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Coffee Retail In India - 3C Analysis


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Coffee Retail In India - 3C Analysis

  1. 1. 1 | P a g e Coffee Retail 3C Analysis Category | Customer | Competitor Nikhil Saraf 20130120124 Nitya Ravi 20130120126 Pooja Shirali 20130120130 Prem Thomas 20130120132 Saarini Bagga 20130120139 Surabhi Anand 20130120152
  2. 2. 2 | P a g e Category Analysis Current Industry and Consumer Trends  Burgeoning retail chains becoming one stop shops for consumers  Standalone consumer foodservice grew rapidly during the review period, but the growth witnessed a slowdown in 2011.  In contrast, leisure locations started to compete aggressively with standalone restaurants during the last few years of the review period.  Standalone outlets continued to have the largest share in terms of value.  Cafés/bars and lounge formats in particular, continued to be popular at standalone locations, however, and are expanding their operations in shopping centres.  Growing number of double-income households and consumers ready to try out different food, foodservice is likely to generate huge revenues over the forecast period.  Foodservice players will continue expanding their operations in Tier II and Tier III cities  Leisure and retail in particular are likely to experience the strongest growth over the forecast period. Leisure is likely to grow at a constant value CAGR of over 8% compared to retail's constant value CAGR of 6%. Consumer Food Services Cafes/Bars Specialised Coffee Retail
  3. 3. 3 | P a g e Prospects  Cafes: Standalone largest location with 1.7 million outlets 2011  Leisure experiences strongest growth in new outlets, reaches 15,969 outlets in 2011  With retail experiencing huge growth, the number of foodservice outlets increases tremendously in hypermarkets which emerge as the new hang out zones over the review period  Leisure is likely to grow at a constant value CAGR of 8% over the forecast period, to reach Rs126.0 billion by 2016.  Coffee volume sales growth for 2013 = +8.1%;  compound annual growth rate (CAGR) to 2017 = +9.1% Category data Consumer Foodservice Sales by Location: Units/Outlets 2006-2011 (India, ‘000 outlets) 2006 2007 2008 2009 2010 2011 Consumer Foodservice Through Standalone 1,244.7 1,340.8 1,428.2 1,523.7 1,608.8 1,672.1 Consumer Foodservice Through Leisure 7.7 11.3 12.5 13.1 14.5 16.0 Consumer Foodservice Through Retail 45.5 56.5 76.2 87.8 99.9 108.0
  4. 4. 4 | P a g e Consumer Foodservice Sales through Standalone: Units/Outlets 2006-2011 (India, ‘000 outlets) 2006 2007 2008 2009 2010 2011 100% Home Delivery 0.2 0.2 0.2 0.2 0.2 0.2 Through Standalone Cafés/Bars Through 41.0 42.6 43.6 44.3 45.2 45.7 Standalone Fast Food Through 44.5 49.2 52.9 55.2 58.9 61.9 Standalone Full-Service 415.7 443.5 470.9 487.4 505.0 522.6 Restaurants Through Standalone Self-Service Cafeterias 0.4 0.4 0.3 0.3 0.3 0.3 Through Standalone Street Stalls/Kiosks 742.9 804.9 860.2 936.2 999.2 1,041.4 Through Standalone Consumer Foodservice 1,244.7 1,340.8 1,428.2 1,523.7 1,608.8 1,672.1 Through Standalone Foodservice % Units/Outlet in India for the years 2011 and 2016
  5. 5. 5 | P a g e Category retail trends  Specialist coffee shops continues to grow at the fastest rate of nearly 25% in current value terms in 2011  Cafés/bars is likely to grow at a constant value CAGR of 3% to reach Rs725.6 billion by 2016  Specialist coffee shops continued to grow at the fastest rate of nearly 25% in current value terms in 2011. The faster growth was supported by young consumers and professionals who continued to prefer specialist coffee shops for informal meetings.  Coffee shops continued to have drinks as their major offering, accounting for nearly 60% of the value sales in 2011. However, most of the coffee shops started to expand their food offering to attract consumers to their outlets  Most of the cafés continued to have a stronger focus on coffee than tea in 2011. Cafés and specialist coffee shops continued to enjoy huge popularity in urban areas such as Delhi and Bangalore. In 2011, juice cafés started to attract consumers, however, they grew at a slow rate.  Cafés and specialist coffee shops continued to attract a wide consumer group, including youngsters and professionals. However, specialist coffee shops continued to remain more popular amongst older consumers and professionals. In contrast, bars enjoyed huge popularity amongst youngsters, including college students.
