Coffee Industry in India - Case Study of Cafe Coffee Day
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The document analyzes the coffee café industry in India, focusing on the emergence of café coffee day as the largest coffee chain in the country. It highlights the growth drivers, trends, and competitive landscape within the industry, as well as factors influencing consumer behavior and market dynamics. Additionally, it includes strategic assessments such as SWOT and Porter’s Five Forces analysis to evaluate the industry's potential and challenges.
Coffee Industry in India - Case Study of Cafe Coffee Day
- 1. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 1 Coffee Café Industry in India A study on Café Coffee Day Strategic Management
- 2. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 2 Table of Content Introduction Evolution of Coffee Cafés The Coffee Café industry Individual Cafés Hotel Cafés Retail Café Chains Growth of Café industry in India Factors that affect Coffee Café retail industry in India Growth Drivers for Coffee Café industry Growth of Café industry in World Porter 5 forces for Coffee Café industry SWOT analysis for Coffee Café industry Café Coffee Day Key facts about Café Coffee Day Café Coffee Day brands Growth of Café Coffee Day outlets in India Product Mix Serving Cup Size Merchandising Consumer Profile Competitors Prices Advertising Channels SWOT Analysis for Café Coffee Day Porter 5 Forces for Café Coffee Day Café Coffee Day Strategies for Indian market Segmentation Strategy References Appendix
- 3. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 3 Introduction We have chosen Coffee Café Industry in India for an analysis on the strategies being followed by companies for the Indian audience. A "coffeehouse” or "café" is an establishment which primarily serves prepared coffee or other hot beverages. Historically cafés have been an important social gathering point in Europe. They were—and continue to be— venues where people gather to talk, write, read, entertain one another, or pass the time. During the 16th- century coffeehouses were banned in Mecca because they attracted political gatherings. In addition to coffee, many cafés also serve tea, sandwiches, pastries, and other light refreshments. Some provide other services, such as wired or wireless internet access (thus the name, "internet café" — which has carried over to stores that provide internet service without any coffee) for their customers. Although tea is the main drink of choice in India, now hundreds of trendy western-influenced coffee bars have emerged across India in Tier I and Tier II cities. The bean has become big business, so large that it now competes against the once dominant tea on menus everywhere. For coffee fans, India offers a few notable coffee bar chains. The significant growth in the number of coffee retail chains in India is due to the changing lifestyle patterns of Indian middle class families and an increase in their disposable income. The coffee bars’ contribution to India’s total coffee consumption may not be significant, these coffee cafes have added more visibility to coffee and opened up an outlet for various values added food items. We will do an in- depth analysis of the industry & Café Coffee Day (The home-grown brand that is India's largest coffee chain), the corporate coffee business house within Coffee industry using various strategic tools. Coffee was first known in Europe as Arabian Wine Coffee is presently the second most traded commodity in the world. It is second only to oil Nescafe was invented by Nestle because it had to assist the Brazilian government to solve its coffee surplus problem Source: (http://en.wikipedia.org/wiki/Coffee_culture)
- 4. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 4 Evolution of Coffee Cafés It all began around 1000 A.D. when Arab traders began to cultivate coffee beans in large plantations. They began to boil the beans creating a drink they called ‘GAHWA’ which translates to ‘that which prevents sleep’. The drink became widely popular, and the need for coffee beans grew. The brief timeline for the growth of coffee, cafés and everything related is given below:
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- 7. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 7 The Coffee Café industry The Coffee Café industry is currently one of the biggest and fastest growing sectors in business. The industry consists of a mix of individual cafés, hotel cafés and retail café chains. Individual Cafés The main bulk of revenue is earned by small, individual cafés, run mostly by families and friends. It is a relatively unorganized sector. There are millions of such cafés around the world, and they provide customers with a homely, casual experience. The bulk of these cafés are mainly in Europe, where every little town or village has local cafés, where people gather together for a conversation over coffee, or just to be alone with their thoughts. These cafés have been the birthplace and sanctuary for various creative minds, revolutionaries and thinkers of our time. The most recent example is the author J.K. Rowling, who has written most of the Harry Potter series of books, sitting at her local café. These cafés set themselves apart from retail chain cafés and hotel cafés because they provide customers with a homely, classic appeal, which cannot be emulated.
