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V.G. Siddhartha, chairman of the Bangalore-based Amalgamated Bean Coffee Trading Co. (ABC) and the
man behind India's largest café chain, Café Coffee Day (CCD), has set his team a stiff target: By March he
wants to expand the chain to 950 cafés.
From where it stands today, with 595 cafés across 100 cities in India, three in Vienna, and two in Karachi,
this means opening more than one café a day -- and not just in India. Siddhartha has strong global
ambitions: He wants 50 of these cafés to be located outside India.
While this might appear to be a tall order, CCD's investors feel otherwise. They see enough potential in the
coffee retail market for CCD to ramp up even faster. According to Naresh Malhotra, formerly CCD's chief
executive officer and now a director at the venture capital firm Sequoia Capital: "This space has enough
potential for Coffee Day to open a café every 200 yards in the country, within five minutes' walking
distance of one another." Sequoia invested $20 million in ABC, one of India's largest integrated coffee This is a single/personal use copy of
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Industry analysts estimate that fewer than 1,000 cafés make up India's organized space, but they put the contact PARS International:
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potential at around 5,000. The largest player after Coffee Day, Barista, has about 200 cafés. Java Green 221-9595 x407.
(around 75 cafés) and Mocha (around 25 cafés) are further behind. Venu Madhav, head of operations at
Café Coffee Day, has started quietly thinking about a farther-out café target number for his team: 2,000.
The Coffee Day story is not just in its numbers, though. Coffee Day has been a pioneer. According to Harish Bijoor, a visiting professor at the
Indian School of Business (ISB) at Hyderabad and CEO of Harish Bijoor Consults, "Coffee Day has brought about a paradigm shift in the café
space in India." Subroto Bagchi, co-founder of the IT and R&D services company MindTree Consulting, and author of the book, The High
Performance Entrepreneur, adds: "Café Coffee Day has redefined the coffee experience; it has been a trendsetter in the café space. Siddhartha
has raised the coffee from a brew to an experience."
Bagchi's association with Siddhartha dates to MindTree's first days, in 1999, when Siddhartha's technology holding company, Global
Technology Ventures, invested in MindTree. When Siddhartha opened the first Café Coffee Day outlet in Bangalore, India's silicon capital, in
1996, it was positioned more as an Internet café. This was 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.
Siddhartha, though, had other plans. The Internet was the bait. Coming from a family of coffee plantation owners and as chairman of ABC,
which owns more than 10,000 acres of coffee plantations in the southern Indian state of Karnataka, Siddhartha's aim was to sell coffee. The
space he was operating in, as an exporter of green coffee beans, offered low margins and these fluctuated depending on the vicissitudes of
pricing in the world coffee market. A café, in contrast, operates at the highest end of the value chain. Its margins can be 35% to 40% higher
than those of bean exports, notes Bijoor.
"At that time, coffee drinking in India was limited to South Indian traditionalists, the intellectuals and the five-star coffee shop visitors,"
Siddhartha says. "I saw that in the neighboring international markets of Southeast Asia there was a popular culture of consumers visiting a
café for experiential purpose in addition to consuming a glass of beer. These cafés were also promoting cyber-culture and offering Internet
access. These trends inspired us. We realized that there was a potential for building a coffee brand for the India market, and we launched the
first cyber café model based on the international lessons, but replaced beer with coffee. This is when Coffee Day was born."
Expansion and Experimentation
ABC is privately held, and as such does not disclose its financial results. Competitors estimate the company's revenues last year to be around
Rs 600 crore ($140 million), of which half, they say, came from a café business that they believe turned profitable a few years ago. 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 cafés 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. Operating across this spectrum has allowed Siddhartha to expand his brand presence rapidly.
Siddhartha is experimenting now with new formats, such as lounge cafés serving plated meals in addition to the sandwiches, pastries and
croissants offered in the cafés. The idea is to see whether this format can attract and retain customers who typically go elsewhere during
mealtimes. Unlike the cafés, which cater primarily to the 15 to 30 age group, this format targets consumers who are more than 30 years of
age. In two airports in India -- in Mumbai and Bangalore -- these lounge cafés serve liquor to cater to those locations' specific audiences.
Whether this plays well with consumers or just confuses the brand remains to be seen.
Meanwhile, Siddhartha is believed to have raised some $100 million for his expansion plans during the past few months. While much of this
apparently is through debt, around $25 million has come from the Darby Asia Mezzanine Fund, a unit of Franklin Templeton Investments.
According to Richard H. Frank, CEO of Darby Overseas Investments, "Coffee Day has successfully consolidated its market leader status and
is positioned to take further advantage of the ongoing macroeconomic, demographic and lifestyle changes. We are attracted to ABC because
of its leadership position within India's rapidly expanding consumer lifestyle segment and its strong execution capabilities."
In its early years, however, Coffee Day had neither clear positioning nor significant presence. In fact, it lost ground to Barista Coffee, which
was founded in 2000 by Amit Judge of the investment company Turner Morrison. Barista positioned itself as an upmarket, premium coffee
café and targeted executives who saw it as a less expensive alternative to coffee shops in five-star hotels. In 2002, Barista had some 85 cafés
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