around 85,

while those with the video jukeboxes are at around 32.

Book Cafs: CCD has tied up with English Book Depot, one of India leading book

distributors, distributors for placement and rotation of reading materials in a specialized

area in the store itself. This format bets on the tried and tested formula of coffee and

books. This exciting concept has been successfully tested at 15 cafes in 12 cities across

India and the numbers are set to grow exponentially.

Highway cafs are targeted at travelers who are looking for good coffee, good ambience,

snacks, and more importantly clean restrooms to refresh themselves.

Lounge cafs at Hauz Khas, Delhi and Southern Avenue, Kolkata (Southern

Avenue) and Hyderabad (Jubilee Hills) combines dual aspects of the style and

luxury of a lounge with the lively ambience and comfort of a caf. Equipped with

exquisite interiors, exotic menu (including the Shishas that the youth loved) and

thematic music, CCD Lounge speaks to the coffee generation.

Garden cafs combine the joy of rejuvenating amidst verdant landscapes and pots of

coffee.

Cyber cafs allow patrons to surf the net while they sip their coffee. This format is a

particular favorite with the working demographic.

Caf Coffee Day Square: The company plans to promote Coffee Day Square as the group's

flagship outlets16. These would be introduced in the four metors over the next six months,

specializing in single origin coffees - classic beans sourced from a single estate in a single

country across the world. Coffee Day Lounge will be cafes where beverage will be coupled

with food, where people meet for lunch / dinner and not just coffee. According to Sudipta

Sen Gupta, Cafe Coffee Day has been a youth hang-out, now Coffee Day Square will be a

coffee hangout for a more discerning, young-at-heart consumer who wants a truly great cup

of coffee. The effort is to take consumers up the value chain and connect them with Indias

coffee heritage in a contemporary way. Coffee Day Lounge, will be a gourmet format where

16

Economic Times

17

we will look at food as a separate vertical. Here we will offer diet food, traditional foods and

separate offerings for children.

CCD is also about to launch Sports Caf, Fashion Caf & Singles Caf

CCD has also pioneered the 24/7 caf which total about 49 throughout the country17. These

cafs are present mostly in IT/ BPO hubs and round the clock tourist destinations. It also has

twenty-four 24/7 cafes at the eight airports of Bangalore (two in the new international

airport and one outside), Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Coimbatore and

Jodhpur.

Product Sourcing: CCDs advantage lies in the fact that it sources the beans from its own

estates in Chikmaglur. Not only does this help in quality control, the company is able to source

the raw material at an affordable price, which is especially important in the coffee market as

the beans are subject to constant fluctuations in price. In fact the companys factories process

about 70,000 tonnes of beans in a year, which is the largest by any single company in the

country.

Prices: Caf Coffee Day has targeted the youth and its major customers would mainly

include school or college students mainly in the age group of 15 29 years. There have been

very little changes in the pricing policies of Caf Coffee Day since its existence, some of the

changes made are mainly due to the government taxes.

All the products offered are made available at affordable prices ranging from Rs 17 to Rs 55.

These prices are fixed keeping in mind the target audience while mainly includes the youth. As

each outlet requires an investment of around Rs 40 lakh ($100,000), this is a business that

needs to be funded aggressively. Also, the low per-unit revenue makes it a difficult market to

crack. In this regard, Coffee Day has a tremendous advantage because it has its own

plantations, procurement agents, curing works, etc. The company can sustain its low pricing

strategy mainly due to economies of scale and ownership of the raw material.

Target Market: The Company, even with the large variety of formats that it operates has

never lost sight of its target customer. Hence, all other activities are centered on appealing to

that customer. However, with the introduction of the high end Caf Coffee Day Squares and the

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ew_900_outlets_this_fiscal/articleshow/3078069.cms

18

resorts, care would have to be taken not to lose sight of this all important demographic, as 80%

of the revenues from the coffee retail outlets are due to patrons in the age group of 15-29.

Brand Image: The image of the brand is youth centric, and this is evident in the companys

most important statement, that of its price. Unlike Barista, where the brand has been

positioned as a premium brand, CCD has confined this concept to the newly created lounges.