- 8. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 8 Image 1 - Individual Cafés Hotel Cafés Ever since the popularization of coffee, hotels all over the world started opening 24-hour coffee shops where visitors to the hotel could walk in for a cup of coffee and some food at any time. These coffeehouses are extremely important, because they provide international visitors to the hotel with a universal drink- coffee. Any customer can walk into any major hotel in the world, and enter the coffeehouse, and know what to expect. These cafés are not really major players in the coffee café industry, but rather provide supplementary services to the hotel industry.
- 9. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 9 Image 2 - Hotel Cafés Retail Café Chains The last, and the most organized sector in the coffee café industry, is the retail café chain. Off late, these chains have become extremely popular and are growing at an ever-increasing pace. These retail chains have work with an organized structure of man, material and money. The work on developing a recognized brand consistent to all their outlets, which customers can easily relate to, wherever they go. They provide customers with a standardized level of service and quality at each of their outlets. The vast popularity of these retail chains is shown in the rapid international growth of brands like Starbucks. Customers can do to any Starbucks across the world and know exactly what to expect. The major chains in India are: Barista, Café Coffee Day, Gloria Jeans, Costa Coffee, and Starbucks (yet to launch).
- 10. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 10 Image 3 - Retail Café Chains Growth of Café industry in India 5th largest coffee producer in the world (3% of the world production) Avg. coffee consumption in India is 10 cups per person p.a. People in North India prefer instant coffee in contrast with people in south who prefer filter coffee Late 90s saw an emergence in coffee chains In 2002, café < 200 with sales of $10mn Major players : Café Coffee Day, Barista, Gloria Jeans Starbucks is trying to enter the Indian market
- 11. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 11 Hot beverages have always been a part of the tradition of India, especially South India. Coffee took the first seat in South India when the traditional Brahmin classes brought down the beverage from the ruling British around the 1930s. During the early years the drink was confined only to traditional rich Brahmin families who served filter coffee in a ‘davra- tumbler’. Coffee is no more confined to the rich Brahmin class now, though the tradition of serving filter coffee in the ‘davra- tumbler’ continues to this day. In order to spread the drink, coffee houses emerged at various places in the country, which also served as the opposite places for lawyers and the educated class to hold discussions ranging from politics to cinema. It is also believed that many scripts and ideas for films evolved here. One of the oldest coffee houses in South India is the Raayars mess, Chennai, which serves first class filter coffee even today. The mess was established in the 1940s and continues the tradition of coffee but supplements it with13tiffin also. The vintage location of the mess attracts huge crowds even today early in the mornings, Coffee however was not the only item on the menu. These places also served food and other drinks to their customers. The drink also became famous and as a result even five star hotels began cashing in on it. Several hotels all over the country started opening coffee- shops that catered to high- end customers. This showed the popularization of coffee cafés, to all sections of society. The drink has now become more of a concept than merely a drink itself. The last decade witnesses the growth of numerous coffee pubs in the country. A number of coffee café owners tried to westernize the taste in contrast to the filter coffee. Now, large retail chains like Barista, Café Coffee Day, Gloria Jean’s & Costa Coffee have opened up around the country. The concept of a café today is not merely about selling coffee, but about developing a national brand. Retail cafés now form a multi-crore industry in the country, and have huge potential for growth locally, and internationally. The Indian Coffee Parlor sector has registered an outstanding growth during the last few years and has become the hub of companies looking to enter the market and gaining some share of this hugely growing market owing to high demand. As per research, the Indian Coffee Chains market is quite mature which is evident from the fact that Café Coffee Day alone maintains more than 1000 Café’s in 141 cities in India. In 2010, the average bill amount at coffee outlet was between rupees 135 and 150. This is expected to rise to rupees 245 by 2016. Factors such as menu, ambience, service and brand name are playing an important role while choosing a coffee outlet. Rising per capita income, increased literacy and rapid urbanization will provide the much required impetus to the industry.
