India has always been predominantly a tea drinking nation.

Coffee had been only moderately popular in some southern states. However, there has been a sudden change in this trend with coffee becoming more and more popular in recent times especially among the youth. Thanks to the new entrants in the segemnt including Barista, Caf Coffee Day (CCD) and others. Cafs are increasingly becoming more than places to sip coffee. A lot many things in life and work happen over a cup these days. India has now become one of the fastest growing coffee markets in the world. It is taking great strides on both counts; making its presence in the world market as well as in the domestic retail arena as more and more Indians prefer the drink. Tecknopak advisors, a global retail consultancy firm, pegs the organised coffee retail business in India at over Rs 8 billion with the potential space for nearly 3,000 coffee retail outlets in India. Raman Mangalorkar, former head, AT Kearneys consumer industries and retail practice in India, once said, Retail is not just a big boys game; small start-ups with a clearly defined product offering will do very well in the Indian retail market. And thus chains like CCD, Barista, Costa Coffee, Coffee World, The Coffee Bean and Tea Leaf (CBTL), some Indian and some overseas chains, have been cultivating their ground in this niche segment and offering desired delicacies to millions across the country. Key players: CCD: Taking pride in 130 years of coffee growing heritage, CCD is the first chain to enter retail by incorporating Amalgamated Bean Coffee Trading Company Ltd (ABCTCL) in the year 1994. Pioneering the caf concept in India in 1996 by opening its first caf at Brigade Road in Bengaluru, ABCTCL today is one of Asias top 500 companies and aims to be among the top three coffee retailing companies in the world. It currently operates 683 cafs in India, Pakistan and Austria. ABCTCL also has an ambitious growth plan of opening 1,000 cafes by 2010 marking its presence across 102 Indian cities and also establishing 50 cafes in 10 foreign countries. Barista: Barista traces its roots back to the old coffee houses in Italy the hotbeds of poetry, love, music, writing, revolution and of course, fine coffee. Offering alternative options and pleasures of coffee to millions, the chain is also revolutionising the coffee drinking experience in most Indian cities. Barista, which owns 206 stores currently, including 17 overseas, plans to boost the number of stores to 300 by the end of fiscal year 2008-09, says India Retail Report 2009. Costa Coffee: As part of its overseas expansion, British coffee retail chain Costa Coffee launched its outlet in New Delhi, becoming the first international coffee chain to start operations in India in September 2005. It has also been expanding its business through exclusive franchisee partnership with Devyani International. The chain is currently operational with 36 outlets and expanding aggressively to tap this potential market. Coffee World: Coffee World is a premium specialty coffee house that offers a comprehensive range of hot, iced and ice blended beverages. The brand is known for its premium quality products and its signature Frappes ice blended coffees. CBTL: The Coffee Bean & Tea Leaf is a California-based coffee chain, owned and operated by International Coffee & Tea, LLC and has opened its first store in India in the last quarter of 2007 opening stores in Rajiv Gandhi International Airport, Hyderabad followed by a store in Select Citywalk mall, New Delhi in March 2008. Besides, retail players like Reliance Retail and Shoppers Stop are also retailing coffee with their multi-products offering outlets like Reliance TimeOut and Desi Caf respectively. Product offerings: In keeping with the global coffee culture, purveyors in India have been offering the products in a wide range of variants that include hot coffee, cold coffee, coffee add ons, powder coffee etc. The chains have also been adopting state-of-the-art store formats and some even offer wi-fi access to their customers. As a step forward achievement, CCD has incorporated formats like music cafs, book cafs, highway cafs, lounge cafs, garden cafs and cyber cafs targeting a diversified customer profile. Prime customers:

These cafs are increasingly filling in a sorely felt gap by becoming a meeting place for people in the age group of 15-29. India, with its huge young population flooded with disposable income, offers an exciting and ideal market to coffee retailers. According to researches, teen-agers form 25 per cent of the customer profile while 38 per cent of them are between 20 and 24 years and another 23 per cent belong to the age group of 25-29 years. Students and young professionals comprise around 72 per cent of the customers. As a matter of fact, these chains, nowadays, have been opening small-sized coffee parlours to provide a neighbourhood coffee experience and lure more people. Despite their best efforts, the question still haunting many of these players is how long will they be able to sustain these high cost, high turnover business models? How long before they are able to turn a tea drinking nation into coffee lovers?

