In 2012, when coffee giant Starbucks entered India, John Culver, the president of Starbucks in Asia said, “We are going to move as fast as we possibly can to take advantage of the opportunity that exists in India.” Twelve years later, the American company has scaled its presence in India to 360 stores across 44 cities riding the coffee consumption market which has been clipping along at 6 per cent CAGR in the last five years.

Starbucks is a hit and now other international chains have smelled the coffee and begun arriving in India. Canada-headquartered Tim Hortons and London-headquartered Pret a Manger are two big players that have entered the Indian market recently. Meanwhile, Indian coffee chains are brewing good growth too. According to GapMap’s Retail Network Report for India’s Café Sector, Cafe Coffee Day has 436 stores, Barista 350 stores, 117 stores of Costa Coffee, Third Wave Coffee Roasters have 102 stores and Blue Tokai is growing fast with nearly 80 stores. According to the data sourced from Tracxn, a market intelligence and analytics platform, in 2022, $57.6 million was invested in India’s coffee chain industry.

“It is an exciting time to be in the cafe industry in India. The country has a large geographical diversification with different culinary preferences and youngsters who are very much aware. They want similar expectations from coffee chains in India. The market is expanding and there is enough space for everyone to indulge in,” said Tarun Jain, CEO, Tim Hortons India.

Full of beans

Thanks to the heightened competition, the coffee market has perked up offering Indian consumers a lot more choice and flavours. Start-ups including Gurgaon-headquartered Blue Tokai and Bengaluru-based Third Wave Coffee are brewing special coffee roasts and flavours to woo consumers.

Blue Tokai will expand to 130 stores across the country in this financial year. Matt Chitharanjan, Co-Founder and CEO, Blue Tokai Coffee Roasters, describes how in 2013 when the chain started there was no specialty coffee in India, only commodity coffee brands. The specialty coffee produced in India was being exported as the feeling was there would not be domestic demand, he says. “However, the landscape in India has changed completely since we started. Roasters are popping up in cities across India, in tier one as well as tier 2 and tier 3 cities, serving good quality coffee. The company’s focus for this financial year is to go deeper into the already present markets,” he says.

Rajat Wahi, Partner, Deloitte India, describes how agile and innovative start-ups have been able to offer a wider range of coffee products and services than established players. “They are offering a variety of coffee subscriptions and coffee brewing accessories,” he says.

Start-ups are also shaking up the market with newer retail formats. Take Roastea, a start-up formed in 2019 by twin brothers. “We aim to create an atmosphere where customers can enjoy not only a coffee/tea but also a high-quality dining experience, complete with the right ambiance. We plan to set up kiosks in high-traffic locations such as airports, railway stations, expressways, national highways, high-end malls and more. We also intend to open cafes strategically in high streets, Tier 1 and Tier 2 cities, and large format cafes named “Culinary House” in Tier 1 cities. This diversified approach will help us to tap into different market segments and cater to a wide range of consumers,” says Anurag Bhamidipaty, Co-Founder of Roastea.

Digital pick me up

The established coffee players are not staying still either. They are responding with digital innovation. “Mobile ordering and ordering ahead for Starbucks India have grown three-fold. If you want to grow 700 stores in the next decade, you will need to have a system digitally, resulting in a faster innovation cycle,” said Adrit Mishra, COO of Starbucks India, in a panel discussion at the recent MAPIC India 2023 event.

However, the Indian cafe market is by no means an easy one to crack. History is full of failed stories. In 2014, the Italian coffee brand Lavazza announced its exit from India after facing challenges in running the Barista coffee chain. The suicide of VG Siddhartha, the founder of Coffee Day Enterprises that manages Cafe Coffee Day (CCD) outlets, blaming himself for not creating a profitable business model still casts a shroud on the industry.

But experts say that things have changed now. Post pandemic, the work-from-anywhere trend has benefited coffee chains as a lot of youngsters prefer working out of cafes.

According to Statista, the Indian coffee industry is expected to reach a value of $1.3 billion by 2025 and grow at a CAGR of 8.9 per cent from 2020 to 2025. Not surprisingly, brands like Lavazza are making a comeback through a deal with Culinary Brands, part of Everstone Group.

E-commerce is also giving a boost to the growth of the coffee industry. “The online coffee market in India is expected to grow at a CAGR of 20 per cent over the next five years. With 20 national and regional chains in play today and new ones entering every month, the market is expected to continue to grow,” says Wahi.

“Coffee in India has gone from an occasion-based story to now become a habit-based story. We do not celebrate short wins and are here to stay for the next two decades. We are focused on bringing the customer back and keep innovating around menu and formats and on how to bring different formats to suit the customers,” said Sushant Goel, Co-Founder and CEO, Third Wave Coffee, in a panel discussion at MAPIC India 2023.

Retailers are clearly gungho, now it all depends on the consumers — will they crowd the chains?

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