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  1. Even as Starbucks pumps in Rs 120 cr, Costa Coffee, Cafe Coffee Day, Barista eye survival

Even as Starbucks pumps in Rs 120 cr, Costa Coffee, Cafe Coffee Day, Barista eye survival

Smelling the coffee. That’s what Costa Coffee, Cafe Coffee Day (CCD) and Barista are doing.

By: | Mumbai | Published: July 7, 2016 6:28 AM
Smelling the coffee. That’s what Costa Coffee, Cafe Coffee Day (CCD) and Barista are doing. Smelling the coffee. That’s what Costa Coffee, Cafe Coffee Day (CCD) and Barista are doing.

Smelling the coffee. That’s what Costa Coffee, Cafe Coffee Day (CCD) and Barista are doing. 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. However, the most recent entrant, Starbucks, invested R120 crore over the past year to grow operations.

Ashish Chanana, chief operating officer, Costa Coffee, told FE the firm was slowing down and was focused on profitability. “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 add any more.

Anand Shah, who tracks the consumer space at Kotak Institutional Equities, points out that on average, CCD shuts down around 30 coffee shops every year. “Barista has shut between 30 and 40 loss-making outlets in the last one year.

Starbucks too has closed down a few loss-making cafes while Costa Coffee has shut some 20 loss-making shops,” Shah added.

While the CCD chain comprises 1,586 outlets, Barista is far smaller with just 130 and Costa Coffee has just 95. Starbucks is present in 79 locations. Saloni Nangia, president, Technopak, believes the losses could continue through 2017. Devyani International, the master franchise for Costa Coffee in India, is yet to announce results for FY16. In FY15, Tata Starbucks, the joint venture of Tata Global Beverages and Starbucks, reported a loss of Rs 47 crore on the back of revenues Rs 171.23 crore. The loss in FY14 was Rs 51.8 crore on revenues of Rs 95 crore.

CCD reported a profit of Rs 4.6 crore in Q4FY16, compared with a loss of Rs 7.4 crore in Q4FY15, aided by a jump in other income and lower interest expenses, taking the profit in FY16 to Rs 10.6 crore. The average sales per day per cafe grew by 5% year-on-year to Rs 12,909 while same-store sales grew 5.1%.

 Ground reality

* 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
* However, the most recent entrant, Starbucks, invested R120 crore over the past year to grow operations
* Typically, the cafe model incurs one of the highest revenue-to-rent ratios in the organised sector
* While the CCD chain comprises 1,586 outlets, Barista is far smaller with just 130 and Costa Coffee has just 95. Starbucks is present in 79 locations

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