Hence there is something for everyone, and variable price points. The various formats engage

the customer and reinforce the positioning: A lot can happen over coffee.

a) Logo, Colors, Images: The logo of caf coffee day includes all young, fresh colours like red,

lime green. The logo text is inside a large box which means that it is the leader in coffee

retailing and is the pioneer for introducing the caf concept and making caf known among

all Indians. The Red colour in the logo symbolises passion, youth, leader (in the coffee retailing),

while green stands for the traditional, Indian heritage and coffee plantations that they have

been using for the coffee products.

b) Interiors & Architecture: Its interiors have gone through a drastic change over the past few

years. From wooden and granite interiors it has been transformed and given a fresh ,young look

with choice of more lively colours like lime,green,yellow and orange.

Place: A critical aspect in all retail outlets, especially those involved in food and beverages is

location. This is where CCD has been sharper than its competitor Barista. This becomes critically

important as the store rentals are a significant portion of the cost; hence finding competitive

rates would greatly increase the profitability of the store, as revenue per cup is quite low.

Successful Promotions:

a) Through television: In order to promote their brand Caf Coffee Day has run various

contests. Since its target consumer is the youth; it held the contest using a youth program

called Friends which is aired on Zee English. Since this program was based on six friends who

often visited a coffee shop. The winners of this contest would win friends merchandise.

b) Association with movies: Apart from the television programs they promoted their brand in

various movies. They went in for something that is called In-film advertising. Caf coffee day

was seen in various hindi,telgu and Tamil movies like Kyun Ho Gaya Na, Main Hoon Na,

Khakee,Socha Na Tha. It was mainly seen in movies where they had common target audience.

c) Other promotional techniques:

19

i) Tie-ups: Cafe coffee day has tie ups with brands such as Levis, Sugarfree and HDFC. Levis uses

the CCD outlets to engage its customers and launches its products there. The store offers them

a lot of visibility with regards to wall visuals, danglers etc. Also a new drink called Levis drink

was also created just for the promo period. HDFC wanted to promote their debit cards and

hence it had a tie up with Caf coffee day which resulted in 21 debit card machines across

various CCDs. It also has tie ups with some corporate houses, wherein the employees would get

some coupons on a monthly basis called ticket restaurant by Accor" and they could redeem

these coupons at any Caf Coffee Day outlet for the same amount as their bill.

ii) Merchandising: This is another promotional technique used by Caf Coffee Day. It mainly

included sales of t-shirts, mugs, coffee filters through their stores. Merchandising was started

mainly for the coffee lovers so that they could associate themselves with their favorite brand.It

now constitutes to atleast 5-6% of the revenues generated by caf coffee day.

iii) Ticket sales: This is another important way of promoting the caf coffee day brand. This

would include selling tickets for few events like WWE, concerts etc.These tickets are made

available at the CCD outlets and thus it would help the organizers as well the CCD brand. People

would recognise the brand as they would have to buy the tickets from these outlets and

increase the awareness among them regarding the brand.CCD would also hold contests

wherein they would give free tickets of such concerts to the winners.

Sales promotion: Like Shoppers Stop and various other retail stores, Caf coffee day has also

started the concept of "Caf Citizen Card" for its customers. The card gives the members a

discount of 10% on the all the bills. Like all other loyalty programs this one also targeted on

gaining the new customers and retaining the old customers by giving them surprise gifts,

discounts, special offers on some days.

Barista:

Barista Coffee Company Ltd. was established in 1999 with the aim of

catering to the out of home coffee market. Increasing disposable

incomes, younger consumer profile and the global trend in the coffee

market indicated strong growth potential in this segment and hence it

was an opportune time for a coffee-retailing store like Barista. The first

Barista caf outlet came up in the capital New Delhi in Basant Lok,

Vasant Vihar in 2000.

20

Barista management believed that they had been quick to spot a latent need waiting to be

tapped i.e. coffee lovers want a complete experience when having their coffee, one that

combines intelligent positioning with the right product mix and carefully designed cafes. In a

nut shell, customers seek an experiential lifestyle brand. From the offset, Barista positioned

itself as a premium brand.

Despite entering the Indian Coffee Retail Space well after Caf Coffee Day, Barista took elite

India by storm. By 2002 it had set up 105 branches in 18 cities and clocked annual sales of Rs.

