Coffee cafes to see huge growth in India

BANGALORE: At the Indian International Coffee Festival 2007 (IICF) in Bangalore, which is being touted as the largest coffee event in Asia, the mood was quite upbeat among the café chains, at least.

Café Coffee Day (CCD) CEO Naresh Malhotra says that there is room for 5,000 cafes in India over the next few years, a view that is endorsed by competitor Barista Coffee Company (BCC) CEO Partha Dattagupta. CCD, the largest coffee café chain, recently announced the opening of its 400th café in Kolkata. Malhotra plans to grow his chain by another 800 over the next two to three years. BCC plans to launch 25 of their lounge format coffee parlors this year.

Industry experts say that in most segments you have ‘the big three’ – In India besides the above incumbents there is room for a third one. Who that third player is going to be is anybody’s guess, what with the recent announcement of Starbucks to grow their chain globally by adding 2,500 cafes and their first one in India by December this year. Then there is Reliance Group's ‘Java’, which currently has been limited to their stores and petrol bunks that could be another contender for the crown.

As already reported on, illycaffe announced their plans to foray into India through the franchisee route with the opening of 5-10 ‘Perfect Italian Coffee Cafes’ – called ‘Espressamente’ this year and to double this number by the next.

With other existing players such as Coffee World, Mumbai’s Mochas, which is planning to expand to Bangalore according to rumors, other regional players such as the Chennai based ‘Quickies, Café Inch also trying to fight for a larger pie, and the Coffee board’s recent and other planned initiatives to popularize coffee, the potential for growth is huge.

So far café chains have generally built their brands by word of mouth rather than ad-spends. Maybe the entry of so many players could change the rules of the game, since most would be fighting for the pie that is largely limited to the urban areas (except in Karnataka where coffee consumption, even in the rural areas, is already quite high). The current brand building methods as well as products could well see a sea change with all the players vying for throat share.

Coffee, which has been fighting for the share of throat with tea, milk, carbonated drinks and other juices, is consumed mainly in the South, which once had a lion’s share of 92 per cent of the coffee consumers in India. The trend has been changing now, the ratio between the South and other areas has moved to 80:20. Coffee cafes contribute just 15 per cent of the market share, but have the maximum visibility. Malhotra, who revolutionized the industry by the fast paced growth of his chain, says that there is a tremendous shift in how anything is sold today.

Findings of a survey by Gallops for the Coffee Board “Recent trends in Coffee Consumption and Consumer Attitudes” show that the Indian per capita consumption is an abysmally low 75 grams as compared to 4 kgs in Germany, 4.1 kgs, 9 and 11 kgs for the US, Switzerland and Finland repectively, and hence there exists a huge opportunity when current Indian demographics and psychographics are considered. Coffee had a penetration of 62 per cent in 2005 as against tea which had a penetration of 95 per cent. Coffee came in third for throat share – tea with 89 per cent, followed by milk with 24 per cent and coffee a close third with 23 per cent.

The survey also threw interesting findings for the cafes and the marketing and advertising fraternity – Family drinking of coffee was a key to early adaptation and that most regular and occasional coffee drinkers started drinking coffee at an early age. The Coffee board was considering creatively promoting coffee to a younger audience so that early drinking habits are formed.

Among the factors that could be exploited, according to industry experts, are the wellness trends among the young, the growing middle class and the growth of the IT-ITES sector in India.

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