It is a known fact that the coffee retail industry has been brewing success in India for quite some time now. Thus, a world giant in this industry, Starbucks has already made few unsuccessful attempts to enter the space. Its latest attempt includes a strategic alliance with Tata Coffee. If this time all works fine for Starbucks, the existing brand loyalty of Indian Coffee Sippers is going to be tested. I decided to investigate the journey of coffee retail industry in India so far. Following are the few interesting insights. A Stint with History: For all the socially active (facebook/twitter etc) junta of the current generation. This is a piece of History to take note of. The Indian Coffee House (1958 present), is a well known coffee outlet, having branches in various districts of Kerala. Its roots date back to pre-independence era, when it was started by COFFEE BOARD in early 1940s. It was later maintained by INDIA COFFEE BOARD WORKERS CO-OPERATIVE SOCIETY. The websitehttp://www.indiancoffeehouse.com maintains good amount of information regarding the brand.

Tea drinking Indian Populace was a challenge: Though it is a fact that, drinking coffee was a trend prevalent earlier mostly in South India and in some luxury hotels in other parts. However, challenge of shifting tea drinking Indian population to coffee sips seems to be myth to me. This is because, when these next gen coffee outlets started brewing, country had middle class loaded with credit cards. We were/are a young population, who didnt mind spending extra penny for a new experience. Also, we had been exposed to trends of global lifestyle by that time. Early Bird Advantage for CCD: V.G. Siddhartha, chairman of the Bangalorebased Amalgamated Bean Coffee Trading Co. (ABC), started the very popular Caf Coffee Day in 1994. Since its inception, CCD has leveraged the early bird advantage well, and it also managed the small period stiff competition from Barista well. CCD started off on the theme of internet caf (coffee was complimentary), but later started providing the full-fledged coffee experience. Mr. Siddhartha seems to follow classic business policy of backward integration (similar to that of Mr. Dhirubhai Ambani). While ABC provides coffee beans (raw material), Mr. Siddhartha also started a small business that supplies furniture for his cafs and a residential hospitality college that trains young people who can be absorbed into the business. Changing Brewers for Barista: Since its inception in 2000, the leadership of Barista has kept changing. The queue includes (in ascending order) Turner Morrison, Tata Group, Sterling Group and the current leadership of Italys Lavazza Group. This resulted in loss of focus of the market for the brand. However, Lavazza has done well to bring Italys Coffee experience to India. While CCD targets the

young and young at heart segment of the country, Barista Lavazza has set focus on the young audience.

London Coffee Dreams reach Indian Shores: Popular British Coffee chain Costa Coffee started operations in India in 2005. They have a local partner Devyani International, a food and drink group that also holds licenses for Pizza Hut and KFC outlets in India. The most notable thing which I found on their UK website (India website is not yet up) is Costa Foundation. According to the site In 2006, the Costa Foundation was set up to improve the welfare of coffee-growing communities in countries such as Colombia, Guatemala, Uganda, Ethiopia and Costa Rica. The brand plans for setting up 50 to 60 Costa cafes pan-India by the end of calendar

year 2011. Planet Mocha: Mocha Coffee chain owned by Impresario Entertainment and Hospitality Pvt Ltd (IEHPL) started operations in 2001 at Churchgate, Mumbai. The brand soon spread to other prime Mumbai locations and other Indian cities. The menu has an Arabian style; however innovative concepts like Mocha Life Shop and Mocha Communities provide this brand an edge. The communities like MBA (Mocha Bike Association), Mocha Film Club, Mocha Backpacker Club help bring like-minded people together and allows customer to form their communities of interest. This appears as a good marketing strategy to achieve brand loyalty. Last week one of the world's best known consumer brands announced its much awaited entry into the country, but ironically consumers and competitors were left in the dark about what plans were brewing on the retailing front. After many years of deliberation, and speculation of whether it would or wouldn't,' Starbucks opted for a tepid entry into the world's second largest economy. While competitors are apparently not worried about coffee company Starbucks' India plans, they are hoping the global major will create a larger field for coffee retailing in the country. It's premature to talk about the specifics, says Arun Bhardwaj, Vice President Emerging Business, Starbucks Coffee Company. Starbucks' MoU with Tata Coffee signed last week is an unrestricting one, where the US coffee giant has only agreed to source and roast high-quality green coffee beans in Tata Coffee's Coorg, India facility. On the retail front, the company said Tata and Starbucks will jointly explore the development of Starbucks retail stores in associated retail outlets and hotels,' indicating there were no firm retail plans yet. Starbucks will set new benchmarks in the coffee retailing space in India, a fact even competitors accede to. Harish Bijoor, brand domain expert and CEO, Harish Bijoor Consults, says the Starbucks entry is a wake-up call. I would equate the entry of Starbucks in coffee to the entry of MNP in telecom. Existing players need to up the ante on product range, service and customer delight norms. In many ways this entry will be good for the consumer, delivering better value and service. Add delight to that as well. Santosh Unni, CEO, Costa Coffee in India, says Starbucks coming in will help expand the Indian market. There is not much concern about competition because the market needs to grow in India. And the country needs the right kind of players for that. The Indian coffee retailing market, estimated to be anywhere between Rs 800 crore and Rs 1,000 crore, growing at 40 per cent, includes players such as Caf Coffee Day (CCD), Barista and Costa Coffee and smaller coffee shops in South India that serve coffee for Rs 10 a cup. CCD, the undisputed leader in the coffee retailing segment in India, has 1,040 stores with plans to take the number to 2,000 by 2014.