65 crores compared to CCDs 50 outlets in 9 citites and Rs 10 crore annual sales - Barista was

clearly emerging as the top dog in the coffee retailing business. At the time, CCD company

sources attributed the chains sluggish growth to the time taken to complete the back-end

operations of its retail outlets. Analysts felt that Barista also experienced similar problems but

grew faster than CCD because they realized that running cafe was akin to the hospitality

business where one needs to create the right ambience and experience and back it up with

strong logistics.

According to Mr. Brotin Banerjee, who was in charge of Baristas Marketing and Strategy in its

Tata Coffee management days, in 2004, the chain had 13 lakh plus footfalls in over 120 outlets

(as against CCDs 9318) across all big and medium towns in India selling over four lakh cups of

hot coffee and over three lakh cups of cold beverage along with a 'coffee experience - an

ambience a break for people from their routine. The international sales accounted for 10% of

Barista's business. The chain was looking to add 70 100 new outlets by investing Rs 12-15

crore (concentrating on the southern states in India) in the 2004-05 period, out of which not

more than 15 20 outlets would be company owned. The chain would seek to expand using a

store-cum-franchisee model that Mr. Banerjee explained would give them scalability

without additional infrastructural investment while at the same time ensuring the integrity of

the brand.19 Chief honcho, Mr. Yogesh Samrat added that the company planned to have a

50:50 ratio between the company-owned and the frachisee outlets.20

In 2004, Barista also painted an ambitious big picture - by 2010 they planned to open about

1000 outlets and be largest player in Asia21 and global #2 behind Starbucks22. Such was the

success of Barista had also resulted it being listed amongst the top 100 brands in India by

SUPER BRANDS India for the year 2004-200523.

18

Keeping the coffee hot ( May '22,2003, HBL) 19

Brand makeover: Barista will mean business, too ( June '26,2003, ET) 20

Barista eyes franchisee route for growth ( June '5,2003, BS) 21

Source: Barista to open 1,000 outlets by 2010 (July '6, 2004, ET) 22

Barista Coffee aims at No. 2 slot in world ( January '9,2004, HBL) 23

archives.chennaionline.com/hotelsandtours/News/08news05.asp

21

Currently, Barista has a presence in 33 cities with 3 of them being in Dubai, Abu Dhabi and

Colombo. It has 220 outlets a far cry from the ambitious 1000 outlets it had hoped for by

2010. Moreover the spread of its outlets is not uniform across all the cities in which it operates

and follows more of an ability to pay strategy as evident from the fact that it has 31 outlets in

Delhi and Mumbai while only 1 outlet in Cochin and Mussoorie.

Now Barista Coffee Company Ltd (BCCL) is all set to take its Barista Espresso Bar chain to

Bangladesh.24 The caf chain has already entered into a franchise agreement with a company in

Bangladesh and expects to roll out the first store there shortly. Baristas Espresso Bars would be

set up in key locations as per the companys overall strategy - in fact, Dhaka will have at least

two espressos at the very beginning. In India, Barista Coffee is planning to add 84 outlets in the

next six months and by 2008-end, the company plans to have 300 cafes across 42 cities. It is

also seeking a footprint in 10 cities other than the ones it already has a presence in. The entire

funding of the new outlets will be through internal accruals.

We think that the following are the reasons why Barista has not been able to retain its

leadership in the Indian Coffee Retail Space and thus we term the group as a failure (albeit

rather harshly) when compared to the runaway success of CCD:

Frequent Change in Management: Barista has undergone various changes of ownership over

the years from being started by Turner Morrisons Amit Judge to selling a 34.1% stake to Tata

Coffee in 2005 and the Sterling group buying out Turner Morrisons entire stake of 65.45% to

finally being 100% owned company of the Lavazza group in 2007. As a result of this ownership

instability, there was significant management churn too. For instance, in August 2004, nearly an

year after it saw a number of exits of senior-level managers including that of high-profile

managing director Ravi S Deol and global business head Sandeep Vyas, Barista saw the exodus

of chief executive Yogesh Samrat25. Such instability has clearly taken a toll on Baristas long

term strategic vision.

Process: The order and delivery process at Barista is based on self-service (much like

Starbucks), where a customer goes up to the counter to place his order, and goes back to the

counter to pick his delivery once it is prepared.