- 12. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 12 Factors that affect Coffee Café retail industry in India Market Size & Revenues Market Potential By Outlet & Region Coffee Consumption Trends Consumer Behavior Market Trends & Developments Policy & Regulatory Landscape Franchising Opportunities Growth Drivers for Coffee Café industry Increased exposure to International Lifestyle Rise of the Demographic class Spending more time outside their homes Target segment is expected to be 300 million by 2010 Growth of Café industry in World The coffee industry includes 20,000 stores with combined revenue of $11 billion. Approximately 20 million people work in the coffee industry worldwide. Top 50 companies taking up to 70% of the sales. Starbucks lead the way with over 16,680 stores worldwide; and Caribou Coffee a distant second, with nearly 500 corporate 1270 165 95 20 19 17 204 0 200 400 600 800 1000 1200 1400 Café Coffee Day Barista Costa Coffee Gloria Jeans Au Bon Pan Coffee Bean & Tea Leaf Others (Mocha, Coffee World, Bru World Café & individual cafés) No. of Coffee Café
- 13. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 13 owned stores and over 100 franchised outlets. A coffee store operator will face competition not only from other coffee shops but also gas stations, quick service and fast food restaurants, convenience stores, donut shops and gourmet food stores. Coffee Consumption according to age group Age 2006 2007 2008 18 – 24 31 % 37 % 26 % 25 – 39 47 % 44 % 47 % 40 – 59 59 % 61 % 61 % 60 + 73 % 74 % 71 % Starbucks and Seattle’s Best Coffee, Franchise in world. Seattle's Best Coffee is a subsidiary of Starbucks and offers franchises to operate a Seattle’s Best Coffee Café and/or Kiosk. The estimated initial investment for a single unit franchise is between $164,500 and $317,000. As of May 2008 Seattle’s Best Coffee has more than 540 cafes in the U.S. and 86 Seattle’s Best Coffee Express espresso bars. In addition, Seattle’s Best Coffee is available across the U.S. in supermarkets and at more than 3,900 foodservice locations, such as college campuses, restaurants, hotels and cruise lines.
- 14. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 14 Porter 5 forces for Coffee Café industry Competition within Industry Highly concentrated at top and fragmented at bottom Major competitors Café Coffee Day, Barista, Costa Coffee, Gloria Jeans, individual retailers Competitors from other industries like McDonald, Dunkin’ Donuts Competition through special offers (new tastes) Outstanding service/environment (internet music, comfortable seating, short waiting queues) Loyalty programs (bonus cards, memberships) Premium locations (retail centers, university campuses) Good margins (40-60%)
- 15. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 15 Substitute Products Soda, Juice, Water, Beer, Sports Drinks Ice Cream, Cigarettes, Sweets Limited budget to spend on consumer goods, such as cigarettes, beer and also coffee Young people might prefer other products, such as beer, cigarettes or soda Barriers to Entry Strong brand recognition of major players High investment for significant growth (Distribution system: shops, equipment, premium locations; marketing: creation of brand awareness & brand recognition, customer retention Partnership with large, international companies also serves as potential entry barrier fpr new competitors. Example: Starbucks with Tata Economies of scale, centralized HR & marketing Power of suppliers Coffee price varies along with the economic and political situation of export country Dairy products with varying retail prices, used for specialty drinks Coffee farmers do not have the means to switch production Companies helping communities to make the change Very limited power of suppliers as they depend on producers help and sell a commodity Power of Customers High dependency of coffee shop chains on frequency of customer purchases Customers appreciate the nice atmosphere in the coffee shops Customers are very likely to switch as they might get bored with / tired of the same flavor (relatively low brand loyalty) Shopping behavior is very likely to be influenced by budget constraints, weather conditions or health concerns in the general public Essential for success - word of mouth and frequency of purchases
