Coffee Retail

3C Analysis
Category | Customer | Competitor

Nikhil Saraf 20130120124

Nitya Ravi 20130120126
Pooja Shirali 20130120130
Prem Thomas 20130120132
Saarini Bagga 20130120139
Surabhi Anand 20130120152

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Category Analysis

Consumer Food Services

Cafes/Bars

Specialised
Coffee
Retail

Current Industry and Consumer Trends

 Burgeoning retail chains becoming one stop shops for consumers
 Standalone consumer foodservice grew rapidly during the review period, but
the growth witnessed a slowdown in 2011.
 In contrast, leisure locations started to compete aggressively with standalone
restaurants during the last few years of the review period.
 Standalone outlets continued to have the largest share in terms of value.
 Cafés/bars and lounge formats in particular, continued to be popular at
standalone locations, however, and are expanding their operations in shopping
centres.
 Growing number of double-income households and consumers ready to try out
different food, foodservice is likely to generate huge revenues over the forecast
period.
 Foodservice players will continue expanding their operations in Tier II and
Tier III cities
 Leisure and retail in particular are likely to experience the strongest growth over
the forecast period. Leisure is likely to grow at a constant value CAGR of over 8%
compared to retail's constant value CAGR of 6%.

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Prospects
 Cafes: Standalone largest location with 1.7 million outlets 2011
 Leisure experiences strongest growth in new outlets, reaches 15,969 outlets in
2011
 With retail experiencing huge growth, the number of foodservice outlets increases
tremendously in hypermarkets which emerge as the new hang out zones over the
review period
 Leisure is likely to grow at a constant value CAGR of 8% over the forecast period,
to reach Rs126.0 billion by 2016.
 Coffee volume sales growth for 2013 = +8.1%;
 compound annual growth rate (CAGR) to 2017 = +9.1%

Category data

Consumer Foodservice Sales by Location: Units/Outlets 2006-2011

(India, ‘000 outlets)

2006 2007 2008 2009 2010

2011
Consumer Foodservice
Through Standalone 1,244.7 1,340.8 1,428.2 1,523.7 1,608.8
1,672.1
Consumer Foodservice
Through Leisure 7.7 11.3 12.5 13.1 14.5
16.0
Consumer Foodservice
Through Retail 45.5 56.5 76.2 87.8 99.9
108.0

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 Consumer Foodservice Sales through Standalone: Units/Outlets 2006-2011
(India, ‘000 outlets)

2006 2007 2008 2009 2010

2011
100% Home Delivery 0.2 0.2 0.2 0.2 0.2 0.2
Through Standalone
Cafés/Bars Through 41.0 42.6 43.6 44.3 45.2
45.7
Standalone
Fast Food Through 44.5 49.2 52.9 55.2 58.9
61.9
Standalone
Full-Service 415.7 443.5 470.9 487.4 505.0
522.6
Restaurants Through
Standalone
Self-Service Cafeterias 0.4 0.4 0.3 0.3 0.3 0.3
Through Standalone
Street Stalls/Kiosks 742.9 804.9 860.2 936.2 999.2
1,041.4
Through Standalone
Consumer Foodservice 1,244.7 1,340.8 1,428.2 1,523.7 1,608.8
1,672.1
Through Standalone

Foodservice % Units/Outlet in India for the years 2011 and 2016

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Category retail trends

 Specialist coffee shops continues to grow at the fastest rate of nearly 25% in
current value terms in 2011
 Cafés/bars is likely to grow at a constant value CAGR of 3% to reach Rs725.6
billion by 2016
 Specialist coffee shops continued to grow at the fastest rate of nearly 25% in
current value terms in 2011. The faster growth was supported by young consumers
and professionals who continued to prefer specialist coffee shops for informal
meetings.
 Coffee shops continued to have drinks as their major offering, accounting for
nearly 60% of the value sales in 2011. However, most of the coffee shops started to
expand their food offering to attract consumers to their outlets
 Most of the cafés continued to have a stronger focus on coffee than tea in 2011.
Cafés and specialist coffee shops continued to enjoy huge popularity in urban areas
such as Delhi and Bangalore. In 2011, juice cafés started to attract consumers,
however, they grew at a slow rate.
 Cafés and specialist coffee shops continued to attract a wide consumer group,
including youngsters and professionals. However, specialist coffee shops continued
to remain more popular amongst older consumers and professionals. In contrast,
bars enjoyed huge popularity amongst youngsters, including college students.