Formats: Barista had four retail formats in 2004 - the espresso caf, which is the largest with

about 1000 sq. ft; the store-in-store at about 200 square feet; kiosks at airports and malls; and

outlets in corporate environments but currently has just two formats of outlets: Regular Barista

Espresso Bar and Barista Crme outlets.

24

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Source: Fresh Churn: Barista CEO Yogesh Samat Quits ( August '16,2004, FE)

22

A typical regular Barista Espresso Bar outlet is about 800 900 sq. feet and works on a

self-service model, however in the recent past they have started serving order at the

customers table but the order still has to be given at the counter. This half way measure

is also not strictly adhered to as it happens in some cafs but doesnt in some others. So

either this measure is done on the initiative of a local store in charge or if under

directive from the headquarters then it is not followed.

A typical Barista Crme is about 1500 2000 sq. feet positioned as a high end coffee

lounge, and features a more elegant dcor and relaxed seating in the form of sofas. A

few other distinctive features of this format is that it is a full service cafe and also

features a kitchen to do some rudimentary level cooking thereby offering a menu of

some of hot snacks in addition to their regular caf menu. The company currently has 15

such outlets.

Product Sourcing: There is a problem in Baristas supply chain, as they do not have access to

raw materials like Caf Coffee Day. Hence they are vulnerable to fluctuations in their input

costs. Barista sources its coffee beans from around the world. These coffee beans are then sent

to Venice, Italy where they are roasted into a blend exclusively for Barista. Barista also sells

merchandise through its store, all of which is imported. The merchandise accounts for nearly

1/6th of Baristas overall sales.

Pricing: Though the pricing is somewhat similar to Caf Coffee Day it is still seen as a more

expensive brand. Barista has a Skim Pricing Policy i.e. they began with a higher price, and

skimmed the cream for the market. With the sudden spurt of growth in number of outlets,

came the benefits of economies of scale. Because of this, they had been able to gradually lower

their prices, and appeal to different segments of their target market. For instance, in 2003, the

company announced a price reduction of about 22% on coffee at all Barista Espresso Bars26.

Currently, their prices are the lowest they have ever been, and they can competitively match

their prices against CCDs prices. The prices are constantly changing in downward direction. This

gradual price reduction meant that Barista could maintain its profit- maximization policy until it

could earn large cost savings because of the benefits of high volume. The main factors that

affect their pricing are their cost of goods sold. The costs are quite high because it imports a

majority of its products and product-sources. Moreover, Barista offers 100% Arabica coffee

while most other coffee chains in India often tend to offer a mix of Arabica and Robusta (a

cheaper variety of coffee).

However, the coffee caf chain recently revisited its pricing strategy across all outlets.

According to Mr. Tarak Bhattacharya, Head Operations, There has been an increase in the 26

Barista Plans International Blends At Affordable Prices (June '25,2003, FE)

23

input cost and hence we made a slight increase in the product pricing in our menu. The

increase is to the tune of 8% across all their outlets. Interestingly, Baristas key competitor CCD

also raised the prices of its products by 8% a couple of months ago. As a result, both the coffee

caf chains now have similar menu pricing, which was not the case earlier as Barista was

perceived to be more expensive than CCD, giving the latter a competitive edge.

Target Market: According to Basav Mukherjee, Head Marketing of Barista, women form

56% of their consumer base and a large number of consumers (65%) are between the ages of

twenty and thirty-two. The majority of these are young urban professionals. According to Mr.

Mukherjees definition of the target market, Barista served the global Indian Someone who

is intelligent and appreciates the good things in life.27 CCD had a simpler defined target market

the youth in the age group of 15 29 years comprising of largely students and priced its

wares lower keeping their target clientele in mind.

Brand Image: Barista has positioned itself over the years as a premium brand. Their

products, services and outlets are more like the traditional European cafes, where people

would meet for the love of coffee, and for an intellectually stimulating experience. They

position their outlets as a place where the world meets.

a) Logo, Colors, Images: Barista, since the beginning has looked to use colors in its cafe

interiors, logos and images; to project a warm, earth glow, synonymous with coffee.