  6. 6. 6 | P a g e  Independent cafes accounted for nearly 96% of the total value sales of cafés/bars in 2011. Independent cafés continued to enjoy huge popularity amongst older consumers who prefer to have evening and morning hot beverages in traditional independent cafés,  Consumers continued to spend a long time in cafés, hanging out with friends and socialising.  With such a preference, eat-in continued to dominate café sales while takeaway accounted for a miniscule value share in 2011 Category prospects  Cafés/bars value sales are likely to taper down compared to the review period. However, the growth in the number of outlets is likely to be in line with the review period mainly due to expansion of outlets in semi-urban and Tier II cities  Increasing real estate rentals, overheads and food price inflation are likely to threaten the profitability of café operators during the forecast period. Such an increase in costs is expected to force café operators to pass on the costs to consumers who might choose to cut side orders.  Specialist coffee shops and café bars are among the biggest categories in India. Longer summer duration and global warming will the shift focus towards lower regional and local penetration centric markets such as smoothie bars, hampering short-to-medium term transaction volumes. Discounted freebies along with India's café segment shift towards price sensitivity will be core challenges for chained and independent café operators on a medium term basis.  Chained specialist coffee shops are expected to grow at an increasing rate as coffee shops are becoming a popular spot for increasingly affluent young adults to socialise.  Specialist coffee shops are likely to get a further boost with Starbucks planning to enter the Indian market in 2013Between 1981 and 1999, coffee consumption grew by only 8%. However, recently the trend has changed. Increased urbanization, especially among the young.  Demand increase for high-quality specialty coffees, often found in popular Western-style coffee shops throughout the country.  In 2013, we forecast coffee consumption to rise by 4.5% y-o-y. To 2017, we expect impressive 25.0% growth, as the increase in young, city-dwelling consumers drives the spread of coffee shops and the production of instant coffee.  The opening of US coffee retailer Starbucks' first store in India in 2012 is a sign of the attractive long-term outlook for the sector based on the low levels of market saturation and continued industry dynamism.  Attractive Opportunities: Lower levels of market saturation and continued industry dynamism. A large contribution to this growth is likely to come from specialist coffee chains and instant coffee sales.
  7. 7. 7 | P a g e  Risks To Outlook: From a retail point of view, the main risks to the expansion of the coffee market are the stiff competition for space in city centers, high real estate costs, difficulties in managing the supply chain (especially regarding the provision of other perishable materials) and the difficulties in maintaining a standard quality for products.  Affiliated industries: The Indian tea sector is fairly mature, given the presence of major tea manufacturers such as Tata Tea and Apeejay. Between 2013 and 2017. The outlook for the Indian coffee sector is much more attractive as a result of lower levels of market saturation and continued industry dynamism. BMI is forecasting a CAGR of 9.1% to 2017, in volume terms, as the country's rapidly expanding middle class embraces café culture. Source: India Agribusiness Report - Coffee Outlook - Q4 2013 Publication: BMI - Industry Forecast Scenario Provider: Business Monitor International (BMI) Retail Potential Compelling Retail Potential India - Coffee Production & Consumption ('000 60kg bags) & Sales (US$mn)
  8. 8. 8 | P a g e India Food & Drink Report - Drink - Q4 2013 Publication: BMI - Industry Forecast Scenario Provider: Business Monitor International (BMI) Customer Analysis India is primarily known as a tea drinking nation. Initially, it was popular for its medicinal value in Ayurvedic treatments. The 200 year old British rule has resulted in the emergence of tea as a favourite drink among Indians. Coffee was also prevalent, but Hot Drinks Value/Volume Sales - Historical & Forecasts, 2010-2017 2010 2011 2012 2013f 2014f 2015f 2016f 2017f e/f = BMI estimate/forecast. Source: Central Statistical Organisation, Company information, BMI Coffee sales (tonnes) 99,526. 5 109,252 .0 117,562.2 127,068.5 138,548.7 151,102.7 164,832.2 179,848.3 Coffee sales (INRmn) 31,212. 7 37,145. 7 43,198.6 49,960.1 57,606.0 65,967.1 75,559.0 86,564.5 Coffee sales (US$mn) 682.6 795.8 807.4 960.8 1,129.5 1,346.3 1,574.1 1,803.4 Tea sales (tonnes) 925,011 .0 993,200 .0 1,044,255 .6 1,100,859 .3 1,166,322 .7 1,236,865 .3 1,312,937 .4 1,395,031.3 Tea sales (INRmn) 313,131 .5 364,504 .4 414,186.0 467,201.4 523,445.5 582,860.3 649,643.9 724,777.3 Tea sales (US$mn) 6,848.3 7,809.1 7,741.8 8,984.6 10,263.6 11,895.1 13,534.2 15,099.5
