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International chains including Tim Hortons and Costa Coffee are up against domestic rivals
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The chain, which operates a joint venture in India with the country’s
Tata conglomerate, says it planned to expand beyond large metropolises
into smaller cities, in a country where consumers generally buy Rs10
($0.12) cups of masala chai served by vendors on the road.
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Speciality coffee is still well out of reach for most of India’s 1.4bn
population. Goldman Sachs estimates only 60mn Indians have an
income above $10,000 a year, with the figure set to grow to 100mn by
2027.
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Coffee has long been part of Indian culture. The country is among the
world’s largest coffee growers, and it has traditionally been the drink of
choice in the south, where a strong filtered brew is blended with chicory,
frothed milk and sugar.
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Café Coffee Day, which launched in 1996 and is based in Bengaluru,
pioneered international coffee culture in India with sleek cafés that
offered WiFi and twists such as cold coffee, before a debt crisis forced it
to close many outlets. The company’s share price is down 80 per cent
from a 2018 peak.
“People are willing to spend money for good-quality coffee,” said Rohan
Kuriyan, a manager at Balanoor Plantations, a grower in the southern
Indian state of Karnataka. “When [brands] started seeing the numbers
increasing . . . it just cemented their idea of money in coffee.”
Jasper Reid, the founder of IMM, who runs a number of cafés in India
under the Jamie Oliver brand, said cafés had proven particularly
popular among international investors because operating them cost less
than for other types of fast-food restaurants.
A typical coffee outlet could cost about a quarter of the tens of millions
of rupees needed to open a burger joint, he said. “The thing about coffee
and the café format, it’s much lower capex, much cheaper to build . . .
[and] some brands can charge like a wounded rhino for a flat white,”
Reid said.
Yet in the race to build hundreds of new outlets across the country,
brands risk overestimating the ability and appetite for Indian
consumers to spend on discretionary drinks, said analysts.
Reid said the successful chains would need to exercise patience in order
to capitalise on the India opportunity. “The people that tend to win tend
to have a very long view, have capital that is aligned with that view and
won’t panic or try to sell out too quickly,” he said.
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Copyright The Financial Times Limited 2024. All rights reserved.
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