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  Independent cafes accounted for nearly 96% of the total value sales of cafés/bars
in 2011. Independent cafés continued to enjoy huge popularity amongst older
consumers who prefer to have evening and morning hot beverages in traditional
independent cafés,
 Consumers continued to spend a long time in cafés, hanging out with friends and
socialising.
 With such a preference, eat-in continued to dominate café sales while takeaway
accounted for a miniscule value share in 2011

Category prospects
 Cafés/bars value sales are likely to taper down compared to the review period. However,
the growth in the number of outlets is likely to be in line with the review period mainly due
to expansion of outlets in semi-urban and Tier II cities
 Increasing real estate rentals, overheads and food price inflation are likely to threaten the
profitability of café operators during the forecast period. Such an increase in costs is
expected to force café operators to pass on the costs to consumers who might choose to cut
side orders.
 Specialist coffee shops and café bars are among the biggest categories in India.
Longer summer duration and global warming will the shift focus towards lower
regional and local penetration centric markets such as smoothie bars, hampering
short-to-medium term transaction volumes. Discounted freebies along with India's
café segment shift towards price sensitivity will be core challenges for chained and
independent café operators on a medium term basis.
 Chained specialist coffee shops are expected to grow at an increasing rate as coffee
shops are becoming a popular spot for increasingly affluent young adults to
socialise.

 Specialist coffee shops are likely to get a further boost with Starbucks planning to
enter the Indian market in 2013Between 1981 and 1999, coffee consumption grew
by only 8%. However, recently the trend has changed. Increased urbanization,
especially among the young.
 Demand increase for high-quality specialty coffees, often found in popular
Western-style coffee shops throughout the country.
 In 2013, we forecast coffee consumption to rise by 4.5% y-o-y. To 2017, we
expect impressive 25.0% growth, as the increase in young, city-dwelling
consumers drives the spread of coffee shops and the production of instant coffee.
 The opening of US coffee retailer Starbucks' first store in India in 2012 is a sign
of the attractive long-term outlook for the sector based on the low levels of market
saturation and continued industry dynamism.
 Attractive Opportunities: Lower levels of market saturation and continued
industry dynamism. A large contribution to this growth is likely to come from
specialist coffee chains and instant coffee sales.

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  Risks To Outlook: From a retail point of view, the main risks to the expansion of
the coffee market are the stiff competition for space in city centers, high real
estate costs, difficulties in managing the supply chain (especially regarding the
provision of other perishable materials) and the difficulties in maintaining a
standard quality for products.
 Affiliated industries: The Indian tea sector is fairly mature, given the presence of
major tea manufacturers such as Tata Tea and Apeejay. Between 2013 and 2017.
The outlook for the Indian coffee sector is much more attractive as a result of
lower levels of market saturation and continued industry dynamism. BMI is
forecasting a CAGR of 9.1% to 2017, in volume terms, as the country's rapidly
expanding middle class embraces café culture.

Source: India Agribusiness Report - Coffee Outlook - Q4 2013

Publication: BMI - Industry Forecast Scenario
Provider: Business Monitor International (BMI)

Retail Potential

Compelling Retail Potential

India - Coffee Production & Consumption ('000 60kg bags) &

Sales (US$mn)

