TEAM NAME: CBT

TEAM MEMBERS: 1. Kunal Dey

2. Shanku Das
3. Sankhanilam Dasgupta
MBA 2nd year.

Rise of CCD:
While analyzing the growth of CCD one must not only focus heavily on the brand but must focus
on the man himself whose significant strategic hold on the market forces eventually gave rise to
the brand CCD.

It was the year 1979. VG Siddhartha was in his third year at St. Aloysius College, Mangalore.
Motivated by Marx and Angels, Siddhartha was moving towards his dream of becoming a
communist leader.

Year-1993. Coffee Day got incorporated. VG Siddhartha was the MD of the company. In the
year 1996, CCD opened its first outlet. This marked the coffee pioneer’s first step towards
making a luxury coffee chain in a country where tea plays a dominant role. It got listed in the
year 2015. Soon café coffee day achieved the sales figure of 2 billion cups of beverages per year
with a portfolio ranging from normal outlets and premium outlets to international cafes and ccd
being the India’s leading exporters of coffee.

Café coffee day did its business by playing on the price points as their competition rose due to
infusion foreign labels. He targeted the premium segment of coffee lovers who would pay 90
rupees and 120 rupees for a cup of cappuccino from Barista and Starbucks respectively (2015
data). CCD charged only 79 for the same cup. Moreover, the way CCD conquered mass market
is quite interesting itself. CCD targeted the customers in Bangalore where coffee is almost a
regular drink of many people. The problem associated was that coffee was drunk hurriedly in
normal coffee shops. He addressed this problem by positioning the brand with coffee shops that
provided a leisurely ambience along with free internet. This move rapidly attracted a large
segment of Bangalore’s the then IT industry personnel, foreigners and was a popular spot for
informal business meets.

With a tagline of ‘A lot can happen over coffee’, CCD proved to be a market leader in a country
where tea is an essential drink. CCD made sure that brand is more than the logo, tagline, name or
slogan. It made sure that the customers could connect whole heartedly with the company as a
whole. CCD took a branding strategy in which they opened several stores in a single area (as
many as 4) and thus ensuring the visibility of the brand and maximum footfall. Moreover, CCD
didn’t get into a franchise arrangement. Though opening the own café’s is an expensive step
forward in the short term perspective, it looked forward and took the long view of the long term
benefits that it will reap through this arrangement. By owning their own stores, they took a
greater control over product quality and service quality thereby maintaining a strong and uniform
brand image in all its stores. Without sticking to a single format of stores, CCD experimented
with the store format. It designed its store in formats like xpress stores, lounge stores, garden
cafes and regular cafes. CCD also tied up with several malls, petrol pumps, multiplexes,
educational institutions etc to acquire as much customers as possible. In the initial years of
CCD’s growth, it was largely concentrated in the south Indian market. But soon, it upgraded its
supply and distribution chain and soon entered north Indian markets. As far as the menu is
concerned, it took an adaptive strategy of localized menu. This further helped them sustain their
brand value. CCD’s main target was the youth segment. Also with the increase in the disposable
income, CCD could capture the youth segment very efficiently. The ambience and the sense of
luxury they conveyed through the aesthetics of their stores, they efficiently captured the youth
segment. Also to increase the engagement of the youth segment, CCD came up with several co-
branding strategies like branding alongside Airtel, Levis’, Apple etc which significantly attracted
more young customers. Also CCD use to conduct uniform designing events in colleges like
NIFT and also published achievements of young population through their tabloid that they
launched in 2002. They tied up with several colleges to portray the achievements of the students
through their tabloid. Thus through all these approaches of branding and marketing by CCD, we
can see how the CCD inculcated a sense of togetherness and relaxation among its customers.
This kind of branding led to a brand which made it a market leader in the coffee chain segment.

