The “Indian Cafe Market”, estimated at $230 million (around Rs 2,500 crore) in 2012, is expected to grow at a compounded annual growth rate (CAGR) of 14 per cent for the next five years to become a $410-million industry by 2015. Café Coffee Day is the market leader — both in terms of the number of stores and revenues. However, with the entry of Starbucks, the world’s largest coffeehouse company with 20,891 stores in 62 countries, a decision must be made by the CCD leadership whether or not Starbucks poses a threat to their position, and if so, what they must do about it.
The Starbucks mission statement: “To inspire and nurture the human spirit — one person, one cup and one neighbourhood at a time.” can be contrasted with that of CCD: “To be the best Café chain by offering a world-class coffee experience at affordable prices.” Both the chains stress on the experience. The difference lies in their targeting — Starbucks focuses on becoming the ‘Third Place’ between home and work for middle- to high-income office workers where they could relax and interact with each other. CCD aims to be a hangout place for the young.
Challenges for players
Though Starbucks has considerable experience in the coffee chain industry, it is new to the Indian market and will face some difficulties in its introduction phase. Amalgamated Bean is a home-grown company and has 17 years of experience catering to the Indian population. With over 1,300 outlets across 180 towns of India, and also divisions like ‘Fresh n’ Ground’ (450 coffee bean and powder retail outlets) and ‘Coffee Day Xpress’ (900-plus Coffee Day kiosks), it has a much broader reach than merely the CCD outlets we see on every other road in major cities.
CCD can expand considerably faster and easier, being an established player.
However, Starbucks’ partnership with the Tata group will place at its disposal considerable resources and the expertise of one of India’s largest conglomerates which will reduce this advantage to a great extent.
With Starbucks premium pricing, it faces limited opportunities for expansion into tier-II cities. Its locations will be limited to upscale areas of metropolitan cities. India’s middle-class spends $2-20 a day, but the upper-middle-class (which spends above $10) is the smallest part of this segment and forms the target for Starbucks.
CCD may thus not even enter into direct competition with Starbucks, though the latter’s brand name will prove a crowd-puller in its initial stages.
The median age of the Indian population is 25.7 compared to 37 in the US and thus these markets are very different.
Many Indians might find it easier to relate to the freshness of CCD compared to the sober maturity of Starbucks.
On the flip side, there will be those who want to associate themselves with such a sophisticated brand.
The Way Forward
The key takeaway is that Café Coffee Day must avoid direct competition with Starbucks and thus seek to differentiate itself, to as large an extent as possible, focusing on its two main positioning elements — ‘youth’ and ‘affordability’.
( The writer is pursuing her PGP in management from the Indian Institute of Management, Ahmedabad ).