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India will be the next coffee drinks battleground

Coffee drinkers in India have never had it so good. Not only are domestic and international retail players vying for their attention, the instant coffee market is revving up too.

Not everyone’s cup of tea…

India is predominantly a tea-consuming nation. However, Southern India, with its coffee growing regions in Karnataka, Kerala and Tamil Nadu, has always been a strong coffee consuming market, with a well-developed network of distributors, roasters and blenders ensuring availability. For the rest of India, the brew is available only in its instant version sold by organized players at significant premium, a
luxury that it is out of bounds for most Indians. The total domestic market stands at 55,000 tonnes p.a.

Ingredients that make the Coffee Consumer

An overwhelming percentage of the population prefers tea to coffee for its first cuppa of the day. Some insights on the coffee consumer:

·Consumers in the north and west are more willing to experiment with beverages

·Tea is a staple; coffee is associated with social or outdoor consumption occasions

·Coffee reflects a higher status or class, and is more youthful than Tea. As a corollary, it is tagged as “expensive”

The coffee drinking culture has been “iconized” by the star show “Koffee with Karan” where the brew is a must.

·It is also better known for its instant version. Few outside South India understand or appreciate the subtleties of brewing filter coffee.

Coffee TV commercial with movie start Amrita Rao

·In South India, tea is considered inferior. Being particular about the quality of coffee they consume, most coffee consumers in South India prefer to drink tea outside their homes.

Retail Trends: Brewing a turnabout?

The 1990s saw new trend in coffee retailing. Coffee retail outlets like Cafe Coffee Day, Barista, Qwiky’s and Mocha rub shoulders with the more traditional India Coffee House. Given the different target audiences they cater to, there is a marked difference in their ambiance, product, prices and promotions.

The instant coffee market is as active. The market, dominated by Nestle with its Nescafe has competition in Bru, Sunrise (from the Hindustan Lever stable) and Tata Café and Tata Kapi (In the news as Starbuck’s supplier). Nescafe enjoys the lion’s share of the Rs.361 crore market.

Our market estimates indicate that the Indian market can handle 5,000 cafes over the next 5 years. Currently, retail chains operate a mere 300-odd cafés. Aware that this is just the tip of the iceberg, they are adding on 11 to 12 cafes every month. Global players like Costa Coffee and Gloria Jeans Coffees have also announced plans to enter the market through joint ventures. Here’s a mug-full of Café competition –  local players pitching for mass-consumption of coffee, are planning outlets in smaller towns with a population of over one lakh.

-Barista, the New Delhi-based firm operates 130 cafes across the country. Its menu with all that Starbucks offers in the US and more (latte, cappuccino, caramel cafe etc.) and futuristic features like Wi-Fi access in 35 outlets are its USP.

-Café Coffee Day, the Bangalore-based chain operates 230 stores and plans to add another 270 outlets over the next three years. Plans include diversification into health foods like herb breads, and sunflower seeds.

-Cafe Mocha, plans to focus only on an upscale clientele and imported coffees. In a bid to maintain exclusivity, it operates only nine franchise outlets. It plans are a more modest 65 outlets over the next
3 years.

Starbucks’ market absence will ultimately hurt the Seattle firm

Get a load of this – these retail outlets sell less coffee compared to their other offerings. So why are Coffee bars mushrooming? Simply put, they are a place to hang out, meet informally, do business, read a
book and even conduct interviews. The retailers find it lucrative to offer value-added services like social activities, food and merchandise as the main pull.

After its China foray, global major, Starbucks is eying the Indian market, perhaps lured by India’s burgeoning middle class. But, the going will be tough. For one, Starbucks has lost its first mover
advantage as local players are firmly entrenched. Its anticipated entry plans, then entry delayed announcements have also turned off consumers. Earlier, Starbucks had intention of opening outlets in Delhi and Mumbai by end of 2007. Still no green cups in sight in India.

Starbucks is now file a fresh application to enter Indian market as its application was rejected by the Foreign Investment Promotion Board and Commerce Ministry on account of unclear proposed equity structure for India operations.

The delay means that existing coffee chains such as Barista and Cafe Coffee Day would gain market share as they are fast expanding outlets as coffee gains popularity the Indian market.

Critics also pan the $3.50 a cup pricing strategy as unlikely to win over too many coffee enthusiasts or even yuppies. But the firm is bullish on India and is clearly not looking to substitute tea with coffee. The Starbucks take: “Starbucks is a place to hang out, to eat and drink, to see and be seen.” Its successful inroad into the China market demonstrates that with smart marketing even century-long consumption habits can be changed…

Yes but so far the local coffee chains are the only one reaping this consumer change.

Damien Duhamel


About Solidiance

Summary: Corporate strategist with extensive Asia-based management & operational experience. Manages the long-term strategic planning of the organization. Responsible for multi-country team management, PBIT and revenue growth, geographical expansion, business development, key staff recruitment, business unit strategy and processes. Speaks English, French, Vietnamese and "Survival" Japanese. In Asia Pacific for the past 21 years. Specialties: Disruptive innovation strategy & implementation, Expansion strategy, Benchmarking, Asia market entry strategy, Market research Asia, Market sizing, opportunity analysis & market feasibility, Sales & demand forecasting, Competitive intelligence and strategy, Customers acquisition & loyalty, New product development, Distribution & value-chain optimization, Industrial B2B branding, Partner evaluation & selection, M&A due diligence - valuation, Marketing & Corporate strategy, Emerging markets

2 comments on “India will be the next coffee drinks battleground

  1. Dominic Twyford
    July 7, 2008

    Interesting article and I completely agree with your analysis, probably worth adding that not only does coffee reflect higher status or class but it provides an opportunity to express an individuals identity by customising your cup – decaf, extra shot, cap v’s latte etc etc.

    Also the coffee chains across India are ‘the’ visible sign of a growing economy and changing consumer – people are on the move, doing business, getting connected, Costa and their like are symbols of change and being part of a global economy.

    With news that Starbucks are closing outlets in the US it will be interesting to see whether the growth plans for Costa and GJ’s etc will be affected should the Indian economy stall or slow.

  2. B2B marketplace india
    August 16, 2010

    Very beautiful post thanks a lot dear

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