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CHAPTER 2:HISTORICAL BACKGROUND

Growth of Caf Industry in India


Hot beverages have always been a part of the tradition of India, especially South India.
Coffee took the first seat in South India when the traditional Brahmin classes brought down.
In order to spread the drink, coffee houses emerged at various places in the country, which
also served as the opposite places for lawyers and the educated class to hold discussions
ranging from politics to cinema. It is also believed that many scripts and ideas for films
evolved here.

The drink also became famous and as a result even five star hotels began cashing in on it.
Several hotels all over the country started opening coffee- shops that catered to high- end
customers. This showed the popularization of coffee cafs, to all sections of society.

The drink has now become more of a concept than merely a drink itself. The last decade
witnesses the growth of numerous coffee pubs in the country. A number of coffee caf owners
tried to westernize the taste in contrast to the filter coffee.
Now, large retail chains like Qwikys, Barista, and Caf Coffee Day have opened up around
the country. The concept of a caf today is not merely about selling coffee, but about
developing a national brand. Retail cafs now form a multi-crore industry in the country, and
have huge potential for growth locally, and internationally.

The more than US $150 million organized coffee retail business in India is coming into its
own, fed by rising incomes and a fast-food sector that is growing at 40 per cent annually.
Coffee consumption has increased from 55,000 tons to 80,000 tons after decades of
stagnation. Industry sources say the niche coffee retail format is growing at 10-12 per cent a
year, with branded coffee accounting for 53 per cent of sales, unbranded 40 per cent and cafes
7 per cent.

National Scenario of Caf Coffee Day.


Coffee day Global Ltd. is a Chikmagalur based company which grows coffee in its own
estates of 1, 200 acres. It is the largest producer of arabica beans in Asia exporting to
various countries including USA, Europe and Japan.

Original logo

Caf Coffee Day was started as a retail restaurant arm of CGL in 1996. The first CCD outlet
was set up on July 11, 1996, at Brigade Road, Bangalore, Karnataka. It rapidly expanded
across various cities in India adding more stores with more than 1000 cafs open across the
nation by 2011.
In 2010, it was announced that a consortium led by Kohlberg Kravis Roberts would
invest 1,000 crore (USD 200 million) in Coffee Day Resorts, owned by the company. The
same year, the logo was changed to the current logo, which the company stated was to
showcase the chain as a place to talk. This was done with major changes in the layout of the
stores, including the addition of lounges and a total revamp of the interiors.
The company is known for being vertical integrated to cut costs: from owning the plantations,
growing the coffee, making the coffee machines to making the furniture for the outlets.
Indian Coffee Board puts country's coffee production at 2.90 tonne (Post monsoon
estimation) and 3.06 tonne (Post Blossom Estimation) respectively. For the present crop
year beginning October, the board has estimated an output of Arabica at 101,525 tonnes and

Robusta 204,755 tonnes. Karnataka leads the country with 2.05 tonne (Post monsoon
estimation) and 2.21 tonne (Post Blossom Estimation) production followed by Kerala and
Tamil Nadu. According to ICO estimate, India produced over 3.1 million bags of 60 kgs
each in 2012 compared with 3.3 million bags in 2011.Country's coffee exports during fiscal
2012-13 stood at 1.96 lakh tonne signifying marked decline from 2.18 lakh tonne in 201112.
India's Coffee Production (In tonne)

State

2010-11

2011-12

2012-13

2013-14

Karnataka

206025

191575

183860

205700

Kerala

59475

49000

57200

59250

Tamilnadu

18225

18100

16255

19350

4085

3175

4870

5185

North Eastern region

190

150

115

115

Total

288000

262000

262300

289600*

Non-traditional areas
(Andhra Pradesh & Orissa)

Post Monsoon estimates *


Source: Federal Ministry of Commerce, Government of India

India accounts for about 4.5 percent of world coffee production and the industry provides
employment to 6 lakh people. Among the coffee growing states, Karnataka accounts for 70
percent of country's total coffee production followed by Kerala (22 percent) and Tamil Nadu
(7 percent)

Different Divisions:1. Coffee Day Fresh n Ground (which owns 354 Coffee bean and powder retail outlets)
2. Coffee Day Xpress (which owns 341 Coffee Day Kiosk)
3. Coffee Day Take away (which owns 7000 Vending Machines)
4. Coffee Day Exports and Coffee Day Perfect (FMCG Packaged Coffee).

Coffee Day Comprises of the following Sub Brands:1. Coffee Day - Fresh & Ground
2. Caf Coffee Day
3. Coffee Day Vending
4. Coffee Day - Xpress
5. Coffee Day Exports
6. Coffee Day Perfect

International Scenario:MARKET SIZE IN U.S.


