‘A lot can happen over coffee’ is a phrase often used to emphasise the deep role coffee can play right from bringing lovers together to boardroom meetings. Hence, it is no more a surprise that India has seen a rise in the number of cafe brands thereby creating its very own cafe culture. But the question which remains to be answered is what is the USP of each of these cafe brands? “While there has been some slowdown in overall consumption in retail over the last two quarters due to factors such as inflationary pressures, and higher interest rates having an impact on disposable incomes, the cafes are expected to continue to grow at a compound annual growth rate (CAGR) of 9-9.5% over the next five years,” Rajat Wahi, partner, Deloitte India, told BrandWagon Online.
The Indian cafes and bars market size is estimated to be at $17.54 billion in 2024 and is expected to reach $26.17 billion by 2029, growing at a CAGR of 8.33% during the forecast period (2024-2029), as per a report by marketing intelligence platform, Mordor Intelligence. The report further highlighted that the growth of cafes in India is driven by the rise in the trend of people working remotely or freelancing, which has led to an increase in demand for comfortable and functional workspaces that also offer food and beverages, leading to the emergence of co-working cafes.
Additionally, the market is fragmented with the top five companies occupying 2.53% share. According to Mordor’s report, the major players in this market are Barista Coffee Company, Graviss Foods, Gujarat Cooperative Milk Marketing Federation, Impresario Entertainment and Hospitality and Tata Starbucks, (sorted in alphabetical order). Other important players include Coffee Day, Kitchen Fragrances India, Massive Restaurant, McDonald’s, Monginis Foods, Mountain Trail Foods, White Monkey F&B.
Decoding the footfall trend!
One of the key reasons behind this growing cafe culture remains India being a young nation, with over 600 million consumers between the age bracket of 18-35 years, that is, millennials and Gen-Zs, as per a report by Statista. Moreover, Covid led to an uptake in the consumption of specialty coffee due to the practice of home-brewing. “There has been a surge in overall consumer buying post-Covid, the trend was visible in FY 22-23, however the same has settled down in FY24. FY23 was double-digit when compared to pre-Covid time which stabilised in FY24,” Rajat Agrawal, CEO, Barista Coffee, said.
While the growing cafe culture is very visible on social media, the financials of these companies speak something else. Despite an increase in revenue, these cafe chains continue to bleed. For instance, Cafe Coffee Day’s (CCD) revenue from operations increased 58.85% to Rs 923.85 crore in FY23 from Rs 581.59 crore in FY22, as per regulatory filings accessed by business intelligence platform, Tofler. However, the company’s net loss widened 20X to Rs 387.16 crore in FY23 from Rs 130.73 crore in FY22.
A mail sent to CCD remains unanswered till the time of publishing this story.
Similarly, TATA Starbucks’ revenue from operations grew 70.87% to Rs 1086.89 crore in FY23 from Rs 636.11 crore in FY22. The company’s net loss narrowed 73.67% to Rs 24.97 crore in FY23 from Rs 94.84 crore in FY22.
Interestingly, the growth is not just limited to large coffee chains, start-ups like Blue Tokai claims to have reported a 20% increase in footfall in 2023 a rise in footfall post-Covid across its cafes in the country. The company believes that it was a clear indication of the out-of-home coffee consumption that was set to complement the home-brewing trend that had picked up. “We utilised the lockdown period in educating customers about manual brewing methods, which came in handy at that time. This not only positively impacted our online presence and delivery business but also translated to the café-going customers, once the lockdown was lifted,” Matt Chitharanjan, co-founder and CEO, Blue Tokai Coffee Roasters, added.
Cafe chain expansion…
Interestingly, cafes have been going through an expansion spree due to growing popularity. For instance, TATA Starbucks which initially started in October 2012 claims to have opened stores in 54 cities with a total count of 390. The company claimed that it added 71 new stores across 24 new cities in 2023. Meanwhile, Tim Hortons, which entered India in August 2022, has 26 stores including seven in Delhi, five in Punjab, five in Maharashtra, three in Chandigarh, two in Karnataka, one each in Gurugram and Noida, and one each at Delhi and Bengaluru Airports.
Barista, established in February 2000, has 400 outlets including both company-owned and franchise stores. “We have opened more than 125 outlets over the last two years spread across metros, tier-1 and tier-2 cities,” Agrawal added. Meanwhile, Blue Tokai claimed to have opened 50 new stores last year. “The majority of these have been medium-format cafes, ranging from 800-1200 sq. feet on average, and have extended offerings such as fresh bakes and food, that pair well with coffee or can be enjoyed independently,” Chitharanjan said.
Roastery Coffee House, yet another new chain expanded by opening seven stores in the last two years, which includes three in Delhi, one in Hyderabad, one in Lucknow, one in Jaipur and one in Finland. The company claims that higher footfall and an increase in demand have fueled this growth. “Many concepts are coming in but there is hardly any difference in 90% of cafes. Still people who believe in setting trends are the ones creating different formats and concepts,” Nishant Sinha, founder, Roastery Coffee House, explained.
Differentiating factors – advertisement, price-point or consumer loyalty?
Industry experts opine while the status symbol is a huge driving factor, customers can be driven by the quality of products and services. “The main aspect is the quality of the coffee and food along with the service, ambience and location of the cafe. Most of the cafes have started running loyalty programmes that not only offer discounts or free coffee based on points, and consumption but also allow subscribers to invite their clients for special launches, coffee tasting mornings,” Wahi added.
Before British Raj (BBR), a cafe with three outlets at Siri Fort, Kamla Nagar and Panchsheel enclave, a sense of community, is what drives this culture. “Our cafes host events, workshops and collaborations with local artists, creating a space where people can connect and share their love for coffee. It is a space for all ages, interests and communities,” Gathika Chhabra, founder, Before British Raj Coffee, said.
When it comes to advertising, the brands are bang on with the game. As a matter of fact, TATA Starbucks’ increased its advertising expenses 84.45% to Rs 34.05 crore in FY23 from Rs 18.46 crore in FY22. “As a company, we have distinguished ourselves by providing a unique ‘third place’ experience for Indian consumers, fostering comfort, connection, and a sense of community through every cup, conversation and interaction. To provide customers with a variety of localised choices we have introduced filter coffee, masala chai, kosha mangsho wraps, pindi chole to name a few,” Sushant Dash, CEO, TATA Starbucks, said. For what is worth, these brands spend a good amount of their ad budget on as it claims that the medium is effective in reaching their target audience.
While Blue Tokai’s Chitharanjan believes that the Indian speciality coffee industry is still in its early years and with people getting exposed to this category, knowledge-driven communication is key. “We use our website, app, social media platforms and dedicated workshops at our cafes, for category education through informative and engaging content,” he added.
Even as, in urban India, these brands have found many takers, the challenge will come when these brands enter tier-2 and tier-3 markets. Given the fact the minimum cost of a small coffee cup ranges between Rs 80-300 depending on the brand of outlet, in smaller cities, the cost needs to be adjusted. However, this seems to be a difficult task as many of these brands have a standardised pricing structure. “Cafes can have flexibility around the food and other savouries offered, which can be locally sourced and where pricing can be a bit differentiated for making it attractive for the local consumers,” Wahi noted.