WestBridge Capital-backed speciality coffee chain Third Wave Coffee Roasters is making a push into retail sales through packaged products, backed by its newly opened roastery and innovation lab in Bengaluru.
CEO Rajat Luthra, who joined from KFC India & Nepal in April last year, says the company is expanding from its limited packaged product presence. “Quick commerce has propped up as an exciting channel for packaged coffee products, and we will be launching a range of products across platforms in the coming months,” he added.
The company’s new roastery has increased production capacity eightfold with added automated capabilities, which will help store expansion and retail product expansion. “We are currently utilising only 20% capacity and aim to reach 70%, which could support up to 700 stores. We have transitioned 10% outsourced roasting in-house, helping margins,” says Luthra. The packaged portfolio will focus on coffee beans and self-brewing solutions.
After a strategic pause of 7-8 months last calendar year to optimise unit economics, Third Wave Coffee plans to end FY25 with 150 stores, up from 125. “Bengaluru alone, with 46 stores currently, can accommodate 100 stores, similar to Mumbai,” Luthra notes. The company targets 80-100 new stores annually, expanding to cities like Ahmedabad and Chennai.
The chain claims category-leading food contribution, which has helped improve store level margins over the last year. “With mostly repeat customers spending long hours, we have focused heavily on menu innovation and local preferences,” Luthra added. App-based transactions account for 40-43% of dine-in sales, with 10-15% monthly user growth. The company will continue to focus on increasing transaction volume over higher prices across categories, he added.
On quick delivery, while exploring packaged product partnerships, it remains cautious about prepared beverages. “With dark kitchens, we are particular about quality control, including fine details like water pH levels. We will enter only when we can ensure SOP consistency,” says Luthra, referring specifically to partnerships with platforms like Swiggy Snacc, Zomato Bistro, and Zepto Cafe for 10-15 minute delivery, adding that it will continue to track how the segment progresses. This comes after competitor Blue Tokai Coffee recently partnered with Swiggy Snacc to cater to the demand.
Having raised $66 million across nine rounds, including a $35 million series C in June 2023 led by Creaegis, at a $156 million valuation, the company claims sufficient cash runway. While an IPO remains a long-term goal, profitability is the immediate focus.
Luthra sees room for competition, noting India’s premium coffee market can support over 20 brands globally. While Blue Tokai leads in profitability among specialty coffee chain startups, the sector has seen increased competition with the entry of Canadian brand Tim Horton’s and incumbent leader Tata Starbucks expanding aggressively. Third Wave Coffee has its losses more than doubling to Rs 110.1 crore in FY24 from Rs 54.3 crore in FY23, despite revenue growing 69% year-on-year to Rs 247.9 crore, according to data from Tracxn.
However, the firm claims to have reduced store payback periods to two-years, and targets bringing it down further to 18 months. Its newer cafes are turning profitable within three months, Luthra added. The company aims for overall profitability by FY26 end.