around the country, while Coffee Day had just 35.But after a faltering start, Siddhartha pulled things together. What turned the tables in Coffee Day's favor was its subsequent strong positioning as a "third place" away from the home and college or workplace for the young and the young at heart. Siddhartha made peopleages 15 to 30 Coffee Day's prime target. "With the advent of cable television and growing consumerism, the urban youth in India wereexposed to the lifestyles of youth across the world," he says. "They were seeking an experience which was world class in nature and yeteasily accessible -- an urban youth 'hangout venue' that allowed them 'their culture'. We fulfilled this latent demand."Having zeroed in on the target, elements such as pricing, ambience, food, music and promotions fell into place. 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 seeour cafés almost like a brick and mortar social community network where people can express themselves in a friendly, clean, non-inhibitiveand non-intimidating environment that offers an excellent range of products at affordable prices."
Strong and Stable Parentage
According to ISB's Bijoor, "Coffee Day has mastered the core competency of opening outlets, building a strong brand, and making a strongemotional connection with its target group." He says that while Coffee Day moved from strength to strength because of its clear positioning,Barista lost its initial advantage because of multiple ownership changes and a consequent change in focus.Since its launch in 2000, Barista's ownership has changed hands from Turner Morrison to the Tata Group to the Sterling Group and, last year,to Italy's leading roaster, the Lavazza Group. "Barista tried to be everything to everyone and ended up being nothing to anyone," Bijoor says.Coffee Day's strong and stable parentage, he says, has given it a significant advantage.Coffee Day also was sharper than Barista in finding the right locations, a critical success factor in the café business. Siddhartha himself considers the biggest challenge to be "ever-fluctuating real estate prices."Taking Coffee Day to the next level of growth, of course, has its challenges. Competition, for one, is likely to play a larger role. Barista, too,has now decided to target the young adult and, like Coffee Day, is riding the affordability plank. Rini Dutta, vice president of marketing and product development at Barista, notes: "Our focus now is on young adults aged between 20 and 35 who have global lifestyles and value agreat cup of coffee in a warm and friendly environment. Our prices are more or less on par with key café players."When Lavazza acquired Barista and the Fresh & Honest vending business from Chennai-based Sterling Group in March 2007, it put its totalinvestment for the acquisition and development of the two businesses at €100 million from 2007 till 2010. The target was to take the number of Barista cafés from 150 then to 400 by 2010. In a press note, Lavazza Group CEO Alberto Lavazza said, "The acquisition is part of our strategy aimed at expanding our operations in markets with a high development rate and a high growth potential. We are delighted to enter the rapidly growing Indian market through Barista and Fresh & Honest."Another significant competitor in the coming years could well be the global coffee giant Starbucks. In June 2007, Starbucks put its India plans on hold because of foreign direct investment regulatory issues. But India is too big a market for Starbucks to ignore. In a pressstatement, Starbucks said: "Starbucks is reviewing all options and evaluating how we can proceed related to our entry into one of thefastest-growing economies in the world. We remain excited about the great opportunities that India presents to Starbucks."Other recent global players in India include Britain's Costa Coffee, Australia's Gloria Jeans and Italy's illycaffe. Meanwhile, domestic chainssuch as Java Green, from the Reliance Anil Dhirubhai Ambani Group, are looking to expand. Aruna Ramesh, head of marketing at JavaGreen, notes: "We started as an in-store café for the Reliance World outlets to cater to our in-house customers. While we have no independentcafés yet and are continuing with our store-in-store format, we are now partnering with other chains and are also present in corporatecampuses."Siddhartha is not unduly worried. "The café space in India is opening up and newer players are entering the market and offering more optionsfor consumers," he says. "This is healthy, as competition will ensure that each player delivers his best to be the consumer's first choice. Aslong as one is committed to delivering world-class quality, there is no need to change the rules of the game just because of new entrants."CCD's Madhav adds, "We believe that more players will bring in more awareness and excitement in the space. This will only help the marketto grow."
Coffee Day's Advantages
Malhotra, of Sequoia, notes that while Coffee Day can't afford to be complacent, it is well ahead in the game. He points out that with eachoutlet needing an investment of around Rs 40 lakh ($100,000), this is a business that needs to be funded aggressively. Also, the low per-unitrevenue makes it a difficult market to crack. "Coffee Day has a tremendous advantage because it has its own plantations, procurement agents,curing works, etc.," Malhotra says. "The scale of its café operations brings its own advantages." Outside of ABC, Siddhartha has launched asmall business that supplies furniture for his cafés and a residential hospitality college that trains young people who can be absorbed into the business.Malhotra believes that given its large number of outlets, instead of sourcing food from outside, Coffee Day should maximize value by puttingup its own kitchens. This, he says, will ensure quality control and make it easier to introduce changes and create excitement around the menu.Sequoia's most immediate concern, however, is that Siddhartha needs to bring a chief executive officer on board for the café business. Ever since Malhotra left in July 2007 after a six-year stint with CCD, Siddhartha has played that role himself. "Siddhartha has other interests thattake up his time, and we have been insisting that he get a CEO soon," Malhotra says.Apart from his interests in coffee, Siddhartha is founder and managing partner at Global Technology Ventures and founding chairman of Way2Wealth, an investment consultancy. He is also on the board of MindTree, Ittiam Systems and Liqwid Krystal. In addition, he has other plans: He wants to leverage ABC's picturesque coffee plantations into a new business opportunity. "We have identified the burgeoning luxurytourism market as a suitable growth opportunity," he says. "With this we will be catering to an older target audience." As for getting a CEOfor Coffee Day, Siddhartha admits that he will "have someone to fill this position" but this will not happen immediately.A key focus for Siddhartha at the café business is to make greater use of technology, both at the back and front ends. At the back end, Madhavis working on strengthening the supply chain and logistics. At the front end, Nagaraj is focusing on making the cafés wi-fi enabled, digitizingthe in-house magazine
Café Beat
, building loyalty programs, and using technology such as Bluetooth to stream music across the cafés. Nagaraj, who has worked for technology majors Google, Intel and Compaq, says: "Once we have our consumers hooked on to Bluetooth inour cafés, we can create a whole lot of excitement and energy around it, and make communities and build further on that."
All materials copyright of the Wharton School of the University of Pennsylvania. Page 2 of 3
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