Coffee World to invest Rs. 50 crore in expansion

Pallavi Srivastava, Pitch
New Delhi, 27 July 2012

In the last few years, coffee consumption has kicked off exponentially in the Indian market and the latest player to offer the cuppa is Swiss brand Coffee World. The company, which is buoyant about its performance amidst the clutter of brands, is confident of staying ahead of established players like Café Coffee Day. Will it deliver? Pitch finds out.

If market estimates are to go by, approximately 200 coffee outlets have been opened in the country every year for the last five years. This increased caffeine love of Indian consumers has resulted in huge expansion of early movers like Café Coffee Day (CCD), Barista, Costa Coffee and has also lured many international brands like Starbucks (to open its first store in second half of 2012), Coffee Bean & Tea Leaf, Gloria Jean’s to open shop in the recent past. Coffee World, café chain from Switzerland based group Global Franchise Architects (GFA, which has brands like Pizza Corner and Donut Baker) is another brand looking at milking this caffeine induced retail opportunity in the Indian market.

Coffee World made a low profile entry in the Indian market in 2006 in South India and Delhi but it closed its Delhi operations after some time due to franchise issues. But looking at the surging market for coffee over the last couple of years the brand has got aggressive and is expanding in North and East India too. It has partnered with GAMA Hospitality, the master franchise of GFA, which is handling Coffee World’s operations in these two regions and has six stores, three in Delhi/NCR and three in Kolkata. However, the South India stores of GFA work on a local franchise model. GAMA hospitality also handles GFA’s other brands Pizza Corner and Donut Baker. Overall, it has about 18 GFA stores across brands while GFA has about 80 stores (Coffee World, Pizza Corner and Donut Baker) across the country.

The great Indian caffeine opportunity

So why is Coffee World getting aggressive at this time? Well, the numbers will answer that! According to the Coffee Board of India Statistics, the per capita coffee consumption in India is merely 82 gm compared to developed markets like UK, where it is 4 kg, while for some European economies it is as high as 10 kg. Not just that, valued at Rs. 1,000 crore, the growth rate of Café Chain market is about 15-18 per cent annually. And according to Technopak Advisers there is scope for about 2,700 more cafes in the country in the next five years. Currently, there are about 1,800 coffee stores.

From being a traditional beverage consumed mainly in South India, coffee has become a trendy beverage with a national presence. According to the reports the coffee consumption in Northern India has been growing at a phenomenal rate of over 40 per cent.

Premium experience at competitive pricing

But though there is a huge opportunity in the café segment in India, it has players like CCD, Barista, Costa Coffee, which already dominate the market and biggies like Starbucks too are all set to open their stores. In such a market, is there enough scope for a player like Coffee World?

Devangshu Dutta, CEO, Third Eyesight, feels, “There is still significant scope for new entrants into the café market in India, despite the head start that the existing coffee chains have in terms of number of outlets.”

At the same time establishing itself will not be an easy task for a new player. As Anand Kumar Jaiswal, Professor Marketing, IIM Ahemdabad, points out, “There are currently two types of coffee chains in the market: first coffee pub model like CCD and second experience cafés like Barista, Coffee Bean & Tea Leaf etc. The first mover’s advantage will always be with them and it will not be easy for any new player like Coffee World to create its space.”

Experts feel that in a market as dynamic as India, there is always space for a new player but like any business the challenge for the player is to find the right space for itself. For instance, CCD has become ubiquitous in India with its ability to spot the right locations before they come in vogue and be present there. Sunil R Shetty, Planning Services Director, Draftfcb + Ulka, believes, “The challenge for Coffee World will be to understand the niche it wants to address and then build on it. If it aims to be a premium player then how will it differentiate itself in the market versus Coffee Bean, Starbucks and others, is the first question. Once Coffee World is able answer this critical question, the rest is easy.”

So what is the space Coffee World is looking at? Gaurav Agarwal, Director, GAMA Hospitality answers, “There are a lot of consumers in India who are conscious about what they spend and where they spend, but at the same time want a good coffee experience. That is the space we are looking to capture and our positioning is premium coffee experience at competitive pricing.” The company’s products are priced 10 per cent lower than Barista and Costa and at par with CCD.

So why a customer would go to a Coffee World instead of a CCD if the prices are same and considering that CCD is a well established brand? Agarwal says, “In terms of product, we are much better than CCD, they can never compete with us on product quality. I don’t consider CCD as competition.”

He further shares that Coffee World offers on the spot freshly made sandwiches and waffles, which differentiates its offering from other brands as they offer stored sandwiches and other products, prepared earlier.

So is this mid path of competitive pricing and better experience a sure shot way for success in the coffee chain segment? Experts feel that it isn’t. IIM’s Jaiswal says, “It is not as easy as it sounds. If Coffee World is not able deliver on its promise of price, the customer will go to CCD. If it fails to deliver on experience, the customer will go to Barista. So it will be a tight rope they will be walking.”

Journey so far

While the road ahead may seem different for Coffee World, but the brand has been doing decent for a starter. According to the company, the Coffee World Stores have monthly sales of about Rs. 75 lakh. While that may look miniscule compared to what established brands might be making, but experts feel it is a good enough number for a relatively new brand. Agarwal seems even more confident about its performance and claims, “In terms of sales we are number one in Kolkata. We have an outlet in Kolkata’s South City Mall. There is also a CCD outlet in the same mall. And our sales are much higher than them.”

As far as marketing spends are confirmed, Coffee World spends 4 per cent of its sales. And the majority of its marketing activities include hoardings, flyers, e-deals at discounting site to encourage product sampling.

Agrawal also seems very excited about the future expansion plans. “In coming years, we will be expanding into many cities around Delhi including Chandigarh, Jaipur etc,” he adds. Plus, GAMA Hospitability will be investing about Rs. 30-50 crore in future expansion.

While the road ahead may not be cakewalk for this nascent brand but experts are of the view that it will certainly benefit from Indian consumers’ increasing preference for coffee. And perhaps differentiation will help the brand carve its own niche in this space. Draftfcb+Ulka’s Shetty agrees, “Globally chains have successfully followed this strategy to build business in markets dominated by Starbucks; whether it is Green Mountain with its fair trade and organic routes or by a differentiated experience like Caribou Coffee with its mountain lodge theme décor.”

Third Eyesight’s Dutta feels, “Any café, regardless of the size of its parent company and its brand image, needs to prove itself at each specific location. Familiarity and predictability to a customer are important to customers.” And, thus, maintaining a high degree of consistency of product and service over a period of time will be key to this, at each location as well as across the chain for the success or failure of any brand.

(This article appeared on July 27, 2012 on Pitch Online.)