Battle Of Brews
When a third of the disposable income is generated and spent in the top-60 cities of the country, it is only natural for businesses like coffee retail chains to set shop in these places. So it did not come as a surprise when UK-based international food and coffee chain Pret A Manger (French for "ready to eat") opened two stores in Mumbai’s prime locations. Quite predictably, their next destination is Delhi. Pret A Manger, best known for its freshly made food and organic coffee, has tied up with Mukesh Ambani-owned Reliance Brands (RBL).
Similarly, popular Canadian fast-food restaurant chain Tim Hortons, best known for its coffee and doughnuts, first opened in Delhi NCR in August last year. At last count, it had 16 stores in India, mostly spread across Delhi NCR, Chandigarh, Ludhiana, and Bhatinda (as Punjabi NRIs and their relatives are well-versed with Timmy's, as its popularly known). It recently entered Mumbai opening two stores there. It plans to enter Pune and other major cities soon.
Meanwhile, the incumbents in this business, Tata-Starbucks (more than 333 stores), Cafe Coffee Day (1,380-plus stores) and Barista (350-plus stores), continue to enjoy their respective dominant positioning offering coffee, food and beverages. They too have drawn up their respective expansion plans.
The coffee retail chain business is expected to expand fast in India. From the existing around 2,200 stores, the count is likely to shoot up 25-30 per cent in the next 36 months occupying more than 6 lakh sq. ft of prime retail space and attracting investments worth Rs 1,200 crore or more.
Why This Coffee Rush?
With people returning to work in bigger cities and metros post-pandemic, there is a sudden rush among brands with deeper pockets to launch stores and outlets. The coffee retail business in India is estimated to be around Rs 4,500 crore in size. This also includes sales of local/speciality coffee brands that have emerged in the past 3-4 years. "A major reason for this is the unprecedented increase in the number of coffee lovers as well as in disposable incomes. Globally travelled Indians are quick to adopt tastes and rituals from the West and hence the culture of coffee has become a mainstay among the millennial and Gen Z audience who constitute a major part of the target market," explains Rutu Mody-Kamdar, Founder, Jigsaw Brand Consultants.
Between the new entrants and the existing established coffee retail chains, at least 400 new stores are expected to be launched over the next 40 months with estimated investments of nearly Rs 1,000 crore, say industry insiders. Add to this another 50-80 local stores and outlets.
Among the newbies, Pret A Manger plans to open at least 10-12 stores in the first year followed by 100 stores in the next four years. Tim Hortons is aiming at 120 operational stores by 2026. Which means it will add over 100 stores in the next 40 months pumping in around Rs 250-300 crore.
Tata Starbucks, which added 71 new stores in FY23, may open similar or higher number of new stores in FY24 taking its overall store count to 400 or thereabouts. Barista has already said it wants to add another 150 stores to cross the 500 mark before 2024 ends.
Strategy Matters
The inaugural Mumbai shop of Pret A Manger, for example, recreated Pret’s iconic London shops with a large dining space spread across 2,567 sq ft. It’s positioning itself in fresh food. Pret offers customers a wide range of freshly made sandwiches, baguettes, salads, soups, as well as a variety of organic coffee, tea, shakes and smoothie options.
"All freshly made food will be hand prepared in Pret’s onsite kitchen daily and never held over to the next day," the company says. “With a commitment to provide fresh, clean and sustainable offerings, customers in India can now enjoy the same exceptional food that has made Pret A Manger a beloved and successful chain around the world,” says Darshan Mehta, MD, Reliance Brands.
Tim Hortons was launched in India as part of an exclusive agreement with a joint venture entity owned by Apparel Group and Gateway Partners called Apparel Gateway Café India, the master franchisee of the Tim Hortons brand in India. Says Tarun Jain, CEO of Tim Hortons franchise in India: "Bringing the brand experience to Mumbai is part of our commitment to expanding Tim Hortons to other regions while penetrating deeper in our chosen geographies.”
Competition in the Offing
Will Tim Horton or Pre A Manger be able to pose any challenge to the likes of Starbucks? "Tim Hortons and Pret A Manger should offer competitive pricing that appeals to the cost-conscious consumer. By strategically setting their prices lower than Starbucks, they could possibly address an altogether new target audience," says Mody-Kamdar of Jigsaw Brand Consultants.
Agrees Niraj Bora, Co-founder of Cheesiano Pizza and Founder, Surmount Business Advisors. "Tim Hortons and Pret A Manger would need to create a niche for themselves in a market with options. Also, even with price inelastic consumers, a pull needs to be created in order for them to try new brands. Unless you create that pull, the road to growth and profits are far off," Bora adds.
For now, Starbucks in India is the lead revenue generator from its expanding coffee chain business. Tata Starbucks, the 50:50 JV added 71 new stores during FY23, taking the total to 333 stores across 41 cities and the business was EBITDA positive, the company said. It clocked Rs 1,087 core in net sales during FY23 and grew 71 per cent driven by improved performance of existing stores and the opening of new ones. Perhaps, in order to take on the growing competition from other international chains, it is opening its first Starbucks Reserve Store in Mumbai. It also launched Picco, a new small-size outlet for hot beverages in select stores. It also expanded the health-forward portfolio with a vegan menu, salads, and protein boxes.
Barista, the second-largest coffee retailer in terms of store count, aims to cross Rs 250-crore revenue mark in FY24 besides aiming to add another 150 stores, says Rajat Agrawal, CEO, Barista. Agarwal was recently felicitated at the BW Retail World 40 under 40 event organised by BW Businessworld. He sees an all-round expansion strategy that will entail adding more stores, expanding the vending business, tier-based pricing and a lot more to counter any competition.
Challenges Galore
Apart from high rentals, a major challenge is that picking up coffee in the morning is not a habit here like it is in the west. Bora sees competition in a positive light. “Entry of global brands would ensure better quality across the segment. Also, any brand that is looking to grow aggressively would need to maintain a bit of a lower price point unless they have some very differentiated product with them,” he adds.
The presence of local coffee brands, such as Blue Tokai, Sleepy Owl, SLAY Coffee, Rage Coffee, Third Wave Coffee, Beanly, and Country Bean, among others, provide consumers with more choice and alternatives to the bigger brands. “This increased competition compels larger brands to continually innovate and differentiate themselves to maintain their market share and relevance,” says Mody-Kamdar.
The entry of foreign coffee retail chains may unleash competition that may result in the market offering diverse choices at competitive price points. This, in turn, may push the overall coffee consumption from 90 grams (per capita) to a more respectable level as the globe-trotting Indian consumer expectedly acquires the habit of drinking coffee every day.
ashish.sinha@businessworld.in