Barista uses shades of Orange & Brown to good effect to promote its laid- back

atmosphere. The logo is a combination of Brown, Orange and Light Yellow; with the

word Barista written in an upward curve, and the word Coffee underneath.

b) Decor and Architecture: Baristas internal decor and architecture expresses the

premium positioning it associated with traditional European cafs. The furniture is made

of light shades of wood, and there are comfortable sofas in bigger cafes. The walls are

shades of orange, with various photographs of the love for coffee spread around each

outlet.

Place: Barista looks to cater to their target market with strategically located outlets at High

Street/Family Entertainment Centers whereas CCD has expanded its network of outlets to even

residential neighbourhoods.

Promotions: In 2004, erstwhile chief executive Brotin Banerjee had commented, We dont

need to advertise in the way you will see consumer durables or auto brands advertising. Most

of our advertising is tactical in nature apart from word of mouth. This very strategy WOM

27

http://www.exchange4media.com/brandspeak/brandspeak.asp?brand_id=4

24

advertising caused the chain dear when the customers actually spoke more of CCD thus

share of voice translated into share of market.

Callous Collaborations: Barista has entered into special collaborations and alliances with

various partners for co-marketing that did not help the brand. For example, Barista entered into

a deal with Leo Mattel toys to provide the popular board game Scrabble at every Barista outlet

across the country. This was seen as an ideal alliance for both the organizations, but ended up

working better for Leo Mattel providing it with an important avenue for promoting their

product.

It also had a tie-up with Tata Teleservices in Maharashtra would offer their consumers access to

the Internet. However, soon all other coffee players had internet access at their cafs too.

Their tie-up with Elle 18 lipsticks also seemed to be confusing to the customers of both brands

as the target market for Elle 18 were the teenyboppers where as Baristas clientele was the

more mature youth aged 25 35 years. Thus Elle 18 launching a collection of coffee colored

lipsticks and naming the line it after Barista beverages bombed.

Also while CCD actively partnered movies, Barista seemed to be initially reluctant to do so.

Though recently, they have tied up with Star World for its Absolutely Everybody campaign, in

2004 when placement of the Barista brand in movies happened without them working towards

it, the management commented that we are very careful in selecting such associations and

partnerships because we do not want to dilute the brand equity of Barista in any way. (Barista

had been in films like "Waisa Bhi Hota Hai", "Aeitbaar" and "Ek Hasina Thi")

Sales Promotion: In 2004, Barista launched a smart card - Barista Coffee Card which

recorded the transactions of its consumers to encourage customer loyalty and had 7,000 card

holders. The Barista Coffee Card entitled customers to one complimentary hot beverage after

purchase of seven! It is little wonder that this proved to be ineffective.

Conclusion Are CCD vs Barista going to be Starbucked?

Fueled by the thirst for the Italian expresso bar culture among urban Indians today, the two

chains have proliferated over the past few years with 683 Caf Coffee Day (CCD) and 220

outlets for Barista. It is currently a duopoly between these 2 big players with others such as

Costa Coffee, Coffee World, Caf Mocha, et al fighting for the remaining market share. But even

when combined together, they would not be able to satiate the thirst for coffee, as the market

25

potential is predicted to be 3,000 outlets, outlets vis--vis the 700 odd coffee outlets in the

country now.28

Why is the cup of coffee retailing flowing over? According to a 2006 ENAM Securities survey,

Indian consumers are spending nearly 51% of private final consumption expenditure on eating

out. This is truly mouth-watering for almost every global giant in the food and beverages space.

Recent market research studies by the Coffee Board of India also affirmed that coffee

consumption in India, by and large is an urban phenomenon with an urban and rural divide of

71% and 29% respectively.

Predictability, with such an apparent market scope, the duopoly in

the coffee retail market would not last for very long. And to worsen

the situation for the countrys biggest coffee chain CCD, its director

Naresh Malhotra is no longer working for CCD as of June 2007.

Already, former Coffee World CEO, Anoop Saquiera has joined

Starbucks in India, and the market buzz is that Naresh Malhotra is

also headed in the similar direction.

However, Malhotras departure is not likely to have a highly adverse impact on the

brand.According to Simran Sablok, GM - Marketing, CCD says, We are aware of Indian taste

buds and our pricing is always economical, so even if any other player comes in, it wont disturb

us, adding that CCDs trendy brand image will also help the chain sustain its popularity.