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 Hot Drinks Value/Volume Sales - Historical & Forecasts, 2010-2017
2010 2011 2012 2013f 2014f 2015f 2016f 2017f
e/f = BMI estimate/forecast. Source: Central Statistical Organisation, Company information, BMI
Coffee sales 99,526. 109,252 117,562.2 127,068.5 138,548.7 151,102.7 164,832.2 179,848.3
(tonnes) 5 .0
Coffee sales 31,212. 37,145. 43,198.6 49,960.1 57,606.0 65,967.1 75,559.0 86,564.5
(INRmn) 7 7
Coffee sales 682.6 795.8 807.4 960.8 1,129.5 1,346.3 1,574.1 1,803.4
(US$mn)
Tea sales 925,011 993,200 1,044,255 1,100,859 1,166,322 1,236,865 1,312,937 1,395,031.3
(tonnes) .0 .0 .6 .3 .7 .3 .4
Tea sales 313,131 364,504 414,186.0 467,201.4 523,445.5 582,860.3 649,643.9 724,777.3
(INRmn) .5 .4
Tea sales 6,848.3 7,809.1 7,741.8 8,984.6 10,263.6 11,895.1 13,534.2 15,099.5
(US$mn)

India Food & Drink Report - Drink - Q4 2013

Publication: BMI - Industry Forecast Scenario
Provider: Business Monitor International (BMI)

Customer Analysis

India is primarily known as a tea drinking nation. Initially, it was popular for its
medicinal value in Ayurvedic treatments. The 200 year old British rule has resulted in the
emergence of tea as a favourite drink among Indians. Coffee was also prevalent, but

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mainly in the Southern part of India. The traditional brew called “filter coffee” which is a
mixture of sweet milky coffee from dark roasted beans and chicory. With the
liberalisation of the economy and increasing exposure to Western culture has led to the
rise of a ‘café culture’.

Coffee has now turned into a routine and a lifestyle commodity. It has become not only
about drinking coffee but also about creating an ambience and experience. Coffee bars
and cafes have started focusing on coffee as an experience, a place to meet and catch up
with friends. Cafes have started introducing concepts such as book readings, board
games, gaming, free internet and other such activities.

Nowadays people are very much aware of their coffee and expect a coffee experience.

Customer Segments

Who are the coffee drinkers?

 “The Young and restless”- The main focus target group between the ages of 16-
24. Always ready to try out new experiences. But they have lesser cash to spend
and need not be loyal to a particular coffee shop. They usually hang out at the
coffee shops as a group .There are the romantic couples too looking for a private
space and have a good time.

 “Young hi-fliers”- Newly employed youngsters celebrating their individuality

and independence courtesy thanks to their income. They are looking to define
their individuality. They also have get-together with their friends as it is a
convenient location and offers good facilities. They are looking for a place to
unwind from their hectic schedules .They may not give importance to the coffee
but value the experience.

 “Business Travellers”- The people in this segment is always on the run and at
times need a perfect environment to unwind. They are serious about their coffee
and the environment in which they have. Sometimes quick meetings can be done
in a coffee shop.

 “The artists, Culturists & Intellectuals”- This segment is highly talented people
across a variety of fields. The coffee shop is a meeting place where they exchange,
argue and create. They spend hours at the coffee shop. They are very serious about
their coffee and experience.

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  “The Tourist”- This segment involves local as well as international tourists who
want to take a break from their busy itinerary just to relax and observe the people
around while sipping on their favourite blend of coffee. They relish a comfortable
environment that provides them the best coffee and ambience.

Overall, the typical coffee consumer can be personified as a young educated individual
who are working in well off jobs. They like to spend their money on the good things in
life and are very particular about what they pay for. They are part of a globalised world
and demand the best of everything, be it their clothes, gadgets or services. Similarly, they
are looking for a world class coffee service at a comfortable ambience.

India’s domestic coffee consumption is set to record a modest growth rate of 9% at 1.2
million bags (72,000 tonnes) during the year 2013-14 compared to 1.1 million bags
(66,000 tonnes) last year.

An exhaustive survey conducted on coffee consumption trends resulted in the following.

This was done by selecting a sample of consumers representing different gender, age,
education, occupation and family income categories.

Gender composition

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Out of the individuals surveyed, there was an almost equal representation of both the
genders.

Age Composition

Out of the total no of respondents, 18-25 years age group constituted 40% of the total sample.

