India is still by and large a country of tea-swilling limeys but the trend towards reaching out for that morning cup of joe is fast catching fire. So, even as North India tightly holds on to its tea bags, the South loves to measure its daily drone with coffee spoons. Statistics reveal that the tea to coffee consumption in India is still 7:1, but Java drinkers are fast making up for the lost opportunity. Still, India is not a major coffee consumption market even though it is the world’s sixth-largest producer and fifth-largest exporter of coffee, exporting roughly 5% or close to six million bags in 2010-11 fiscal. India’s annual coffee output is over 300,000 tonnes, only a third of which is consumed domestically. Over 90% of the coffee production takes place in the developing countries while consumption happens mainly in the industrialised economies.
But of late, India seems to be turning the corner in terms of coffee consumption. “Over the past few years coffee has transitioned from being a traditional beverage consumed mainly in South India to a beverage with a national presence, consumed in several forms and retail formats," says Jawaid Akhtar, Chairman, Coffee Board of India. According to the figures given out by the Coffee Board, coffee consumption has grown in the non-south regions at 42% annually while it has grown at 3.5% per annum in the southern states between 2003 and 2008. With the emergence of an aspirational and young middle class who are more cued in to international tastes, coffee café culture is slowly but steadily picking up in the country. Today, cafés are opening up across all urban centres and coffes joints are fast becoming modern, more suave renditions of speakeasies where the urban educated youth loves to hang and schmooze around and spill the beans on current happenings and events.
Currently, India has roughly 1,800 cafés across major cities, with Café Coffee Day – which opened its first branded coffee outlet in Bangalore way back in 1997 – leading the race with over 1,200 cafés. But with the entry of Lavazza in 2007, Costa Coffee in 2005, and now the impending arrival of Starbucks (in partnership with Tata Coffee) – the gold standard of café culture worldwide with 50 cafés planned for launch by the end of this year – the Indian coffee landscape is bracing up for greater competition where consumers will have a more liberating choice when ordering their invigorating shot of espresso. Even fringe players like Australia’s Gloria Jeans and Dunkin’ Donuts have entered the market and a few more are expected to dip their toes in the swelling tide of the café boom spreading across India.
The bloom in cafés has resulted in the branded café market reaching an inflection point. Coffee-shop sales have now touched $180 million, out of the country's annual coffee sales of about $667 million. Though still small, the branded café market is growing at 25%, and analysts predict it has the potential to reach $800 million, and to 5,000 cafés by 2015. As per capita coffee consumption in India is just over 60 grams, compared with 4.5 kilograms in France and Japan, and 6 kg in Italy and the U.S., coffee retailers undertandably see a huge growth potential and revenue upside in the days ahead.
T. Radhakrishnan, Vice President of Tata Coffee, says, “Being the largest Indian coffee producer, we will fulfill Starbuck’s sourcing needs, and help them with insights on the market…going by Starbucks reputation, they will be a big force to reckon with in India, and revolutionise the café market here with their global standards and product offerings.” Starbucks is looking to create different entry-points for different demographics and apart from coffee it plans to whip up a smorgasbord of cuisine for Indian palates. The company is aiming for cafés at Tata hotels, and retail outlets in New Delhi and Mumbai with an initial investment of roughly $80 million. In the course of time Starbucks will move its cafés to malls, railway stations, airports and offices.
Starbucks' operations in India is bound to raise the coffee temperature in the Indian market and could nibble away the business of another premium player in the market, Costa Coffee, which currently runs 95 cafés spread over Delhi-NCR, Jaipur, Agra, Mumbai, Bangalore and Pune. Says Santhosh Unni, CEO of Costa Coffee India: "Competitors like Starbucks are not new to us. We compete with them successfully in most of the countries we operate in.” To maintain its premium product differentiation, Costa Coffee offers a range of café food (localised to suit Indian tastes) along with its trademark handcrafted Mocha-Italia coffee blend. Clearly, the premium coffee café space will be an interesting space to watch out for as the two global biggies battle for supremacy in the Indian market. According to Unni, “The biggest challenge facing us today is the relatively small size of the café market. India being a large country with growing income levels and spending can easily accommodate three to four large coffee retailers with pan-India footprint."
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Source : IIPM Editorial, 2012
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
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