It is a situation which will test V G Siddhartha, the chairman of Coffee Day Group, to the hilt. And he is ready for the biggest showdown in his career. He will be shortly squaring up against Starbucks which is expected to open its first store in Mumbai during the ensuing festival season. At a little over 1300 cafes across 180 towns in India, Cafe Coffee Day is a force to reckon with and is present across the value chain of the cafe business in India.
However, with the might of Starbucks and Tata Group coming together to have a go at the market, it will not be an easy path ahead and to stem the churn from CCD outlets for Siddhartha. Even though senior officials at Coffee Day Group indicate that there is enough space in the market for a lot more players and the entry of a mature player such as Starbucks will help the market grow, the management of Coffee Day Group is feverishly putting together a comprehensive plan to stem the churn from their cafes.
Siddhartha, for one, is at his usual ease. "We are targeting a broader market by being present in various formats.. the premium 'Squares', the 'Lounges' and the Cafes... whereas, many others, as I understand, will be targeting one niche segment," Siddhartha told Business Standard. An astute businessman, who is hands-on to a large extent across his highly diversified group, Siddhartha has built his empire valued at little more than $1 billion by having presence in coffee exports & retailing, wealth management, IT SEZs, hospitality and furniture among few others during the past decade.
While the management of CCD are putting their heads down and charting their own expansion plans and not making a knee-jerk reaction to the looming competition, analysts indicate that it will be preposterous to ignore the strength of Starbucks. "We have our own strengths and we will play on them. On an average we intend to open one cafe each working day in a year and we may add around 200 cafes during the next 12 months," a senior official of CCD added. “Starbucks may not be expanding at that pace to start with. As we expect there may be around 50-100 cafes in the next 12 months from Starbucks and CCD has the ability to paint Starbucks into a corner,” said a noted brand expert.
According to industry experts, the coffee chain market in India is worth around Rs 1,000 crore and is growing at a healthy 30 per cent per annum. Saloni Nangia, president of retail consultancy Technopak Advisors, says that the top 40 cities in India have 1,600-1,700 outlets and these cities can accommodate another 2,000 cafes in the next few years.
In addition to charting its expansion plans, CCD is also beefing up its marketing strategies. First of the block, is ofcourse, the fact that Cafe Coffee Day has started to advertise in the print media, little ahead of Starbucks starting its first cafe in Mumbai. “This has nothing to do with Starbucks or any competition. We have recently introduced a slew of short-eats and we wanted to bring that to the attention to the people in the eight-major metros in India and so the campaign. We have also lowered the entry barrier to our cafes with an offering starting at Rs 20.. and we have to make our customers aware of these,” a senior official of Cafe Coffee Day told Business Standard on the logic of starting to advertise. It is also learnt that CCD has toyed with the idea of having a TVC, but is yet to take a call on that. According to Coffee Day Group officials the campaign will focus on the eight cities - Bangalore, Chennai, Mumbai, Pune, Kolkatta, Ahmedabad, Hyderabad and New Delhi, where around 900 of its 1,300 cafes are located.
While there will be indeed a churn from Cafe Coffee Day to Starbucks, industry experts believe that Coffee Day will not be hurt to a lot as Starbucks will be creating a new market for itself.
CCD indeed does have the first mover advantage and has cornered most of the high street locations in India and with real estate costs the major hindrance for retailers, Starbucks will have a task on their hands as they seek to expand. While not much is known about the expansion strategy of Starbucks, it is for sure that Siddhartha will be pulling out all stops to firmly retain the leadership position in the marketplace. On an average, CCD spends around Rs 40 lakhs per cafe and the sales is around Rs 15,000-Rs 17,000 per cafe per day with a healthy operating margin.
While the cafes has its share of revenues, CCD has parallely built in a sturdy revenue pipeline from marketing income and the vending machine business. “CCD has built itself into a phenomenal brand and lot of other brands want to associate themselves to the target audience coming in there. So various brands which appeal to the segment who are in the age group between 18-35 come in droves to be present in the cafes and CCD makes a cool Rs 30 crore in net profit through these. In addition to this, the vending machine business in various corporate offices and other locations is another killer offering which is bringing in healthy revenues. On an average, CCD vending machines pour out 1.2 million cups a day and the target is to take this to 2 million cups a day. The cafes are an excellent platform for brand building so there is marketing income and because of this brand pull, the vending machines segment is doing phenomenally well as well,” a senior official of CCD told Business Standard.