K Ramakrishnan, President - Marketing, CCD, concedes that the entry of the global brand would set certain benchmarks and pressurise some of the existing players to improve their offerings. India being such a large country, there is plenty of room for several players, he says. Will CCD, a player in the mid-topremium segment, now move a notch higher to aggressively tap the premium market that Starbucks operates in? We are guided by consumer needs. We will do what they demand, is his non-committal reply. Bijoor agrees. His advice to Indian players is to remain besotted with their customers and their needs and aspirations. Mining the needs of their consumers and catering to them is the strategic and tactical imperative at hand. Incidentally, CCD launched Coffee Day Square, a premium coffee lounge in Bangalore, a couple of years ago. It is more like a fine dining restaurant offering space for business discussions and meetings. British coffee chain Costa Coffee reworked its India strategy last January to close unviable ones and focus only on the metros for expansion. According to Ravi Jaipuria, Chairman of Devyani International, the master franchisee for the coffee chain in India, pricing is the key to success in the Indian market. Costa's coffees are priced at $3 outside the country but are sold at about half the price here. Costa currently has 70 outlets in India and is planning to add another 50-60 outlets by December 2011. There's no doubt that the company is pushing the pedal hard now. In 2010, Costa opened 25 new stores, a number that it would double in 2011. Although the company has broken even at the enterprise level now, says Unni, the CEO, it would be foolish to grow too fast because we would be squeezing margins then. Costa Coffee does co-exist with Starbucks in several markets in the world and Unni says he does not see the latter's entry as threatening.' Although the market is large enough for all of the current players, Unni foresees some consolidation in the near future. The country has 1,300 coffee outlets in the large organised segment with the potential to accommodate 5,000 outlets, which could happen in about five years. Bijoor believes India can take yet another 4,000 cafes even at this point of time and Starbucks will help this effort. In his opinion, existing players will retain their share and CCD will still remain the biggie out here. Starbucks will maintain niche status for a while. Tony White, Regional General Manager of Australian specialty coffee retailer, Gloria Jean's Coffees, says competing with Starbucks is not new for the brand. We are a good significant global brand too and we welcome Starbucks because it will make the market space bigger, he says. The brand is present in around 35 countries, with 1,000 stores. Barista has earlier indicated that 2012-15 would be the actual expansion phase for the company. It has around 225 outlets, which it plans to take to 300 by end-2012 and once the market picks up, will take necessary steps for further expansion.' On pricing, Bhardwaj says it's premature to make a comment. Bijoor's advice to Starbucks is to stick to its American pricing policy. The rationale: the cost of doing business in India is expensive. This is 2011 and food and beverage inflation is just around 18 per cent. Add to it the fact that Arabica prices are on a 13-year high as of today. The cost of new real estate locations on the high street is very high as well. Starbucks needs to hold its price line. Bhardwaj of Starbucks is, of course, pleased with all the encouraging remarks by competitors,' and is very optimistic about the growth of the coffee market in India. Right now we're focused on entering this dynamic market, and we look forward to offering a unique, values-based Starbucks experience to customers here very soon. For Karthik Raghavan, a coffee fan, it's not the coffee at Starbucks that lures him to the outlet in the US, but its appeal as a rendezvous to meet friends and business associates. The sight of Starbucks also gives him a feeling of comfort, especially at foreign cities and airports, because I know my options and what goes into them. But in India, It's Madras filter coffee that I would rather be

holding, says the much-travelled Karthik. Will you raise your cup to that, Howard S. Schultz?