1. Coffee chains eye profitability by shutting loss-making stores

Coffee chains eye profitability by shutting loss-making stores

Focusing on profitability, coffee chains like Costa Coffee, Cafe Coffee Day and Barista have been shutting loss-making stores.

By: | Mumbai | Published: March 14, 2017 3:41 AM
While Cafe Coffee Day has shut around 35 to 40 stores the company has also added 100 stores in the last one year. (Reuters)

Focusing on profitability, coffee chains like Costa Coffee, Cafe Coffee Day and Barista have been shutting loss-making stores. Barista, Costa Coffee and Cafe Coffee Day have shut around 35 to 40 stores each over the last one year across the country, according to company officials.

After the closure of the stores Cafe Coffee Day has 1,654 stores operational. While Cafe Coffee Day has shut around 35 to 40 stores the company has also added 100 stores in the last one year. Costa Coffee has around 47 stores operational after the closure of around 40 stores, while Barista has around 141 stores operational across the country after the closure of around 40 stores. Starbucks has also shut couple of loss making stores and has 84 stores operational in the country, according to a report by National Restaurant Association of India and Technopak report.

“The last three years have seen some consolidation in the café segment but with the emergence of new domestic players and expansion of international brands the segment is set to see growth in the coming years. Many new domestic and international brands are now opening outlets, largely in the metros and mini-metros. Meanwhile, established players like Café Coffee Day (CCD) are continuing to expand in the Tier I to Tier III cities,” said Saloni Nangia, president, Technopak.

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Ashish Chanana, chief operating officer, Costa Coffee, told FE the firm has slowed down on expansion and was focusing on profitability. “The company has shut few loss making stores where required. We will expand selectively in certain locations but at the moment our main focus is to turn profitable,” Chanana said.

The COO added that any further addition to the chain would push up costs and given few signs of sales improving, the company would rather make the existing outlets viable rather than adding stores.

Cafe Coffee Day didn’t reply to an email query.

Anand Shah, who tracks the consumer space at Kotak Institutional Equities, points out that on an average, CCD shuts down around 35 to 50 coffee shops every year. “Starbucks too has closed down a few loss-making cafes,” Shah added.

Costa Coffee reported a net loss of R1.3 crore in FY16 compared to a net profit of R4.5 crore. Net revenue dropped 22.5 % from a year ago to R3.1 crore. Starbucks reported a loss of R40 crore in FY16 compared to loss of R46.9 crore in FY15.

Starbucks’ FY16 net revenue was up 37% from a year ago to R235 crore. Retail subsidiary of Coffee Day Enterprises, Coffee Day Global which runs the coffee chain Cafe Coffee Day, reported FY16 net profit of R10.6 crore compared to net loss of R14.3 crore in FY15. Coffee Day Global Retail revenue was up 13.7% from a year ago to R1,253 crore in FY16.

Barista is yet to announce its FY16 results. The company in FY15 reported a net loss of R15.6 crore compared to net loss of R19.9 crore in FY14.

While coffee chains like Costa Coffee and Barista continue to struggle, Starbucks and CCD are performing slightly better than their peers. With costs piling up but revenues not quite keeping pace, coffee chains are working to make their cafes profitable, closing down the unviable ones and putting on hold any major expansion.

The size of the café chain market is estimated at R1,805 crore in 2016. It is expected to grow at a CAGR of 10%, to reach R2,905 crore by 2021, the joint report by NRAI and Technopak said.

  1. A
    augustus
    Mar 14, 2017 at 12:07 pm
    They offer little by way of ambience and therefore their coffee is expected to be the differentiator! Yes their coffee don't taste as good as what you get in the traditional coffee joints even after paying 10x; even though there are some varieties that are not to be found anywhere else. But coffee and conversations make a great coffee shop, not the ones we see in India. No wonder their costs are ahead of their profits!!
    Reply

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