Analysis of challenges and course of actions and future strategies:

Diminishing the bargaining power of Suppliers:
The biggest advantage of CCD is that it was already in the business of coffee production. This
provided them with a head start that other companies lacked. The parent company Coffee Day
Ltd. did a kind of forward integration by entering into coffee retail sector. Being in the coffee
business, they procure the raw materials mostly from their estates. CCD’s group owns almost
11000 acres of coffee estates like Kathlekhan Estates and has collaborated with several other
coffee beans producers. They also manage coffee estates from which they procure raw materials.
This process of procurement has helped them to have an upper hand over the power of suppliers.
Thus by reducing the bargaining power of suppliers, they have managed to keep operational
costs at an optimal level thereby maximizing their profits.
Competitive edge:

Being an old player in coffee business, CCD already had a competitive edge over the other
companies entering in the coffee business during CCD’s growth. Another advantage that CCD
had was that it was the pioneer of premium coffee retail shop in India. Being the pioneer, CCD
was able to capture a large market share. The first mover’s advantage of CCD already had given
them and edge over competitors.

Competitor analysis for CCD: In this study, we have divided the competitive analysis into two
major parts:

1. Competitor analysis of CCD before the advent of Star Bucks. [1996-2012]

2. Competitor analysis after the advent of star bucks.[2012-present]

1. Competitor analysis before Starbucks.

The prominent competitors before the advent of Starbucks- Tata venture can be given
as follows:
a. Barista: Barista was established formally in the year 2000. Soon Barista got to
realize the tough competition that it was facing from CCD. At first Barista didn’t
have any fixed supplier which further made their business tougher to scale up and
fend off CCD. In the year 2001, Barista understood their issue with coffee
procurement from the suppliers. In order to reduce the bargaining power of the
supplier, Barista sold 1/3rd of their equity stake to Tata Coffee. Now, they
somehow secured their position with the supplier of coffee. But even after 3 years
the business was still highly unprofitable. So, in the year 2004, the promoter of
Barista sold the entire stake of the company to Sterling group. Sterling group also
acquired the 34% stake that was with Tata Group. After the handover of Barista to
Sterling group, the problem of profitability still persisted due to lack of proper
supplier. The reduction in profitability was also because by the time Barista
reached the growth phase, CCD had already acquired a large portion of market
share banking on the first mover’s advantage. By that time CCD already had an
established Brand Image in India. Sterling group soon sold off Barista to Lavazza
group in the year 2007. The supplier problem got solved as Lavazza group had
plantations of coffee from where they sourced their raw materials. But due to so
much changes of ownership, Barista couldn’t really focus on the operational
aspects. Moreover, the changes in strategies caused disruptions in their
operations. Meanwhile, CCD had already made their mark in the coffee retail
business in India and south Asia with more capital availability, better
management and fast market coverage.
 b. Gloria Jeans: The coffee retail chain Gloria Jean’s faced the toughest
competition among coffee retailers in India. Gloria Jean’s, an Australian
company, entered into Indian market by partnering with Citimax hospitality
(division of landmark group). Citimax did its business in apparel hospitality and
food and beverage sector. It had almost no experience in coffee retail business,
that too in India. GJ focused on their business model which was successful in
Australian market and tried to apply that model in India. But soon, they faced
several operational challenges which led to the demise of the brand in India.
Slowly, from 50 outlets, it ended up with less than 22 café all over India. Again in
this case, CCD’s first mover advantage and experience in coffee retailing business
created high entry barriers for Gloria Jeans.

c. Costa Coffee: Costa Coffee was another venture which started its exclusive
coffee franchise business in 2005. The Costa Coffee entered into a franchise
arrangement with Devyani International to kick start its business in India. DI is a
big franchise trading company having franchise of KFC, Pizza Hut, Foodie’s Bar
all over India. Costa Coffee tried to leverage the franchise and networking skills
of DI. But, Coffee retail business is a capital intensive business and the stance
taken by the UK based coffee retailer was extremely aggressive. In the process of
executing branding and marketing strategies aggressively, they soon burnt a lot of
capital and Devyani International refused to invest further in the Franchise model
of the company as it was making huge losses. The huge losses were mainly due to
aggressive customer acquisition. To minimize loses DI, had shut almost 23 outlets
(half of total outlets).