  9. 9. 9 | P a g e mainly in the Southern part of India. The traditional brew called “filter coffee” which is a mixture of sweet milky coffee from dark roasted beans and chicory. With the liberalisation of the economy and increasing exposure to Western culture has led to the rise of a ‘café culture’. Coffee has now turned into a routine and a lifestyle commodity. It has become not only about drinking coffee but also about creating an ambience and experience. Coffee bars and cafes have started focusing on coffee as an experience, a place to meet and catch up with friends. Cafes have started introducing concepts such as book readings, board games, gaming, free internet and other such activities. Nowadays people are very much aware of their coffee and expect a coffee experience. Customer Segments Who are the coffee drinkers?  “The Young and restless”- The main focus target group between the ages of 16- 24. Always ready to try out new experiences. But they have lesser cash to spend and need not be loyal to a particular coffee shop. They usually hang out at the coffee shops as a group .There are the romantic couples too looking for a private space and have a good time.  “Young hi-fliers”- Newly employed youngsters celebrating their individuality and independence courtesy thanks to their income. They are looking to define their individuality. They also have get-together with their friends as it is a convenient location and offers good facilities. They are looking for a place to unwind from their hectic schedules .They may not give importance to the coffee but value the experience.  “Business Travellers”- The people in this segment is always on the run and at times need a perfect environment to unwind. They are serious about their coffee and the environment in which they have. Sometimes quick meetings can be done in a coffee shop.  “The artists, Culturists & Intellectuals”- This segment is highly talented people across a variety of fields. The coffee shop is a meeting place where they exchange, argue and create. They spend hours at the coffee shop. They are very serious about their coffee and experience.
  10. 10. 10 | P a g e  “The Tourist”- This segment involves local as well as international tourists who want to take a break from their busy itinerary just to relax and observe the people around while sipping on their favourite blend of coffee. They relish a comfortable environment that provides them the best coffee and ambience. Overall, the typical coffee consumer can be personified as a young educated individual who are working in well off jobs. They like to spend their money on the good things in life and are very particular about what they pay for. They are part of a globalised world and demand the best of everything, be it their clothes, gadgets or services. Similarly, they are looking for a world class coffee service at a comfortable ambience. India’s domestic coffee consumption is set to record a modest growth rate of 9% at 1.2 million bags (72,000 tonnes) during the year 2013-14 compared to 1.1 million bags (66,000 tonnes) last year. An exhaustive survey conducted on coffee consumption trends resulted in the following. This was done by selecting a sample of consumers representing different gender, age, education, occupation and family income categories. Gender composition
  11. 11. 11 | P a g e Out of the individuals surveyed, there was an almost equal representation of both the genders. Age Composition Out of the total no of respondents, 18-25 years age group constituted 40% of the total sample. Educational qualification
  12. 12. 12 | P a g e Graduates followed by professionals and postgraduates constituted the maximum no of coffee drinkers. Occupational status Professionals, students and businessmen constituted the majority. Family Income
  13. 13. 13 | P a g e Income group of up to Rs.5 lakh constituted 68% of families who consume coffee. Frequency of Consumption of Coffee 66% of the consumers responded that they have less than 2 cups of coffee a day. Consumption by Gender
  14. 14. 14 | P a g e The survey revealed different consumption patterns for men and women. Women consumed less than 2 cups of coffee than men. Consumption amongst age groups The consumption of coffee was found to vary among different age groups. The largest consumers were found to be in the age group of 18-25 years and their consumption varied from less than 2 cups to 4 cups a day.
