India develops a taste for coffee
By Priyanka Bhardwaj

NEW DELHI - From scruffy roadside chai (tea) shops and government-run coffeehouses to swanky, air-conditioned, branded coffee bars and lounges, Indians, especially those living in the north, are catching on to the worldwide passion for coffee.

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% 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% a year, with branded



coffee accounting for 53% of sales, unbranded 40% and cafes 7%.

In keeping with the global coffee culture, purveyors in India offer the "total experience" - a huge range of blends, snacks, ambience, wi-fi-enabled (wireless Internet) environments and jukeboxes. Southern Indians have loved their cup of filter coffee for a long time, but have the option of visiting the closest cafe as well. India's per capita daily coffee consumption of 54 grams is mainly due to the southern region's per capita level of 240 grams.

Today, there are an estimated 500 cafe outlets in the organized sector, but retail consultants KSA Technopak see the potential as being more than 2,000. Retail brands say it is between 3,000 and 5,000. "There is a huge demand, and India needs a higher penetration," Munri Suri, manager for southern India operations at KSA Technopak, has been quoted as saying.

Consequently, foreign players are eyeing the segment. The $150 million Ravi Jaipuria Group has brought the Costa coffee brand through a franchisee tie-up with Whitbread Plc of the United Kingdom. Virag Joshi, chief executive officer of Costa Coffee's India franchisee, said Whitbread planned to pump in up to $33.7 million and open 300 outlets in the next four years. It launched its first outlet in September and has added 11 stores, with 50 more slated for this year. Joshi said coffee chains in India are expected to grow at more than 30% in the next couple of years.

"There is a growing taste for good coffee worldwide, and it's catching on fast, especially with younger people. India with its huge young population and an exciting economic curve is an ideal market for us," said Alan Parker, chief executive of Whitbread Inc, in an interview with Economic Times.

Gloria Jeans Coffees, one of the largest coffee chains in the world, will open its first outlet in Delhi by July. The chain is planning a total of 750 outlets in the country over the next five to seven years. Of these, 150 would be set up within the next two years, in the streets, malls, airports, railway stations and IT (information technology) parks.

"The idea is to offer a five-star coffee-shop experience, but at affordable rates. The chain would recognize the customers and their preferences," said Gaurav Marya, president of Franchise India Holdings.

Geneva-based Global Franchise Architects (the parent company of Pizza Corner and Coffee World) will open 15 more Coffee World outlets in India by next March, with 60 (53 pizza and seven Coffee World) already in operation in Bangalore, Chennai, Mumbai and Delhi. More than $3 million has been earmarked for investments in coffee lounges in India. Outlets are planned in Kolkata and smaller cities such as Manipal, Vizag, Hisar, Agra and Trivandrum, where many outsourcing firms are setting shop.

Starbucks, the US-based grande dame of coffee, is also planning to extend its 10,000-cafe-strong arm toward India in the next few years. Talks are reportedly going on with the Raheja Group, with low pricing one of the factors preventing an entry so far.

Among the early movers within India have been Bangalore-based Cafe Coffee Day (CCD), Delhi-based Barista (cloned on Starbucks) and Qwiky's. Barista, owned 100% by the Sterling Infotech Group after the Tatas sold off their stake, has pioneered lifestyle coffee-drinking in India and plans to increase the number of outlets to 450 in the next year or so. The company plans to invest more than $15 million in expansions with 35-40 Baristas in Nepal, Malaysia, Indonesia, Turkey, Iran and Bahrain.

Cafe Coffee Day, which is promoted by the Amalgamated Bean Coffee Trading Co, plans to cross the 500-outlet mark. CCD, with a 10% market share it plans to double, already has more than 50 Coffee Lounges and plans to open more. Of the 100 new outlets opening soon, 60 are being planned in Tamil Nadu. About 80% of CCD coffee consumption, since its inception in 1996, has been from southern India, with Tamil Nadu accounting for 28%, Karnataka 20%, Andhra Pradesh 18% and Kerala 14%. The company proposes to make its packaged filter coffee available in more than 50,000 retail outlets across southern India.

Qwiky's (registered in the US, but owned by an Indian), first opened in Chennai and has spread all over the country, with plans of more than 50 coffee hubs and expansions into Sri Lanka. Most coffee parlors look at an equal mix of food and beverages to draw profits.

The Commerce Ministry is working toward raising consumption levels to meet the government target of increasing the domestic coffee consumption to 1.6 million tons by 2016. The Indian Coffee Board has hired Carlos Brando, a Brazilian coffee consultant, to map out promotional strategies. Coffee giants such as Tata Coffee, CCD, Nestle, Narasus, Cothas and Kalmane have interacted with the expert.

Brando was actively involved in doubling Brazil's annual domestic consumption from 390,000 tons in 1989 to 780,000 tons in 1998. His strategy for India is fivefold: competitive pricing (vis-a-vis tea), transparent labeling, highlighting health enhancing qualities, ease in making coffee at home, and establishing a coffee-drinking culture.

Indeed, there may be good health news for caffeine addicts. A recent study by Esther Lopez-Garcia of the School of Medicine at Spain's Universidad Autonoma de Madrid said that coffee, in any quantity, did not raise the risk of coronary heart disease and could actually reduce the chances. However, it is best not to follow such research blindly, as often opposite results are thrown up by studies conducted in different environments.

Priyanka Bhardwaj is a New Delhi-based writer.

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