Thus, from the above analysis of the competitors we can see that CCD clearly had the first mover
advantage which created a high entry barrier from the beginning. Moreover, CCD had already
captured a large market share even before the rivals could start their business. It can also be seen
that the bargaining power of the supplier played a huge role to determine the profitability of the
retailer. The bargaining power of the customers was also well managed by CCD with their
authentic ambience and products. Coffee retailing business is a slow growing industry with
several available substitute and moderate switching cost in terms of customer which the Costa
Coffee underestimated and consequently failed in India.

2. Competitive Analysis after advent of Starbucks in India

a. Starbucks was trying to enter Indian market since 2007 but due to several factors like
FDI norm, several other government regulations and inability to find proper partner,
delayed their entry till 2012. As discussed before, coffee retail industry is a capital
intensive industry with several substitutes. While Starbucks was trying to enter Indian
 market, it already analyzed the various challenges and issues it might face in the
Indian context. Starbucks was already armed with huge capital to invest. Moreover, it
had the brand image which is the most valuable intangible asset of Starbucks.
Starbucks chose the right company to partner with, which was Tata Coffee. So, in the
first go, Starbucks was able to eliminate the bargaining power of the supplier. Unlike
CCD, which owned its own stores, Starbucks entered into partnership with interested
Business persons using the licensed store model. Starbucks, thus was able to maintain
a low operational cost structure through this model. Other than this, Starbucks started
to expand at a very slow pace by maintaining the standard, quality and brand image in
each of their licensed store. Thus, without going aggressively, Starbucks was able to
analyse the market properly. Till 2019 data, Starbucks has only around 160 stores in
India whereas CCD has around 1800 stores all over India. As far as bargaining power
of customer is concerned, both Starbucks and CCD are selling coffee at premium
price. As the customer is already paying a premium price for a cup of coffee, this
premium customer tend to prefer the brand image of the Starbucks which is the global
company. As the cost of switching is almost same, the bargaining power of customer
is high and CCD is facing huge challenges after the advent of Starbucks.
b. CCD is also facing challenges from newcomers such as Blue Tokai, the flying
squirrel and the Indian Bean. These newcomers have witnessed the rise and fall of
several big coffee retail chains and therefore, they already are addressing the negative
aspect of the business. All the three companies have already purchase several estates
and collaborated with several others, thereby taking care of the supplier portion. Also,
these companies have very targeted customers which are mostly in the southern part
of India and the expansion rate is also slow and stable. They are aiming to gain as
much customer as they have targeted beforehand. CCD has to find unique ways and
modes to differentiate themselves from these new entrants and big players like
Starbucks. They can take several price performance measures and reach new
customers who are expecting delivering at home rather than going out for a coffee.

Substitute’s analysis

Tea is the direct substitute for coffee and indirect substitute can be innovative ambience to which
customers can relate to. Companies, like Chai point are showing up recently. Tea is already is
more preferred to coffee in India and these companies are utilizing these facts in order to
increase their competency. Since, the tea consuming population is already large, so their
consumer base is already establishes is beforehand. All they need to do is provide unique
services and differentiating products and chai point is already engaged in providing unique
ambience being a tea shop and delivering their product to nearby customer’s location.

If we see the annual report of Starbucks and even the new companies, their financial
performance is quite satisfactory and all of them are making profit. On the other hand, CCD,
though have taken, several right decisions concerning the coffee retail chains, is incurring losses.
This is because coffee day, the parent company, without enhancing their core competency(coffee
related business) , have invested in several sectors such as finance, health and infrastructure
company(like Tanglin and Way2Wealth) which ultimately had to be sold off and put CCD under
a lot of debt.