By Aparna Datta

Is the coffee cup half-full or half-empty? Is the retail coffee revolution in India for real, or just maya (illusion)?

Some nine years since the second big wave in retail coffee (more about the first anon), coffee companies are still reading the grounds. As with many other consumer sectors, it’s a mixed bag. Getting the formula right is about figuring out what the foray into coffee retailing really means in terms of corporate strategy – and it may not be an upward graph on the sale of liquid coffee per se.

The burgeoning coffee bars in India have been identified as one of the more visible signs of a booming consumer economy. Currently estimated at INR 2.5 billion, with about 500 retail outlets in the organized sector, the potential exists for at least 2,000 outlets, according to retail consultancy KSA Technopak. So, who are the existing players, and what path have they taken to coffee nirvana?

Café Coffee Day: When Amalgamated Bean Coffee Trading Co. (ABC) launched the first Café Coffee Day outlet in Bangalore in November 1996, it truly was a leap of faith. It was early days for the Internet in India; ‘coffee shops’ were either the five-star hotel or the dhaba variety. ABC, one of India’s leading coffee exporters, were clued into the international scene and saw a business opportunity in fusing two distinct trends – the cyber craze and the yen for gourmet coffee – and the concept of an independent, stand-alone coffee joint, the cybercafe, was born. Store expansion took place gradually, with cafés set up in Bangalore, Chennai and Hyderabad. But competition in the shape of ‘Barista’, gave ABC a jolt, and accelerated the pace of expansion on an all-India basis. As of June 2005, this group is the # 1 coffee retailer in India, with 229 coffee bars and counting. Headquartered in Chikmagalur and Bangalore, this is a fully integrated coffee company, with 5000 acres of coffee estates, curing works, R&G network in southern Indian cities called “Fresh n’ Ground”, kiosk business under the Coffee Xpress brand, Coffee Day Take Away, the vending business with 7000 units, and a packaged coffee division. In fact, the company has the entire seed to cup value chain wrapped up with a large footprint of 56 cities across India.

Barista Coffee Company: The credit for raising the profile of coffee retailing in India goes to Barista. It started out with a bang in March 2000, with the first outlet coming up in New Delhi, opening up the north Indian market for coffee. Today, the company has about 120 units, and has extended its presence to Sri Lanka and Dubai. In the meantime, there have been ownership and management changes: the original promoters, Turner Morrison and Co. have sold out to the Chennai-based Sterling Infotech Group; Tata Coffee, which had taken a stake earlier has also exited. High-end pricing appears to have been a limitation, as well a belated recognition that in India, food service must accompany beverages, but the company is evolving. Plans are on the anvil to develop kiosks suitable for petrol pumps on highways, as well as a lounge format for upscale consumers in cities. The Sterling group earlier promoted a vending machine venture in Fresh & Honest Café that has tied up with five-star hotels and companies and is present at many railway stations around the country.

Qwiky’s: Set up its first coffee pub in Chennai in October 1999. Started by two software engineers, Shashi Chimala and Shyam, this group is registered as Qwiky’s Corporation in the US, and in India operates through Chimayo Chains. Concentrates on a franchise system, with the preferred format being the Coffee Island, a ‘store in store’ set up.

Javagreen: Over the past year, Javagreen has emerged as an active stakeholder in the Indian café sector. Situated within the Reliance WebWorld stores, the retail arm of telecom major Reliance Infocomm, it has a distinctive presence on high streets and malls with plenty of footfalls. Currently in rapid expansion mode, Javagreen had 150 outlets in 25 cities across India in March 2005.

Javacity: One of the early birds in town, Raj Madnani, earlier a non-resident Indian, set up Javacity in Bangalore in July 1999, and now operates four units around the city. The flagship outlet on Lavelle Road is a spacious café with outdoor and indoor seating. A patisserie and an exhibition area give people a number of reasons for frequenting the place besides the cosmopolitan atmosphere and a sense of community. Javacity was the first to bring specialty coffees to Bangalore, with the full espresso line-up and beans imported from Colombia and Ethiopia and Jamaica.

