Café Business with Potential

Cafes are not the places where you just visit for a cup of coffee and exit. Many renowned cafés have a culture, a legacy associated with them. These days, in post-modern urban India, café is a place where the youngsters gather to socialise or to do leisurely work, or to do their college or business assignments on their computers.

With many of the cafes offering free Wi-Fi, you will find many of the guests occupying lonely nooks to concentrate on their assignments, with a cup of warm, aromatic coffee. Coffee, which was mainly a drink confined to south India, has become, with its various different avatars, a favourite of the youths in the Indian metros as well as in tier-I and tier-II cities.

International brands like Café Coffee Day, Starbucks, Costa Coffee, and Barista to name a few, have contributed significantly to this coffee café culture. Ashok Malkani discusses about this happening scenario. The growth of café culture and the future of cafes in the context of India’s food service industry are analysed.

Once upon a time, coffee in India was considered to be a drink favoured by the South Indians. Filter coffee was, and still is, the preferred drink in the South. Strong, smooth and rich, it boasts of strict quality standards, tradition and sentiment. Filter coffee has been long entrenched in the South Indian psyche. Coffee houses were popular in this part of the country since ages. 

Slowly the popularity of coffee began flowing to other parts of India.  Especially among the intelligentsia, coffee houses began to assume popularity in metros and other big cities of the country. These days, coffee cafes have assumed a national flavour.

Not just that…Today, specialist coffee house chaiins like Starbucks, Café Coffee Day, Barista Coffee Company, and Costa Coffee are increasingly becoming haunts not only for leisure but also for work purposes. One of the main reasons for work related meetings at these outlets is because they offer free Wi-Fi. Several youngsters today work from home and you can find them, as well as college students, concentrating on their laptops or i pads to complete either their college or their work assignments, while sipping a hot cuppa of the refreshing brew.

History of Cafes

Coffee houses have an intellectual legacy. India’s coffee houses were places where many a poet, artist, and intellectual were born. They were the places where conversation flowed as freely as the coffee. For decades, a coffee house was the place where people from all walks of life gathered. 

They discussed politics, literature, science, society or just idly gossip, over good, freshly-brewed cuppa. Even now walking into any of the legendary coffee houses like United Coffee House (Delhi), Canara Coffee House (Vadodara), Flury’s (Kolkata), Brahmin’s Coffee Bar (Bangalore), can mesmerise one with the aroma of roasted coffee beans.

As far as history of cafes, in general, is concerned, it is believed that coffee houses originated in the Middle-East; one of the first places where coffee was grown. They started in the early 1500s or late 1400s. They were primarily a place for political gatherings.

Coffee has had a long international journey. From the Middle-East, coffee flowed to Europe where it became fairly popular though with some opposition as it was termed a Muslim drink. From Middle-East, coffee houses spread to Vienna in 1529 (this is the place where sweeteners were first added to the coffee), Damascus in 1534 and Constantinople in 1555.

The writings of Jean Chardin, a French traveller in the 17th century, described coffee houses as places for news, political criticism, games, telling stories and preaching by moral teachers  

The first English coffee house opened in 1652. Coffee houses quickly became an integral part of English society. They were soon considered as centres of commerce and discourse.

As far as India is concerned, the first coffee house started in Calcutta (now Kolkata) in 1780. This was followed by another one in Madras, now Chennai. Slowly as the British spread across India, coffee plantations went along with them.

While initially the spread of coffee consumption in the country was confined to South India, the wider acceptance of the beverage happened across India after the Coffee Board of India was established in 1942. Soon all major cities of India were having a coffee house, where intellectuals of all kinds converged. 

Major Players

With the emergence of Café Coffee Day in 1996, followed by the entry of international coffee café chains in India, the popularity of coffee in the country received its much deserved fillip.

There are some important coffee café or bakery café chains which are leading the coffee café culture in India. Café Coffee Day can be credited with pioneering the retail coffee chain revolution in India, and presently it is the largest organised retail coffee cafe chain in the country. The first CCD outlet was set up on July 1996, at Brigade Road, Bangalore. The coffee café chain is owned by Coffee Day Global Limited, a subsidiary of Coffee Day Enterprises Limited. 

