Hit by slowdown, high rentals coffee retail is losing steam

The coffee retail landscape is losing steam with the economic slowdown and rising rentals.

Today, only a handful of Indian and international companies such as Café Coffee Day (CCD), Starbucks and Di Bella Coffee is still willing to invest even if not making money.

Others such as Costa Coffee, Barista and Gloria Jeans Coffee have either exited or are rationalising their store count.

This year, the Tata-Starbucks equal joint venture added 29 Starbucks stores and continues to be on the splurging mode. “Starbucks has completed two years, but it takes time to get profitable in the QSR segment. While we have 75 Starbuck stores, it has to cross the critical level of over 100 stores before we can think of making money in this segment,” says Ajoy K Misra, Managing Director & CEO, Tata Global Beverages.

Australia’s Di Bella Coffee recently made a comeback to the retail market. It has decided to invest $5 million, while also seeking PE funds to become a pan-India player.

“We still feel there is a need for cafes in every city in India and as long as the product and location is good, we can succeed in this market. With our new licensee arrangement, we will now own and operate the stores and will open five every quarter with a revenue-share arrangement with the landlords. PE funds have also been approaching us and we may raise about ₹50 crore to go pan-India,’’ says Rahul Leekha, Director, Electel, the Di Bella Coffee licensee in India.

At the largest vertically integrated domestic chain Café Coffee Day, an IPO is perking to raise ₹1,150 crore to expand the retail network and repay debts. CCD, which has more than 1,500 stores, plans to open over 215 outlets and 105 kiosks over the next two years.

“CCD is going strong as they have a variety of business verticals to compensate any retail decline such as exports, wholesale and vending verticals.

“Starbucks is backed by the Tatas and since in Indian consumers understand brands and not necessarily coffee, it works for Starbucks. The challenge for Starbucks will be to retain consumers once the hype dies down,’’ says Sachin Sabharwal, former Managing Director of Di Bella Coffee.

Meanwhile, companies like UK’s Costa Coffee have been steadily winding down operations. Costa Coffee rationalising its store count as its franchise arrangement with Devyani International remains uncertain. “The market for coffee retail is still not mature and most retailers are punting on the future,” says Santhosh Unni, former CEO of Costa Coffee.