Café Coffee Day – “Retail management ”
Project Report
Submitted to: Prepared by:
Prof. T.K. Chaterjee Abhinav Arya (2011007)
Akshay Shukla (2011026)
Garima Shah (2011076)
Mohammed Ali Yasser (2011112)
Manoj Kishan Solleti (20111196)
Rishi Saluja (2011157)
CAFÉ COFFEE DAY
Corporate Profile
It was in the golden soil of Chikmagalur that a traditional family owned a few acres of coffee
estates, which yielded rich coffee beans. Soon Amalgamated Bean Coffee Trading Company
Limited, popularly known as Coffee Day was formed. With a rich coffee growing tradition since
1875 behind it coupled with the opportunity that arose with the deregulation of the coffee board
in the early nineties, Coffee Day began exporting coffee to the connoisseurs across USA, Europe
& Japan. In the calendar year 2000, Coffee Day exported more than 27000 tones of coffee valued
at US$ 60 m to these countries and, for the second time in its short career of 7 years retained the
position as the largest coffee exporter of India.
Coffee Day has a wide and professional network in the major coffee growing areas of the
country comprising over 48 agents and 50 collecting depots. Coffee Day's two curing works at
Chikmagalur and Hassan cure over 70,000 tonnes of coffee per annum, the largest in the country.
Coffee Day has a well-equipped roasting unit catering to the specific requirement of the
consumers. The process is carried out under the control of experienced personnel to meet highest
quality standards. The most modern technology available is used to maintain consistency and
roast the coffee beans to the demanding specifications of the discerning coffee consumers.
Coffee Day Comprises of the following Sub Brands
Coffee Day - Fresh & Ground
Café Coffee Day
Coffee Day – Vending
Coffee Day - Xpress
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Coffee Day – Exports
Coffee Day - Perfect
Café Coffee Day currently owns and operates over 1200 cafes in all major cities in India. It is a
part of India's largest coffee conglomerate named Coffee Day, ISO 9002 certified company.
Coffee Day's most unique aspect is that it grows the coffee it serves.
Key Features
• Pioneers of the Café Concept in India with the its first Café at Brigade Road, Bangalore in
1996. This Café was opened as a Cyber Café (first of its kind) but later, with the burst of cyber
cafes it reverted to its core competency Coffee.
• Essentially a youth oriented brand with majority of its customers falling in the 15-29 year age
bracket.
• Each café, depending upon its size attracts between 400 and 800 customers daily.
• It is a place where customers come to rejuvenate themselves and be themselves.
• USP of the Brand:
Affordable Price
Quality Coffee – Winner of Platinum, Gold, Silver and Bronze medals at the India Barista
Championship 2002.
Product Sources:
Coffee Day's most unique aspect is that it grows the coffee it serves in its cafes. CoffeeDay has a
well-equipped roasting unit catering to the specific requirement of the consumers. The process is
carried out under the control of experienced personnel to meet highest quality standards. The
most modern technology available is used to maintain consistency and roast the coffee beans to
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the demanding specifications of the discerning coffee consumers. The coffee beans are supplied
to all the cafés from Chikmagalur.
The eatables at Café Coffee Day, Nagpur are catered by different vendors: example: ice creams
are catered by Treat, Milk by Dinshaw and Bakeries by Redz. Café Coffee Day also sells
merchandise through its stores. 5 per cent of the revenue comes from sale of merchandise.
Quality standards:
Café Coffee Day has a check on quality all the time and in several aspects. The operational in-
charge will go around checking business, record keeping service and check the feedback forms.
The food in-charge will look at the way food is being stored, coffee is being made, what is the
time take to extract the coffee and so on. Marketing person will go about checking displays, how
the merchandise are displayed
Merchandising:
At Café Coffee Day merchandise started more as a sentimental thing than as a revenue
stream. They wanted to reward coffee lovers and they started selling mugs. People wanted to
wear something that reminded them of the cafe so they designed T-shirts and sold thousands of
those. But soon it has become a serious business. 5 per cent of their revenue comes from the
merchandising.
Distribution Chain
Café Coffee Day products can be classified into two categories namely coffee-based and non-
coffee based. Since the distribution chain of the two products is different we will talk about
them as different products. Apart from this broad classification, another category offered by
Café Coffee Day is merchandise available in its stores. 5 per cent of the revenue comes from
sale of merchandise.