Educational qualification

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Graduates followed by professionals and postgraduates constituted the maximum no of coffee
drinkers.

Occupational status

Professionals, students and businessmen constituted the majority.

Family Income

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Income group of up to Rs.5 lakh constituted 68% of families who consume coffee.

Frequency of Consumption of Coffee

66% of the consumers responded that they have less than 2 cups of coffee a day.

Consumption by Gender

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The survey revealed different consumption patterns for men and women. Women
consumed less than 2 cups of coffee than men.

Consumption amongst age groups

The consumption of coffee was found to vary among different age groups. The largest
consumers were found to be in the age group of 18-25 years and their consumption varied
from less than 2 cups to 4 cups a day.

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Consumption among different educational group

The consumption of coffee also varied between different educational groups. Most of
them consumed less than 2 cups of coffee in a single day. More consumers drank 2-4
cups of coffee.

Consumption among different occupations

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The occupations were categorized as shown in the graph. It suggested that consumption
of coffee was the highest among those who worked in private jobs, students and
professionals.

Customer selection criterions

 Price
 Quality
 Flavour
 Experience (Ambience,location,service)
 Comfort

There are some other interesting trends to be noted regarding the consumers of coffee
retail chains.

 The café trend has started to gain huge popularity even in Tier II cities such as
Ghaziabad and Hubli, where young consumers were the dominant consumers.

 Consumers continued to spend a long time in cafés, hanging out with friends and
socializing. With such a preference, eat-in continued to dominate café sales while

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 takeaway accounted for a miniscule value share in 2011.

 Consumers continued to spend most on beverages, including shakes, and food

remained a side order in 2011. However, companies such as CCD introduced new
menus with affordable dessert options to attract consumers to spend more on food.
Additionally, café operators also started to expand their beverage menus to
include cold beverages to attract consumers willing to try out new flavors and
drinks in 2011.

 Independent cafés continued to enjoy huge popularity amongst older consumers

who prefer to have evening and morning hot beverages in traditional independent
cafés, such as Indian Coffee House and Airlines. However, independent cafés
continued to lose share to chained cafés, which witnessed strong growth in 2011.

Competitor Analysis

Global Brand Owner Shares of Chained Cafés/Bars 2007-2011

% value 2007 2008 2009 2010 2011

Company
Amalgamated 29.1 34.7 36.1 37.1 38.0
Bean Coffee
Trading Co
Ltd

Lavazza Spa, 10.5 11.3 13.0 13.2 14.1

Luigi

Whitbread 2.2 2.7 2.2 3.3 3.1

Plc

Others 58.3 51.3 48.5 46.6 45

Total 100.0 100.0 100.0 100.0 100.0

Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade
sources

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 Brand Shares of Chained Cafés/Bars 2008-2011

% value Global Brand Owner 2008 2009 2010 2011

Brand
Café Coffee Amalgamated Bean Coffee 30.2 31.2 32.4 32.6
Day Trading Co Ltd
Barista Lavazza Spa, Luigi 11.3 13 13.2 14.1
Coffee Co
Costa Coffee Whitbread Plc 2.7 2.2 3.3 3.1
Others 55.8 53.4 51.4 50.4
Total 100 100 100 100
Source: Euromonitor International from official statistics, trade associations, trade press, company
research, trade interviews, trade sources

Market size of Cafes/bars in India

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Competitor analysis

Competitor Positioning Mission Offerings

Café Coffee India's favourite coffee To be the best Cafe Beverages, Food, Other
Day shop where the young chain by offering a services like outdoor
at heart unwind. world class coffee catering, online retail
experience at affordable merchandise store
prices.
Starbucks We’re a To inspire and nurture Coffee, Handcrafted
neighbourhood the human spirit – one Beverages,
gathering place, a part person, one cup and one Merchandise,
of the daily routine – neighbourhood at a Fresh Food
and we couldn’t be time.
happier about it.

