Action in coffee retail heating up

The cup of the domestic coffee retail industry - i.e. the industry's marketplace - is simply brimming. After Costa Coffee's entry last month, US speciality coffee chains - Barnie's and Gloria Jean's - announced their plans to set up shops in India.

While Costa and Gloria Jean's plan to set up in India as many as 300 stores each in the next four-five years, Barnie's has a modest target of setting up 100 stores in three years.

It is a win-win situation for the Indian consumer, as with even the local players being on an expansion spree, he is going to enjoy the luxury of choice.

"Our expansion plans are twofold - increasing our presence in existing markets and entering new markets," said Partha Dattagupta, chief executive officer, Barista Coffee Company.

Barista plans to add 30-40 espresso bars to its already existing 140 outlets this fiscal and also set up four more of its premium sub-brand Creme stores before the year ends. It will also open at least two outlets at Indian Oil Corporation petrol pumps this year according to its pact with the oil major.

The biggest player in the cafe market, Cafe Coffee Day, plans to increase the number of its outlets to 350 located in 80 cities by early next year from the current 245 outlets spread over 60 cities. It also plans to take the number of outlets further up to 500 by June 2007.

The coffee chain market in India, at 6.5 per cent of the total coffee retail market, is valued at Rs 400 crore (Rs 4 billion), according to the retail consultancy KSA Technopak. Growing currently at 25-30 per cent, the market will grow much more with the entry of new players.

"With the entry of new players, the coffee retail market and the cafe culture will grow," Dattagupta said. The established players, while having the advantage of knowing the Indian consumer better, will have to be more efficient to cope with the competition, he added. Again, good for the consumer.

"Consumers are demanding a better way of life," Jagdeep Kapoor, managing director, Samsika Marketing Consultants, said. "Consumers are going out more often than ever before. They frequent Baristas and Cafe Coffee Days. So the next logical step is a better cup of coffee, and we promise precisely that," said Ravish Mehra, director, Victoria Impex Pvt Ltd, a Barnie's franchisee in India.

So, what has changed in India's nascent cafe market? Players say the emphasis on food has grown. While Costa expects food to constitute 50 per cent of sales in the future - up from the current 40 per cent, Barista has also increased its food offerings and added more savoury products to its winter menu. Barnie's is considering co-branding with the Mexican cuisine chain Taco Maker.

In non-traditional markets like Punjab and cities in the north and the west India, food makes a major contribution to sales, said Sudipta Sen Gupta, senior general manager, Cafe Coffee Day.

Also, players are increasingly opting for the franchisee route. While international chains have taken the route for their India foray, domestic players like Barista and Craze are also considering the option.

"A franchisee with its knowledge of the local market will be able to help us expand faster in smaller cities," said Surjya Meher, head-marketing, Barista.

For all the optimism about rising consumerism, Kapoor of Samsika puts forth a note of caution. "After experimentation and flirtation with different brands, the consumer will settle for one. The brand that will deliver on its promise and offer good service will survive in the long run," he said.