Kalmane Koffee: A location in Bangalore’s Forum mall gave this retail outlet a good start in 2004. What was initially an experiment by a coffee planter to retail R&G coffee has, within the space of a year, become a full-fledged business, aiming at 10 stores by 2006. (See story under Mill 2 Mall).

Coffee World: A venture of Global Franchise Architects (GFA), Coffee World opened its first unit in Bangalore early 2005. The group has a number of outlets in Bangkok, and has a standardized store layout with a lounge concept, which has ushered in a new dimension in the coffee bar retail format in India. The group also has a successful business in Pizza Corner, a restaurant and home delivery service in major cities in India.

Café Mocha: It’s rated the hippest coffee chain in Mumbai, and has the maximum blogs dedicated to it by coffee lovers. Part of the fascination is the hookah/sheesha, which was served from the day the first café opened in Mumbai’s Churchgate area, fitting in perfectly with the “coffees and conversations” tagline. Today, the chain has five outlets, owned by the Rs 19 crore Impressario Entertainment & Hospitality, and is gearing up to open 65 more outlets, primarily through the franchisee route. Mocha has taken the community building route to strengthen its brand and sustain customer loyalty. It is adding new clubs - music and coffee and wine appreciation to its existing two, the Backpackers Club and the Film Club. The first overseas Mocha cafe is slated to come up in Dubai followed by Singapore.

Moca Café: The vibrant Indian economy is attracting entrepreneurs from around the globe. Marc Tormo, once a barista in Barcelona, brought his talent in opening and operating cafes to India, initially to Pondicherry. Tormo’s Moca Café, now with two outlets in Madras, serves a classic Italian espresso prepared from organic, single-estate arabica coffee, sourced from Nandanvan Estate in Kodaikanal, Tamil Nadu state, roasted on-site at the estate, at levels prescribed by Tormo, and forwarded on just-in-time basis to the café. This is the only café in India that serves certified organic coffee in its preparations.

Georgia & Nestle: Georgia has tied up with McDonald’s and operates in all the major Indian cities. Nestle has a visible presence through vending machines at many public places, though primarily in North India.

Costa: UK-based Costa, part of Whitbread plc, has announced that it will open 300 outlets in India over the next six years through a franchise agreement with the Indian R K Jaipuria Group, starting out in New Delhi. Coffee beans will be supplied from Costa’s roastery in the UK, using the company's unique espresso blend, Mocha Italia. In India too, Costa stores are expected to use specially designed Italian espresso machines, developed in collaboration with the manufacturer.

Starbucks? Just yet, it’s in wait and see mode. Arguably, it’s been the inspiration for many of the new generation of coffee bars in India.

Sub-continental scale and population base of a billion plus makes the café industry in India extremely diverse. Traditional darshinis, the Indian version of fast food joints, co-exist alongside the new western-style cafes. Yet for retail opportunists, it’s evident that the emerging café scene holds great promise, with franchisees said to be making a 15-20 per cent annual profit.

But the real issue for coffee retailers is: don’t expect to make money on the coffee service alone. For young people these days in India, chilling out at a coffee bar is more of a lifestyle thing, a convenient hangout. Food service is recommended; the basic cookies and pastries routine is a no-no. With an expanding middle-class, the potential is big, but the defining a business model could take some effort.

And that first wave in coffee retail? It dates back to 1936, when the first India Coffee House opened in Bombay, as part of a strategy to promote domestic coffee consumption. At the height of its glory, the India Coffee House chain numbered 72 outlets, extending to Lahore in pre-partition India, and till the 1960s and 70s, was quite the rendezvous for the coffee house revolutionary. Those days are gone, and the India Coffee House, operated by the Coffee Board of India, is down to around 11 units around the country. But they still hold their own as the place for the ‘cheap and best’ cup of filter coffee that’s possible in a city.

PENSCAPE July 2005