Indian coffee battle heats up

06 June 2011

NEW DELHI: Competition is increasing in India's coffee market, as global chains like Starbucks and Dunkin' Donuts jostle for position with a variety of local operators.

Café Coffee Day, the current number one player, boasts 1,132 outlets and has revealed ambitions to open another 1,000 during the coming three years.

Venu Madhav, CCD's chief operating officer, argued the entire sector could feasibly see 4,000 to 5,000 extra branches start trading by 2015.

"The category is still small. There's room for everyone," he told Knowledge at Wharton.

Alongside trialling different formats, CCD intends to import coffees from around the globe, and create increasingly bespoke menus.

"Earlier, the functional need of consumers was coffee and conversation. Now, the consumer is spoilt for choice," said Madhav.

Half of India's 1.2bn population is under 25 years old, a figure anticipated to hit 55% in 2015, and this young audience in primarily credited with fuelling the anticipated surge in demand.

Per capita coffee consumption now stands at just 85 grammes in India, measured against 4.6kg in Japan and 6kg in the US, the Indian Coffee Board has reported.

Second-placed firm Barista, bought by Lavazza in 2007, also wants to more than double the size of its network from 230 to 500 branches by 2014, targeting locations like highways and petrol stations.

Consultancy Technopak Advisors estimates there are 1,500 coffee houses in India today, of which 1,000 have sprung up in the last five years.

The category generates annual revenues of $185m, pegged to reach between $800m and $900m by 2015, when 5,000 stores should be vying for customers.

"The growth has been triggered by rising youth spending, paucity of alternative hang-outs and an increasing number of new office complexes and colleges," Arvind Singhal, Technopak's chairman, said.

Dunkin' Donuts, the US multinational, recently finalised a joint venture with Jubilant FoodWorks after two years preparing an appropriate strategy, and expects to unveil its first branch in 2012.

"We will raise the bar for existing players," says Ajay Kaul, Jubilant's chief executive. "There's a big opportunity for both coffee and food in India."

The company hopes to open 100 sites across the country in five years, and plans to adapt its menu by adding items tailored for Indian tastes.

In the US, food delivers 60% of sales, a total which climbs to 80% when discussing Dunkin' Donuts' divisions in Asia.

"Unlike others who are pure cafés, the Dunkin' story is about all-day food, donuts and coffee for premium and middle-class consumers," Kaul said.

Elsewhere, Gloria Jean's has a goal of running 200 stores in 2014, over ten times the current amount, and is sourcing beans locally, and prioritising value, product quality and engagement.

"Once we establish beachheads, we will go to smaller towns," said Tony White, regional general manager for Gloria Jean's.

Further international aspirants include Alto Coffee, Café Nescafe, Coffee Republic, Coffee Club and The Chocolate Room, headquartered in markets from France and the UK to Australia.

Equally, however, Hindustan Unilever, the FMCG giant, and Reliance, one of India's biggest conglomerates, have entered this space.

Perhaps most significantly, Starbucks allied with Tata Group to form an Indian unit in January 2011.

"The challenges here are probably more acute on the infrastructure side, more acute on educating the consumers on what Starbucks is or what coffee is," said Howard Schultz, Starbucks' chief executive.

"But we will take the long view and we are not coming here with arrogance. We understand that we have to earn it."

Data sourced from Knowledge @ Wharton; additional content by Warc staff