- 16. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 16 SWOT analysis for Coffee Café industry STRENGTH Health benefits: People believed that coffee was harmful to health Studies have explored the connection between coffee and certain illnesses such as cancer and high blood pressure, no evidence has been found to link coffee to these health risks. Research shows that coffee is far more healthful than it is harmful," says Tomas DePaulis, PhD, research scientist at Vanderbilt University's Institute for Coffee Studies Health studies: The more coffee that you drink the less likely you are to ever being diagnosed with a stroke. Drinking 6+ cups of coffee a day may reduce the risk of type 2 diabetes by 54% in men and 30% in women Benefits for the Coffee Store Franchisee: consumers are happier to drink more caffeinated beverages, good news for coffee stores More people now believe that there are health benefits to coffee and that it is good for their health Is there Health Benefits to Coffee? % answered Yes Answered Yes Is Coffee good for your health? % answered Yes 2005 37% 26% 2008 46% 36% Total Increase 9% 10% WEAKNESS Unpredictable elements that will affect the production of the crop and therefore the cost of coffee for the coffee franchisee Coffee trees can't tolerate weather that is too hot or cold, or too wet or dry. Climate change can play a huge role in the amount of coffee that is produced and how much it costs the retailer An increase in consumption of coffee in Russia and China also played a part Due to recent economic downturn, consumers are less likely to spend $5 for a cup of coffee than a year ago Consumers are more willing to shop around for the best deal, coffee house needs to change their business in response to this consumer trend
- 17. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 17 OPPORTUNITIES Hard working executives & professionals make stopping into a coffee house part of their day Local coffee house provides a warm, calm environment in which people come to socialize, relax or even catch up on work Demand for specialty coffee is growing every day During 2005-2010, coffee sales are expected to grow by a further 125% to reach $18,839 million in 2010 Drive-thru, kiosks and carts are becoming more and more popular as they can offer their products and services to the ‘on-the-go’, startup cost is also very less More opportunities available, for a lower investment, to start up and run a coffee business THREATS Economic recession, which reduces consumers' consumption Coffee stores are taking measures to bring customers back to the coffee house, promotions and special offers are ways of enticing customers, that leads to reduced revenue to the companies Starbucks closed 7,100 stores nationwide for three hours to retrain about 135,000 in-store employees and people who oversee their stores Seattle’s Best Coffee LLC has a buy one get one free offer to entice consumers to the coffee store A coffee house is exposed to rising costs of coffee and dairy products Source: (http://www.franchisedirect.com/coffeefranchises/coffeefranchisesswotanalysisbusinessreportiv/74/221) Café Coffee Day Café Coffee Day is a division of India's largest coffee conglomerate, Amalgamated Bean Coffee Trading Company Ltd. (ABCTCL). ABCTCL grows coffee in its own estates of 10,000 acres (4047 ha). The land value of the plantations is US$250–300 million. It is the largest producer of Arabica beans in Asia. Apart from this, the group also sources coffee from 11,000 small growers. ABCTCL is one of India’s leading coffee exporters with clients across USA, Europe and Japan. In the calendar year 2000, Coffee Day exported more than 27000 tonnes of coffee valued at US$ 60 m to these countries and, for the second time in its short career of 7 years retained the position as the largest coffee exporter of India.
- 18. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 18 Coffee Day has a wide and professional network in the major coffee growing areas of the country comprising over 48 agents and 50 collecting depots. Coffee Day's two curing works at Chikmagalur and Hassan cure over 70,000 tonnes of coffee per annum, the largest in the country. Coffee Day has a well-equipped roasting unit catering to the specific requirement of the consumers. The process is carried out under the control of experienced personnel to meet highest quality standards. The most modern technology available is used to maintain consistency and roast the coffee beans to the demanding specifications of the discerning coffee consumers. Key facts about Café Coffee Day Started first Café at on July 11 at Brigade Road, Bangalore in 1996 1270 outlets in major cities in India, international outlets in Karachi, Vienna and Prague CCD is a part of India's largest coffee conglomerate named Coffee Day, a $ 45 million ISO 9002 certified company Provided a relaxing ambience with eye-catching crockery and bright décor Mainly to attract teenagers, business meetings etc., customers falling in the 15-29 year age Promoted their paraphernalia such as caps, T-shirts, and coffee mugs Paintings on the walls are a source of attraction Each café, depending upon its size attracts between 500 and 800 customers daily It grows the coffee that it serves USP of CCD: Affordable Price, Coffee taste V. G. Siddhartha, Founder and Director Café Coffee Day brands Coffee Day Fresh 'n' Ground, which owns 450 coffee bean and powder retail outlets. Coffee Day Square, a high level coffee bar in Bangalore. Coffee Day Xpress, which runs 900 plus Coffee Day kiosks. Coffee Day Beverages, which runs over 14,000 vending machines. Coffee Day Exports, its exporting wing. Coffee Day Perfect, its (FMCG Packaged Coffee) division. coffee Day B2C Plant ( Coffee vending machine manufacturing in India )
