Global café chains like Krispy Kreme & others plan India foray

NEW DELHI: With the India foray of American coffee retailing giant Starbucks Coffee Co around the corner, at least four more global coffee chains are brewing India plans. Over the next few months NYSE-listed US doughnut and coffee chain Krispy Kreme will begin setting up close to 80 stores with the MickyJagtiani-promoted Landmark group as franchise partner.

Krispy Kreme has franchisee tie-ups with Landmark's Citymax Hotels as well as the New Delhi-based Bedrock Food Company.

An email sent to Krispy Kreme's India representative elicited no response, and a spokeswoman for Citymax Hotels said as the company was announcing India-specific plans next week, it would not want to comment now.

Australian coffee chain Di Bella, which has been operating seven stores in Mumbai for the past 10 months, is now stepping on the gas. Says Rahul Leekha, partner, Di Bella Coffee India: "Despite the so-called slowdown, our stores are breaking even; so we are planning to set up 30 stores over the next one year or so in cities like Pune and Hyderabad." Leekha declined to mention specifics about investments.

UK-based Coffee Republic is in talks with potential India franchise partners. An email sent to Coffee Republic's office remained unanswered, but its CEO Tariq Affara had told this paper in June that the chain would set up 50-80 stores in five years.
Jubilant FoodWorks, which holds the franchisee rights for US giant Dunkin Donuts, had already announced last month that it will scale up Dunkin operations by setting up 100 stores over next five years.

Coffee retailing is currently dominated by Amalgamated Bean Coffee Trading's Cafe Coffee Day (CCD) and British chain Costa Coffee, which has been brought into India by the Ravi Jaipuria group. There are close to 2,000 cafes in the country.

"Coffee retailing doesn't require big supply chain investments; and operating profit margins are huge - at close to 80%. At the store level, profits are not too difficult to achieve as long as the location and brand name works. So even if there's a general slowdown, coffee retailers want a foothold in the Indian market now," says Harminder Sahni, founder of retail consultancy Wazir Advisors.

Costa Coffee CEO Santhosh Unni says the chain turned profitable two years back. "We have been positive at the operating level since 2010 and our expansion is on track. But the challenges are real estate prices and retaining talent."

Costa Coffee intends to have 300 stores by 2015, including in new markets such as Chennai, Hyderabad and Punjab. It currently operates 100 stores in India through the Jaipuria-promoted Devyani International.

Despite the economic slowdown, the coffee format is working, say the retail chains, because it requires smaller format stores compared to restaurants. So rentals are lower, inventory costs on food are limited to snacks, desserts and beverages unlike restaurants which have to offer full-course meals. The chains also typically save on advertising costs, and are seen as ideal 'hangout places' for the youth.

K Ramakrishnan, president - marketing at CCD, the country's largest coffee chain, says: "The long-term Indian economy story is what is attracting people. There is enough opportunity to grow." He says CCD is profitable, though he declined to mention numbers. The chain says its growth estimates are on track, and it will have 2,000 cafes by 2014-end, up from the existing 1,319 (plus 600 kiosks). He said two more large format lounges, or premium large-format stores, will be set up this month, taking the number of lounges to 42. Private equity funds Sequoia and Franklin Templeton-owned Darby Private Equity, International Finance Corp and Deutsche group are among the investors that hold close to 40% stake in Amalgamated Bean Coffee, which owns CCD.

Starbucks Coffee Co is expected to set up 40 stores in India by year-end with an investment of 100-150 crore, along with its 50:50 India joint venture partner Tata Global Beverages.

Retail consultant Technopak estimates that the food services retail market is worth $8 billion and will grow at a compounded average rate of 8-10% over the next five years. The organised market accounts for 15% (or $1.2 billion) of this and specialty coffee chains contribute 16% to the organised food services retail market.