Coffee Day Global (CDGL), which owns and runs the Cafe Coffee Day chain of cafes, is rejigging its network of outlets. The company shut down 10 cafes in the three months to June but will add between 125 and 135 outlets by March next year, the management has indicated. In 2017-18 too, CDGL set up 135 cafes but it also shuttered many, leaving a net addition of 40 outlets. Analysts are disappointed with the pace of expansion of the network which they believe is muted. The management’s objective is to have larger cafes with better facilities.
A Venu Madhav, Director, CDGL, pointed out recently many of the outlets were small covering around 500 to 600 sq ft and without washrooms. “We are looking at bigger outlets of between 1,000 and 1,200 sq ft in locations nearby,” Madhav observed, adding some 200 older cafes would be renovated while some unprofitable ones would be shut. CDGL (coffee business) reported profitability as measured by the ebitda margin of 16.1% in 2017-18 which was lower than the 17.4% reported for 2016-17. In 2015-16, the ebitda margin was 13.2%. Analysts were somewhat disappointed with the company’s performance in the three months to June, although the ebitda margin came in at 16.5% — significantly higher than the 14.8% in Q1FY18.
“The topline growth was disappointing,” they wrote. Revenues rose by about 7% y-o-y to Rs 472 crore. This was despite the company having taken a price hike of around 4.5% in May. Moreover, while the ebitda growth of 20% y-o-y was fine, “it was materially below what some of QSR peers like Jubilant and Westlife reported for the quarter”, they pointed out. “The gap between CDGL’s performance versus peers (on both sides) continues to be perplexing,” analysts at Kotak Institutional Investors observed.
Sector experts point out there has been a proliferation of cafes in the last five years with several brands, including Costa Coffee, Starbucks, The Coffee Bean and Tea Leaf, Gloria Jean and Bru World Cafe, all wanting to grow market share. At the end of June 2018, there were 1,742 CCD outlets compared to 1,694 at the end of June 2017. As on June 30, 2018, Coffee Day Enterprises, the parent company of Coffee Day Global, had a gross debt of `5,000 crore and a net debt of `3,500 crore. The company plans to reduce debt at the holdco level and is looking at two options — disinvestment or getting an external partner.