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Coffee-based products: Amalgamated Bean Coffee Trading Company Limited (Café Coffee
Day) is a fully integrated coffee company, involved in every activity from growing coffee beans
on its 5,000 acres of plantations through harvesting, roasting, blending, exporting and retailing.
The value chain for coffee based products has four parts:
Non-coffee based products: These products include eatables like sandwiches & pastries and drinks like milk shakes. These products are usually procured from the local supplier which is a company-owned kitchen in case of metro cities and outside vendor in case of other cities.
For non-coffee based products in cities where the number of stores is greater than 20, company
opens its own kitchen which acts as the only supplier to all the outlets. For cities where the
number of stores is less than 20, the work is outsourced to a local vendor on a six months
contract. The company monitors and controls the quality of products supplied by these
vendors.
Mapping of Supply chain
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Coffee plantations
Coffee Cultivation & Harvesting
Coffee processing
Processing, selection, blending & roasting
Regional Distribution Centres
Receive coffee from headquarters & sends to different cafes
Cafe
Storage & Grinding
Local company-owned kitchen or outside vendor
Preparation & Packaging
Cafe-coffee day store
Storage
Chikmagalur
Bangalore (South India Head Distributor) New Delhi (North India Head Distributor)
Local warehouse Local warehouse
Outlet Outlet Outlet Outlet Outlet Outlet
Demand Forecast
Coffee- based products: Usually it takes a month before the order reaches the store from
the date it is ordered. The regional distribution centre collects demand forecast from the stores
in the region and then sends the order to the company headquarters in Chickmagalur. Demand
forecast for the upcoming month are based on the sales in the previous month. Other factors
like festive season and setting of stalls in colleges are taken into account. Usually the formula is:
Quantity Ordered = Sales in previous month*1.5 – Present Inventory
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To take into account other factors a different methodology is used.
Festive Season: To take care of increased demand due to festivals like Navratras and Diwali,
data for last three years is analysed. Suppose the festival is in October and quantity ordered is
based on sales in August then for the last three years percentage increase in sales in October as
compared to August is calculated and mean is taken. This percentage increase is then multiplied
with sales of august to calculate the order quantity.
Quantity Ordered = Sales in previous month*(1.5+Percentage increase) – Present Inventory
College Festivals: For college festivals last years sales figure is directly added to the quantity
ordered.
Pooling of demand
In cities where there are a few outlets demand is pooled to reduce uncertainty in the
forecasted demand figures. Even in cities with a large number of outlets, 10-15 outlets in the
same geography pool their demand to the same effect. Pooling of demand reduces the risk
associated with stock outs at a single outlet and thus Café Coffee Day is now using a factor 1.35
in place of 1.5 in places where demand pool is of more than 10 outlets.
Non-coffee based products: The demand forecast method is different for cities that have
company owned kitchen and for cities where these are supplied by an outside vendor.
For Cities with company owned kitchen: Orders are placed on a daily basis. Each store is
directly connected with the headquarters, other stores in the region and company owned
kitchen through an integrated SAP system. Each store places its order through the online
system before 8:00 PM. Demand forecast is based on the average of last three days sales figure
of the item. For weekends (Friday, Saturday & Sunday) figures for last weekend are taken into
consideration for calculating the average.
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For Cities without company owned kitchen: For such cities company selects a local vendor to
supply non-coffee based products. Employees of the selected vendor are trained for two weeks
to familiarize them with processes to be followed, ingredients and quality control procedures.
Café Coffee Day usually enters into a six month contract with the vendor and maximum
quantity of all the items is fixed on the first of each month. There is no minimum quantity limit
in the contract. Orders are placed by phone before 6:00 PM each day.
Maximum quantity for each Item: Maximum Consumption on any day in previous
month*1.25
All the vendors usually provide a credit of one month and the payments are made at the end of
each month. If there is any dispute between the quantity supplied by the vendor and the
quantity received by the store that the company pays for whichever is less.
Vendors are responsible for the quality of preparation as well as the quality during transport. It
is the responsibility of the vendor to arrange for proper transport till the items are delivered to
the store.
Inventory management
Coffee- based products: Raw material for these products is coffee beans which are ground
in a special grinder once an order is placed by a customer. Since coffee beans are non-
perishables and inventory carrying cost is very small, there is not much of a system for
inventory management of coffee beans. While placing new orders present inventory of coffee
beans is taken into account, other than this there is no inventory management for coffee beans.