Barista Lavazza The place ‘where the To passionately deliver Beverages, Espresso
world meets’. the highest levels of Bar, Food and
experiential services. Merchandise, Health
zone

Costa Costa baristas really To save the world from Coffee, Food
know their beans. mediocre coffee.
With technical skill,
personality and
passion for coffee,
they have all the right
ingredients to make a
perfect cup, time after
time

Competitors Profiling

Café Coffee Day

 Amalgamated Bean Coffee Trading Co Ltd leads value sales, with a share of 1.1% in 2011
 Café Coffee Day announced plans to redo its food menu to include low priced desserts
and sandwiches in its food menu in 2012.
 Amalgamated Bean Coffee Trading Co witnessed the fastest growth, mainly due to rapid
expansion in the number of Café Coffee Day outlets in 2011. Furthermore, Café Coffee
Day carried out aggressive marketing and promotional campaigns in universities and
colleges in 2011.

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  In May 2012, Coffee Café Day launched a radio promotional campaign with the strap
line, “Food so delicious that you won't open your mouth for anything else”, promoting
its refreshed menu across urban cities including Delhi, Bangalore and Mumbai.
 Café Coffee Day introduced three menus- Small Eat, Big Eat, and Sweet Treats- to
expand its dessert and food offerings in 2011
 The home grown Cafe Coffee Day, with around 1,200 stores (at the end of FY13) makes
Rs 38-40 lakh from each of its outlets yearly

Starbucks

 Starbucks will be positioning itself at the premium end of the Indian coffee market
 Starbucks sold coffee, snacks and merchandise worth Rs 14.6 crore in the first financial
year of its operations in India ending March, averaging almost Rs 1.5 crore per outlet
from its 11 doors in just five months since opening its first outlet in Mumbai last
October.
 Stores in India don't fit the global design template — each store has been designed
differently, with "local" touches incorporated. For example, the store in New Delhi's
Connaught Place has ropes and chatai on the walls and henna patterns on the floor, with
pictures of Indian spices on its walls. The store in Select Citywalk mall has locally-crafted
wood panelling, while the Pune store incorporates localised railings and a rich display of
antiques and copper.
 Prices at Starbucks are in line with the premium store strategy: the chief executive of the
rival coffee chain quoted has noted that Starbucks has increased prices for its food and
beverages by as much as 20% in three months.

Barista Lavazza

 Barista Lavazza launched three dessert variants in 2011 to expand its snack menu
 Barista launched an outdoor advertising campaign in South India during 2011.
 Barista Lavazza introduced Spicy creamy chicken IN 2011

Costa Coffee

 Whitbread Plc’s flagship brand Costa Coffee witnessed strong regional and national
growth across India’s chained cafés category in 2011.
 The company enjoyed a value share of 5% of chained specialist coffee shops in 2011.
Costa Coffee focuses on business professionals (i.e. expatriates) and affluent households
in cosmopolitan cities such as Bangalore and Delhi.
 The company continued to expand margins and penetration through aggressive
promotional campaigns in food courts, particularly eating joints near enterprises such as

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 Google and Microsoft in Hyderabad, Yahoo in Bangalore, or HP in Bangalore, enhancing
brand penetration and presence.
 Costa Coffee does business of a crore a year from its bestselling outlets, but, on an
average, it nets Rs 60 lakh from its 100-odd outlets.

Others
 Coffee Bean & Tea Leaf (13 stores) and Gloria Jean's Coffee (15 stores) are also planning
to double their number of stores in India over the next 12 months.

India - Major Coffee Players, Shops & Expansion Plans

Copyright © 2013 Internet Securities, Inc. (trading as ISI Emerging Markets), all rights reserved.
A Euromoney Institutional Investor company.

Country of Number of coffee shops,

Company Plan
origin 2012
na = not applicable. Source: BMI, Bloomberg, Rabobank, India Economic Times
Café Coffee
Day India 1,350 targeting 2,000 coffee shops by 2014
Barista
Lavazza Italy 215 15-20 franchised cafes every year
initial plan to open 50 stores in Mumbai and
Starbucks US 1 New Delhi in 2012
Costa Coffee UK 100 300 coffee shops in next five years

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