Global players entering the food and beverage market in India have mostly concentrated on

Indianising the menu, and lowering prices. This strategy has worked for Mc Donalds in India.

Affirms Partho Dattagupta, CEO of Barista Coffee Company, flagship products should always be

Indian and you have to price them keeping in mind the Indian consumers.However, Starbucks

does not seem keen to go the McDonalds way, and is instead focusing its energies on acquiring

precious human capital from its rivals.

But pricing may ultimately not be too big a problem for Starbucks in India. Rather Starbucks

entry will positively raise the competitive barriers in the segment and take it far beyond the

present duopoly.

Recognising the need to keep up a steady stream of cash flows, even with a strong foreign

player enters the market, CCD has plans to invest Rs 100 crores to set up outlets in emerging

economies such as Pakistan, Poland, and several other countries. We are going to have a

strong global presence, at the same time, strengthen our Indian presence. Its not that we are

competing against anyone, but its a part of our strategy to reach every corner of the country,

28

http://www.iipm.edu/iipm-editorial-981.html

26

explains Simran. With 426 stores spread in 40 cities, CCD minted an incredible turnover of

Rs.450 crores for this fiscal. It plans to add at least 50 more stores and also restructure its

accessories venture in an effort to step up its Indian presence. And rest assured, these additions

will happen much before Indians start having coffee with stars.

Not to be outdone, Barista also has plans of opening as many as 100 more stores by 2008.

However, in order to be able to compete with Starbucks, these players would have to strategise

beyond the obvious: dotting the urban landscape with more coffee outlets. They need to create

a strong logistics chain and a sturdy raw material base. This is where Barista or global coffee

chains like Costa Coffee and Coffee World have missed out. On the contrary, CCD, being a part

of Amalgamated Bean Coffee Trading Co., has abundant raw material at its disposal at lower

costs. Realising its importance, Coffee World, after being in India for more than 3 years, has

suddenly woken up to create its own sourcing hub in India now. Others will no doubt, follow

soon.

In as much, Starbucks has unwittingly ensured that coffee retail in India will soon get another

face lift, leaving behind some very coffee-happy consumers in its wake. After all, branded

chains are already waking up and smelling the coffee...

Annexure:

Results of Survey by Coffee Board on Consumption and Attitude of Indian Coffee Consumers:

The Coffee Board of India had commissioned a market research study in 2001 to

understand the habits and practices with respect to coffee consumption and the

salient results of the study were as follows:

Penetration (Beverage consumed in the past 12 months) of coffee at 59% was low

compared to that of tea.

When compared to consumption of other beverages yesterday, coffee came in third,

after tea and plain milk.

Coffee was consumed as a first cup only by 23% of coffee drinkers even in the traditional

market of the South.

Coffee had a 10% share of throat at the national level, with negligible shares in the

north, east and west zones, (1% or less). However, coffee performed well in the south,

recording a share of 18%, the highest after tea at 45%.

27

Per capita consumption of coffee (among all respondents - both drinkers and non

drinkers) was 0.33 cups against 1.77 cups for tea.

About 41% of the respondents are non-drinkers of coffee. The potential for growth lay

with occasional drinkers who constitute 40% of the population.

Visiting cafs was not a frequent habit. Of all respondents surveyed, about 12% visited

cafs and there was a greater tendency among the upper SECs to visit cafes. Of all the

respondents, about 10 % had ever visited cafes, this proportion was higher among men

and the younger age groups (15-34 years).

Attitudes to coffee

Coffee at home was significantly different to coffee outside.

It was also interesting to observe that rating for Coffee outside home is better than Tea

outside home, specifically in the North and the east.

In the 2005 survey however, the results were significantly different:

Spontaneous Recall of Coffee as a beverage of choice increased significantly as shown

below:

However, outside of home consumption of coffee still showed low penetration but high

consumption of coffee in Offices and colleges

78 72

95 87 97 99 99 98 94

5445

60

35

7077

61

424232

24

61

30

6045

59

848588 878281

95

Total Tamil Nadu Karnataka AP Kerala North East West

95 89 97 97

54 56

75

4331

42 40

10

70

13

81 83 8176 73

88

Total Tamil Nadu Karnataka Andhra Pradesh Kerala

28

Source: The Coffee Board of India