- 19. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 19 Growth of Café Coffee Day outlets in India Product Mix 1 14 213 1270 0 200 400 600 800 1000 1200 1400 1996 2001 2005 2012 No. of Café Coffee Day outlets in India
- 20. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 20 Serving Cup Size Product Serving Cup Size Hot Coffee 210 ml Cold Coffee 350 ml Smoothies 350 ml Granitas 350 ml Merchandising Caps T-Shirts Bags Mugs Coffee Filters Coffee Powders Coffee Mints Pens
- 21. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 21 Consumer Profile 37% of the customers are between 20-24 years 27% of the customers are between 25-29 years 60% of the customers are male and 40% are female 52% of customers who visit the cafes are students 18% of the customers visit the cafes daily 44% of the customers visit the cafes weekly Place to meet with friends and colleagues, in groups of 3 or more Competitors Barista Costa Coffee Gloria Jeans Mocha Starbucks (coming up) Prices Café Coffee Day knows its major customer lies in the bracket of 15 - 29; it has tried to derive a policy whereby it can satisfy all its customers. The price for a cup of coffee ranges from Rs.44 to Rs.71. From the time it first started its operations, there has been only minor changes in the pricing policy of Café Coffee Day. The changes have been more due to the government taxes than anything else. (See Appendix) Advertising Channels Bill boards Print media Radio Internet SWOT Analysis for Café Coffee Day Strength
- 22. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 22 Excellent brand name and brand visibility India's largest retail chain of cafes with 1000+ cafés Huge young crowd as target group It produces/grows the coffee it serves hence reducing the cost $ 45 million, ISO 9002 certified company Weakness Price of Products Presence is negligible in small cities Limited Target Audience Follow the competitor strategy Opportunities Introduce cheaper versions of coffee Market is growing very fast Most of Indian market is untargeted Indian culture is changing Tie ups with other companies for promotion Threats Entry of foreign players like Starbucks Dependence upon Government commodity rates Local coffee vendors Porter 5 Forces for Café Coffee Day Threat of New entrants Starbucks with Tata Dunkin Donuts Bargaining power of customers Price comparison Variety of products
- 23. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 23 Service provided Bargaining power of suppliers Food items obtained from local suppliers Follows backward integration Coffee beans from its base in Bangalore Threat of substitutes Coffee offered by other individual retail stores Cold drinks Ice tea Competition within industry Other retail players targeting same market (youth) Pepsi, Coke & other soft drinks Café Coffee Day Strategies for Indian market Informal ambience Cool hang out for college crowd and teenagers Revamp in 2001 “A lot can happen over coffee” Café jockey Main target – commercial and residential clusters in metros Also targeted corporate houses, mall, airport Price 20% lower than competitors Mass market brand Segmentation Strategy Positioned for the mass market Targeted middle class, students and house wives Prices are much lesser than competitors The segment has great market share
- 24. A lot can happen over coffee Coffee Café Industry in India | Cafe Coffee Day 24 References http://coffee.wikia.com/wiki/Coffee_industry_of_India http://indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndia http://www.coffeevn.asia/details.asp?Object=18&news_ID=221259948&ID_Con=8 http://www.indiaretailing.com/coffee-retail.asp http://en.wikipedia.org/wiki/Coffee_production_in_India http://en.wikipedia.org/wiki/Coffee_culture http://www.bplans.com/coffee_distribution_business_plan/market_analysis_summary_fc.php http://www.grin.com/en/e-book/111348/coffee-shop-industry-a-strategic-analysis http://www.techsciresearch.com/techsci-research-india-coffee-chains-cafe%E2%80%99s-market-is- set-for-incessant-growth http://www.franchisedirect.com/coffeefranchises/coffeefranchiseindustryresearchbusinessreporti/74/ 220 http://www.mbaskool.com/brandguide/food-and-beverages/662-cafe-coffee-day.html Appendix