Non-Coffee based products: Most of the non-coffee based products are perishable
products therefore inventory management is required. Each store follows FIFO (First in First
Out) system for all perishable products. For inventory that is about to expire in two days the
SAP system generates an alarm. For better inventory management usually stores in a locality
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follow a pooling system. In this system the store in which alarm is generated can send this item
to other stores where daily sales are comparatively higher or where there is a shortage of the
item. This prevents loss due to decay.
Implementing Technology:Retail automation system was first deployed in retail outlets at Chennai. It is being introduced
in all outlets in a phased manner. Stewards at CCD outlets are provided with Lipman NURIT
8010 Wi-Fi-enabled handheld devices. These come with an in-built microprocessor, thermal
printer and smart card reader. Each outlet is provided with two to eight portable devices
depending on the size and requirement of the outlet. The automation system has three
modules:
1) Sales automation: Using the handheld device, a steward is able to connect to the
kitchen over the Wireless LAN. He takes orders electronically, and prints out the bill on
the spot. The order is fired to the kitchen, which starts preparing the coffee and snacks.
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Store-1
Store-2
Store-3
Store-4
Pool for Unsold Non-Coffee Based products
Time taken from order placement to delivery has reduced to only 10 minutes now.
Mismatched orders are reduced to almost zero as the bill is handed over to the
customer immediately. This handheld device is also used for billing and can accept
Credit/ Debit cards. Stewards can mark their attendance using a smart card, and the
system keeps track of the number of transactions a steward handles in a day, thereby
keeping track of his productivity.
2) Inventory management: The system also helps in supply chain management as it lists
the raw materials required by each outlet. These details can be entered into the system
which tracks raw material automatically and notifies when it needs to be replenished at
a particular outlet. Also, it is wirelessly connected to a central computer system and can
communicate with similar devices anywhere in the world in real time. Therefore, sitting
in New York, one may find out with exact precision the “happenings over a cup of
coffee” at CCD outlets located in Bangalore, Dubai or any other location. Hence
Inventory management at outlets has become quite efficient.
3) Loyalty management: CCD has launched an effective Café citizen loyalty program
wherein a smart card provided to the customer stores all-important customer-related
information such as his/her profile, likes and dislikes, previous visit to any of the CCD
outlet, and so on. When this card is swiped on any of these NURIT 8010 devices
anywhere in the world, all vital information is displayed on the screen to enable the
front-end café staff to serve him to the best of his satisfaction. For every purchase the
customer accumulates points on the card and he may use these points and redeem the
same on his subsequent purchases. Also, customers may register their
complaints/queries at the outlets, which is communicated instantly to the “Customer
Care” staff that instantly gets going to provide solution to the queries
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Use of IT to manage Supply Chain
The supply chain scope is entirely made up of information, and the breadth of this information
determines whether the scope is global or local. To make its scope global and to manage its
complex and geographically dispersed business, CCD needed a packaged solution to handle
production and supply chain management, so Café Coffee Day looked for an integrated solution
that could support its continuing rapid growth. After following a review of ERP solutions from
major global vendors, Café Coffee Day selected the SAP ERP application as the best fit for its
requirements. As the new ERP environment would be critical to the smooth running of its
business, Café Coffee Day placed great emphasis on selecting the platform to run its SAP
software—and in backing it with a comprehensive support package. Since SAP software is based
on Java, and it runs particularly well on UNIX-like operating systems therefore Café Coffee Day
opted to run its SAP ERP application on SUSE Linux Enterprise Server, based on the operating
system’s price-performance, reliability and scalability. Since CCD cannot tolerate any downtime
for the SAP environment therefore using SUSE Linux Enterprise Server Priority Support for SAP
Applications, gives CCD full reassurance that this business-critical environment will be up and
running 24 x 7.
Also Selecting SUSE Linux Enterprise Server as operating system for SAP ERP provided the
required performance, reliability and scalability with low cost of ownership. To ensure effective
support for the entire ERP solution stack, Café Coffee Day selected SUSE Linux Enterprise Server
Priority Support for SAP Applications, provided by Wipro Infotech. This joint support offering
gave Café Coffee Day a single support entry point, reducing complexity, accelerating problem
resolution and cutting the total cost of ownership. The solution also provides seamless
integration with SAP Solution Manager into the SAP Global Support backbone. SAP ERP plays a
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crucial role in helping CCD to manage internal operations and to maintain control over an
extended supply chain.