Snapshot: Coffee Shop
Retail Sales Estimates Year End 2009 Coffee Cafes: (beverage retailers with seating) 1,250
locations averaging $550,000 in annual sales = $ 6.12 billion or adults who have visited a
coffeehouse in the past week:
Average weekly spending $5 or under: 41%
Rarely or never purchase food: 49%
Consume the beverage off-premises: 52%

Seventy-seven percent of U.S. adults drink coffee daily, and gourmet coffee consumption has
risen in the past five years. According to Scarborough Research, a market research firm that
studies media, lifestyle, and shopping patterns in the United States, in October 2008, 12

percent of adults have been to a coffee shop in the past month. Although popularity of coffee
shops has recently spread across the nation, the West coast has the most coffee shop patrons.
The ideal ratio of coffee shops to residents in a particular area is 1:10,000.
Europe accounts for about 70 percent of India's total coffee exports. Of this again, 70
percent is shipped via Suez Canal. Major Indian coffee importing countries include Italy,
Germany, Russian federation, Spain, Belgium, Slovenia, US, Japan, Greece, Netherlands
and France.

The world coffee production in the coffee year 2012-13 is estimated to be 123.6 million bags
signifying a decline of over 4.5 million bags in the CY 2013-14 when production totaled at
128.2 million bags. This is revealed in a report of International Coffee Organization market
report for January 2014 excluding additional information that has to come from Colombia
and Vietnam. The ICO report also states of a significant fall in coffee production in Brazil by about 14 percent besides production shortfall apprehended in countries like Cote d'Ivoire;
Tanzania, Uganda, Papua New Guinea, Vietnam, Mexico, El Salvador, Ecuador and Peru.
The Colombian production is unlikely to register worth mentioning increase. The over all
world supply of coffee is likely to be tight in 2015 due to low level of opening stocks as well.
Total world exports of coffee (2013 & 2014)
2013

2014

% Change

Colombian Milds

12219

9278

-24.07

Other Milds

22524

20861

-7.38

Brazilian Naturals

28724

30033

4.56

Robustas

34199

34518

0.93

Total

97666

94690

-3.05

Source: International Coffee Organization, Coffee Market report, January , 2014

MAJOR PLAYERS IN THE INDUSTRY


Following are the major players in coffee shop industry:
A. Barista Lavazza
One of India's largest franchised chains of coffee bars, the Barista Lavazza coffee
company operates around 205 outlets across India 15 crme lounges and the rest
espresso coffee bars.
It plans to open 300 new stores over the next three years and has begun
aggressively marketing its products outside Indian borders into neighboring
countries. Considered the Starbucks of the East, Barista offers many of the same
menu items like espresso, lattes, cappuccino and various pastries, in addition to
basic coffee. Despite being Indian, Barista sticks closely to its Italian roots by
serving Italian coffees exclusively.

B. Costa Coffee
British coffee retail chain Costa Coffee launched its outlet in New Delhi,
becoming the first international coffee chain to start operations in India in
September 2005.
The chain is currently operational with 36 outlets and expanding aggressively
to tap this potential market.
C. Caf Mocha
It was started by a Mumbai based entrepreneur Riyaz Amlani, who has a long
experience in the hotels and restaurants business. This store is strikingly
different from others, they love being over-the-top and thus its a place that
either you love it too much or find it Over the top. Studying the marketing
Mix adopted by caf mocha. Owned by Impresario Entertainment &
Hospitality Pvt. Ltd.

Mocha opened its doors at Churchgate (Mumbai) in December 2001


15 operational outlets across the country and its own central kitchen
Future plans for Singapore, Dubai and New York and Chicago.
Retail players like Reliance Retail and Shoppers Stop are also retailing coffee with their
multi-products offering outlets like Reliance Timeout and Desi Caf respectively.

Barista is the major competitor


Barista coffee was establishes in 1999 with the aim of identifying growth opportunities in the
coffee business. Increasing disposable incomes and global trends in coffee indicate immense
growth potential in one particular segment.
More significantly, they believe they have been quick to spot a latent need waiting to be
trapped: Coffee lovers seek a complete experience. One that combines intelligent positioning
with the right product Mix and carefully designed cafs. In other words, customers seek an
experiential lifestyle brand. As of today, Barista exists in over 22 cities, and operates over
140 outlets nationally. In the last 2 years, Barista has opened over 100 outlets in the country
and with a new outlet opening nationally every 14 dates; Barista is currently experiencing
phenomenal growth. With outlets opening in Sri Lanka and Dubai, Barista is looking at
potential growth opportunities in Asia, making it highly competitive international brand.