This article appeared in the Financial Express dated June 15, 2011.
Even as the Seattle-headquartered Starbucks blueprints its rollout in India, Cafe Coffee Day (CCD) is gearing up to become India’s answer to the world’s largest coffeehouse chain. VG Siddhartha, the man who started it all way back in August 1996, is working overtime to fulfil his dream; the reclusive, unassuming entrepreneur from Chikmagalur has given himself ten years to make CCD one of the four top coffee chains in the world. The idea doesn’t really sound too presumptuous even though Starbucks may be way ahead of the pack with over 17,000 outlets, the British Costa Coffees got 1,700-plus stores while the Canadian Tim Hortons has close to 3,600. Siddhartha, who started his working life trading in equities on Dalal Street, is in no hurry and tells FE that he is going to get there one step at a time.
We’re at, where else, a CCD outlet in Mumbai’s Colaba area on a wonderfully rainy June morning. Typically, FE would host Food Cafe but with Siddhartha, I don’t have a choice and I meekly agree to some cold coffee with ice cream and chocolate sauce while he decides to be less sinful. A big group of teenagers walks in just then, blissfully unaware of the kind of damage they’re causing to everyone’s eardrums. Siddhartha, though, can barely conceal his delight; he tells me, above the din, it’s the under-twenty-ones who spend the most, pushing up CCDs average ticket spends to somewhere between Rs 130 and Rs 150. He’s particularly pleased about how well the Colaba cafe is doing, notching up a daily turnover of about Rs 35,000, a good 30% more than what he had thought it would. Given that there’s a Barista just around the corner, the satisfaction is understandable.
Colaba’s close to Siddhartha’s heart. He reminisces about thalis for Rs 5 at a nearby Udipi restaurant that he frequented while working with stockbroker Mahendra Kampani in his Dalal Street office, about how he just walked in one day and Kampani took him on, how he and his friends would sit in the Taj coffee shop from 11 at night to one in the morning with a soup that cost Rs 15—after which he would walk back to his paying guest accommodation at the Buena Vista apartments nearby. Siddhartha claims he worked so hard at his job as a broker that he had no time for girlfriends. He doesn’t dabble in stocks any more — though he does own the broking firm Way2Wealth — but can spot a good investment when he sees one.
Right now he’s betting big on agri products, whether its timber or bananas. As his investors — private equity funds KKR, New Silk Route, Standard Chartered and Sequoia — would tell you, Siddhartha knows his onions. His foray into coffee chains wasn’t accidental. His family has been growing coffee for three generations now after the British convinced his grandfather, sometime in the 1870s, to take a shot at it. The beans from 10,000 acres help CCD keep its costs down. If that’s key to CCD’s strategy, what’s also paid off is that all the stores are owned by the firm so quality can’t be compromised.
In fact, as he walked into the cafe, Siddhartha asked the cleaners to mop the floors that, thanks to the rain, were somewhat wet. He confesses that little things like that upset him at times, though by and large the man is a picture of calm, prompting Subroto Bagchi of Wipro to conclude after an interaction that it must be the name. For his part, Siddhartha says he’s God-fearing, turning to God when he’s low or in need of some support. Much like the rest of his family, he has been influenced by Ramakrishna Paramahansa and Swami Vivekananda and whenever work takes him to Kolkata, he uses the trip to visit Belur Math.
Indeed Siddhartha is as down to earth as they come. Finding himself in Kolkata on New Year’s eve a couple of years ago, he decided to spend the time helping out in one of the cafes. I’m not a party guy and when 12,000 of my people are working through the night, it doesn’t look nice, he says. When the tsunami hit the Chennai coast in the winter of 2004, Siddhartha was there with a team of 30 and truckloads of essentials. His investors must love him because — while he may have been inspired by an Infosys, a Wal-Mart or a Jack Welch and has a long-term goal— the man has his feet on the ground. He points out that what’s admirable about Wal-Mart is how they mapped out scale, so many stores in so many years. You give me ten years and we will do things, next week I’m in East Europe, last week I spent time with a team from Africa. We intend to build this brick by brick, I’m not about to buy a $200-million company tomorrow.
Siddhartha laughs when I ask him whether he’s headed to Harvard to do some course or other. I’m a simple guy and I’m not going anywhere. We don’t have too many MBAs in our team but we do send people to Harvard and this year we’re sending a girl who’s been with us for eight years. His hectic schedule notwithstanding, the man doesn’t miss out on his reading, pores over the newspapers in the mornings and checks out whatever magazines he can. Unfortunately, his love for reading keeps him away from yoga or power yoga that he’s been attempting. Not that he’s complaining, he says he gets enough exercise by walking around the plantations on walks with the family — wife and sons — on the outskirts of Bengaluru. He’s obviously enjoying the action, the strategising, the innovating and even the travelling. For all his success — revenues from the retail business came in at Rs 1,000 crore in 2010-12— Siddhartha’s not about to underestimate the competition. As he tells me, newcomers won’t make the mistake of letting the rent to revenue ratio shoot up beyond a point. Moreover, he knows the business needs investments. That’s why all CCD cafes are in for a new look, complete with Wi-Fi so that people can work. There’s going to be more of an accent on food in terms of better quality and a wider menu though Siddhartha’s not sure that this would take the ratio of beverages to food, currently at 65:35, beyond 60:40.
Wherever possible, stores will be bigger at 1,250 sq ft —right now, CCD cafes can be as small as 700 sq ft though some are much larger. Siddhartha reckons there’s room for at least 5,000 stores in India given that much like other consumables, coffee is consumed in very small quantities — 90 gms or nine cups per person per year compared with10 kilos in Europe. I sometimes joke around in my team that everybody walking around the streets drinks coffee but only 250 or 300 people walk into our stores, he tells me, adding that with per capita incomes on the rise, a dating couple wouldn’t hesitate to pay Rs 125 for some air-conditioning and privacy.
What he’s betting big on is the breakfast market. Siddhartha’s convinced that food habits in India will change though a total transformation in trends, wherein cafes would do 70% of their business before noon as in the West, could take a while. Nonetheless, given the state of household help and the fact that salaries are rising, he believes a combo of Drip or Drizzle coffee and sandwiches or puffs at Rs 50 or Rs 60 would find takers and he’s hoping to make them available at kiosks in office buildings — already sandwiches at Rs 20 for two are retailing at railway stations.
But it’s not just the lower end of the market that he is aspiring to be in. High Street rents may be prohibitive but he knows it’s important to have a share of the top end; so, there will be many more of the CCD Squares and CCD Lounges — at least 25 of the former and 200 of the latter — even as the chain expands to 2,000 outlets in the next three years. While the bulk of the rollout will be at home, he’s not about to let go off opportunities overseas. After 15 cafes in Prague, four in Vienna and two in Karachi taking the tally to 21 stores overseas, CCD’s next catchment could be South Africa. But it won’t stop there because Siddhartha wants to roll out cafes in at least 20 countries in the next five years so that at least 15-20% of his top line comes in from these markets. If this is going to be the pace, he needs all the caffeine he can get.