The rollout of SAP ERP has helped Café Coffee Day to improve control over its business
operations, enabling the company to maximize supply chain efficiency and cut costs while
simultaneously improving the quality of service to its clients. The SAP software also provides
detailed financial and management information for reporting purposes, supporting more
effective long-term strategic planning and enabling targeted growth. SUSE Linux Enterprise
Server provides an economical, reliable and scalable platform for SAP ERP. As Café Coffee Day
continues on its rapid growth path, this scalability will help CCD to expand the business without
disruption and without incurring significant additional costs for the IT environment.
Supply Chain Strength/ Weakness Again the supply chain of Café Coffee Day can be analyzed in two different parts, one which
extends from coffee plantations to stores and the other which forms the link between the
stores and the customers. While in the last two years or so Café Coffee Day has concentrated a
lot on improving the supply chain from stores to customers by use of technologies like Wi-Fi but
the same cannot be said for the supply chain from plantations to stores. Method of demand
forecasting is very rudimentary with the only emphasis being on no stock outs totally ignoring
inventory management. Moreover although all the stores are connected to each other and to
the headquarters through a Tata Indicom network yet a store manager still has to order coffee
products every month and non-coffee products every day based on forecasting.
Risk Management Issues
Three major risks that are involved in the supply chain of Café Coffee day are:
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1. Forecast risk: There is a huge seasonality involved in consumption of coffee. Demand
variation is large on a month by month basis. Moreover enormous lead times of nearly
one month between the time order is placed and the order is fulfilled are involved. The
method Café Coffee Day is using to mitigate this risk is to multiply the demand forecast
of individual store by 1.5 while ordering. This creates a lot of inventory in the system
mainly at the stores. Thus pooling of demand can be a viable option for reduction of
inventory.
2. Disruptions: This is another risk involved. Disruption in supply chain due to labour
disputes or natural disasters is a source of worry.
3. Capacity risk: Cost of capacity in roasting is very high. Moreover limited availability of
capacity outside the company in India is also a major risk as all other competitors like
Barista use foreign vendors for roasting the coffee beans.
Demand Pooling
Let us assume that the average demand (normally distributed) for a store in a specified locality
is 28,568 grams with a standard deviation of 653 grams. Also let us assume that the required
service level is 99.99%. In this case the required inventory is:
Inventory = 28,568 + 653*3.08 = 30,579.24 grams
For 10 such stores the inventory will amount to 305,792.4 grams
Assume further that there are 10 stores in the same locality with similar mean and variances in
demand. If we pool the demand of these 10 stores then
New mean = 28,568*10 = 285,680
New SD = (10*6532)1/2 = 2,064.97
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Now the required inventory would be (for the same service level)
New inventory = 285,680 + 2,064.97*3.08 = 292,040.1
Difference between the two inventories = 305,792.4 – 292,040.1 = 13,752.3
Thus to maintain the same service level we need an inventory which is lesser by 13752 grams if
we pool the demands of a few stores in the same geography.
STORE LOCATION
1) Store location is usually decided based on research, or intuitive feeling about the expected footfall
2) CCD partners with multiplexes to open up its branches inside or just near them
3) CCD Lounges are special branches located in upmarket areas where residents have high
disposable income
PRICING
1) Pricing is done strategically based on location and type of customer footfall
2) Separate pricing for branches around colleges and corporate firms
3) Variations in price among branches even within the city as well as between different cities
PROMOTIONS
1) CCD does not promote itself much in the media
2) Occasionally publishes print ads and is about to come up with a TV ad soon
3) Relies more on word-of-mouth and strategic store location for sales
4) Emphasizes on good customer service to boost word-of-mouth
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Conclusion
It seems Café Coffee Day is using its infrastructure in a sub-optimal manner. Café Coffee Day
has all the required technological capabilities that can further improve its demand forecast and
inventory management. Decisions like ordering coffee products and non-coffee products can be
done by the system itself with the store manager providing necessary supervisory inputs like
setting of stalls in college festivals. Moreover pooling of demand can reduce the inventory at
stores substantially thus increasing inventory turnover.
Resources:
Café Coffee Day, Head Office Bangalore
Café Coffee Day Outlet, Poonam Chambers Nagpur
Café Coffee day official Website
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