Till 2016, it was having 1607 cafes, spread across 231 cities of India. “From signature coffees like the Iced Eskimo and the Devil’s Own to delicious sandwiches, burgers and sundaes — we have a vast portfolio that appeals to diverse palates,” noted the company’s 2016 annual report. According to a research body, CCD had added more than 200 outlets under its belt between 2014 and 2016. 

Barista, presently owned by Carnation Hospitality, was established in 2000. It is the second largest operator of coffee outlets in India. Sanjay Chhabra, the Chairman of Rollatainers, the parent company of Carnation Hospitality, at a press conference stated, “We aim to have 500 stores in the next five years, primarily through a franchisee route.” Barista has 190 stores across the nation and most of the new stores of the chain will open in smaller cities such as Chandigarh, Pune and Jalandhar.  According to the company’s website, “The Barista café chain of espresso bars delivers a truly Italian coffee experience in warm, friendly and relaxed environment. It provides a comfortable place for people to unwind over interesting conversations and a hot cup of coffee.”

Costa Coffee, the UK-based coffee chain, entered India in 2005. Present across over 11 cities of India, Costa is running over 100 stores in different formats and across different models in India. Virag Joshi, President & CEO of Devyani International, which is the master franchise for Costa Coffee in India, declares that they are not chasing numbers but are interested in making them more profitable.

Mocha, which opened in Mumbai in 2001, is one of the initial players in India’s organised coffee chain business. It has 14 outlets in 12 cities.   

Tata Starbucks Private Limited, the 50/50 joint venture between Starbucks Coffee Company (Nasdaq: SBUX) and Tata Global Beverages Limited, launched its first store in India, in 2012. On October 2017, the company opened its 100th store in India. Today Tata Starbucks operates 113 stores in India across Mumbai, Delhi- NCR, Hyderabad, Chennai, Bengaluru, Pune and Kolkata.

In March this year, Tata Starbucks welcomed its customers in Kolkata, making it the seventh city for the company, in India. Sumitro Ghosh, Chief Executive Officer, Tata Starbucks, addressing the press, said, “We are honoured to bring Starbucks to Kolkata, a city that has always been known for its cultural heritage and grandeur. Our aspiration is to delight our customers in Kolkata with the unique Starbucks experience. The institution of the ‘adda’ and the timeless passion it invokes in those who know the city of Kolkata is inspiring. We hope to pay homage to the city’s inherent tradition by becoming a new ‘adda’ for our customers in Kolkata.”

Recently, McDonald’s has also jumped into the fray to capitalise on Indians’ growing love for coffee, by starting its own cafe chain. Replicating its international model, which offers gourmet coffee through McCafe along with its staple burgers, fries and coke, the fast food giant opened its first cafe outlet in India in October 2013, in SoBo Central, Mumbai.

McDonald’s entry in this market in India was, with the growing culture of visiting coffee houses and the popularity of the coffee chains, expected.    

Promising Market

Coffee cafes in India have also enhanced their purview of offerings. Besides being places for leisurely discussion, which the cafes already were in India, cafes have also become places of work or business meetings.

Now sleek café coffee chains are seen serving wide variations in coffee.  Today Espresso, Café Latte (or Café au lait), Cappuccino, Macchiato Frappuccino, Irish Coffee are some of the favourite coffees at these cafes.

People between the age group of 18-45 generally visit the coffee cafes in India. The complementary services provided by many coffee shops such as free WI-FI, music, and others have succeeded to retain customer footfall in these outlets.

Cafés have been growing all over the country. Over the past few years, increase in the number of  coffee shops / cafés in India, according to many experts, can be attributed to changing consumer lifestyles, expanding working population base and the growing influence of western culture.

At the same time, it can be analysed that not only the increased coffee consumption along with lifestyle changes in the urban Indian society has induced the trend of coffee café culture across the country to gain momentum, but the mushrooming of coffee bars and cafes in turn have also played their role in making coffee the lifestyle drink of new-age India.

However, whether initially the supply followed demand or the demand was created through changing the supply pattern is a matter of debate. Deciphering the cause and the effect becomes difficult in this market phenomenon. But either way, the bakery industry is expected to benefit from the growth of the coffee cafes across the country as these cafes sell a host of bakery products.

The stand-alone coffee houses, which are dwindling in numbers from the metropolitan landscape, are fast becoming reminiscent of a long-lost era of romance and rebellion.

They are getting replaced by sleek and business like coffee café retail chains, which are serving as ideal backdrops for rendezvous and as well as business parleys for a new-age of upwardly mobile India. These hangout zones of today are offering innovative range of coffee concoctions along with an impressive array of appetising snacking options, which the Indians attuned to globalised tastes, are simply lapping up. Moreover, many of these sleek cafes are offering customised local Indian menus to address the demands of the local population.

And these sleek coffee café outlets, which have also doubled or are fast doubling up as restaurants serving breakfast, lunch and dinner options, are serving a host of bakery products like sandwich, burger and muffins, along with myriad varieties of coffees. Therefore, it is evident that the growth of the café retail chains can in turn give a better future for the Indian bakery industry…

The size of the chain cafe market in India is estimated to reach about Rs. 3,775 crore by 2018-end. According to TechSci Research’s report titled ‘India Coffee Shops / Cafés Market Forecast, Consumer Survey and Opportunities, 2021,’ coffee shops / cafés market in India is projected to grow at a CAGR of over 11 percent during 2016-2021, on account of the growing coffee culture among young population, increasing urbanisation, rising disposable income levels and changing eating and drinking preferences of consumers. “Changing work patterns of business executives is also driving demand for such coffee shops / cafés, as these outlets offer services such as free Wi-Fi, entertainment zones, etc,” observed the report. The report was published in January 2016.

“In India, coffee shops / cafés market is in developing stage, with majority of demand for coffee beverages emanating from urban centres such as New Delhi, Mumbai, Bengaluru, Chennai, Hyderabad and Kolkata. In addition to metros and tier-I cities, new companies and leading market players are targeting expansion to tier-II and tier-III cities of the country. This coupled with implementation of various government plans to develop smart cities, etc., is projected to drive growth in India’s market for coffee shops / cafés over the next five years.”, said Karan Chechi, Research Director with TechSci Research, a research based global management consulting firm.

According to the market research report of Grand View Research, titled India Coffee Retail Chains Market Size, Share & Trends Analysis Report, by Type (Dine In, Take Away), by Region (North India, South India, West India, East India), Competitive Landscape, And Segment Forecasts, 2018 – 2025, India’s retail coffee chain market was valued at 128.6 million USD in 2016 and is expected to grow further over the forecast period. Increasing global exposure, western culture and penetration of established coffee brands are anticipated to be the key trends driving growth of India’s retail coffee chain market. The report was published in March 2018.

Vikram Mahajan & Mehul Gupta, the Co-founders of Genext V&M International, who have opened two outlets of Papparoti Café, as master franchisees of the Malaysian company for North India, and are planning to open eight more in the Delhi-NCR region, feel that there is a great potential in the café market in North India as people there, particularly the youth, prefer casual dining over fine dine restaurants. They view that cafes are a perfect place for friends, office colleagues and even for family to get together.  

According to them the main challenges faced by the cafes, as far as North India is concerned, is to offer good quality products at good prices. 

According to a new report by Grand View Research, Inc., the India’s  coffee retail chain market is expected to reach 855 million USD by 2025. In the last five years, the shift of Indian consumers from being saving-oriented to be more consumption-oriented has favoured the market to witness a healthy growth.

Future Trends

The coffee cafés have been spreading across the country at a fast pace. So what is the future of these outlets in India? The possibilities that cafes in India are going to change in various ways are immense. This is because a time is going to come, in the near future, when the youths – whose tastes, likes and dislikes change rapidly – will be bored by the routine food served and the looks of the existing coffee cafés.   

One of the most likely changes, according to several café managers, will be introduction of exquisite menu not only in terms of looks but also in terms of the offerings at the cafés. Innovative drinks with cold coffee as the base ingredient is a possible trend in the near future.  The quality of the coffee and the increasing importance of specialty coffee beverages are two facets that are likely to shape the future of coffee café culture in India.    

Theme cafes are also on the cards in India’s food service industry, where a particularly innovative theme could be manifested through the ambience and décor of the coffee cafes.

Starbucks has already come up with a novel innovation. They have set up a store in a moving train, in Switzerland. The company has tied up with a Swiss train company SBB to convert a double-decker train car into a store that people could visit during their work day commute. Instead of making customers come to them, they figured they would go to the customers.

India’s coffee café market is also ready for such innovative exercises.

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