  15. 15. 15 | P a g e Consumption among different educational group The consumption of coffee also varied between different educational groups. Most of them consumed less than 2 cups of coffee in a single day. More consumers drank 2-4 cups of coffee. Consumption among different occupations
  16. 16. 16 | P a g e The occupations were categorized as shown in the graph. It suggested that consumption of coffee was the highest among those who worked in private jobs, students and professionals. Customer selection criterions  Price  Quality  Flavour  Experience (Ambience,location,service)  Comfort There are some other interesting trends to be noted regarding the consumers of coffee retail chains.  The café trend has started to gain huge popularity even in Tier II cities such as Ghaziabad and Hubli, where young consumers were the dominant consumers.  Consumers continued to spend a long time in cafés, hanging out with friends and socializing. With such a preference, eat-in continued to dominate café sales while
  17. 17. 17 | P a g e takeaway accounted for a miniscule value share in 2011.  Consumers continued to spend most on beverages, including shakes, and food remained a side order in 2011. However, companies such as CCD introduced new menus with affordable dessert options to attract consumers to spend more on food. Additionally, café operators also started to expand their beverage menus to include cold beverages to attract consumers willing to try out new flavors and drinks in 2011.  Independent cafés continued to enjoy huge popularity amongst older consumers who prefer to have evening and morning hot beverages in traditional independent cafés, such as Indian Coffee House and Airlines. However, independent cafés continued to lose share to chained cafés, which witnessed strong growth in 2011. Competitor Analysis Global Brand Owner Shares of Chained Cafés/Bars 2007-2011 % value Company 2007 2008 2009 2010 2011 Amalgamated Bean Coffee Trading Co Ltd 29.1 34.7 36.1 37.1 38.0 Lavazza Spa, Luigi 10.5 11.3 13.0 13.2 14.1 Whitbread Plc 2.2 2.7 2.2 3.3 3.1 Others 58.3 51.3 48.5 46.6 45 Total 100.0 100.0 100.0 100.0 100.0 Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources
  18. 18. 18 | P a g e Brand Shares of Chained Cafés/Bars 2008-2011 Source: Euromonitor International from official statistics, trade associations, trade press, company research, trade interviews, trade sources Market size of Cafes/bars in India % value Brand Global Brand Owner 2008 2009 2010 2011 Café Coffee Day Amalgamated Bean Coffee Trading Co Ltd 30.2 31.2 32.4 32.6 Barista Coffee Co Lavazza Spa, Luigi 11.3 13 13.2 14.1 Costa Coffee Whitbread Plc 2.7 2.2 3.3 3.1 Others 55.8 53.4 51.4 50.4 Total 100 100 100 100
  19. 19. 19 | P a g e Competitor analysis Competitor Positioning Mission Offerings Café Coffee Day India's favourite coffee shop where the young at heart unwind. To be the best Cafe chain by offering a world class coffee experience at affordable prices. Beverages, Food, Other services like outdoor catering, online retail merchandise store Starbucks We’re a neighbourhood gathering place, a part of the daily routine – and we couldn’t be happier about it. To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time. Coffee, Handcrafted Beverages, Merchandise, Fresh Food Barista Lavazza The place ‘where the world meets’. To passionately deliver the highest levels of experiential services. Beverages, Espresso Bar, Food and Merchandise, Health zone Costa Costa baristas really know their beans. With technical skill, personality and passion for coffee, they have all the right ingredients to make a perfect cup, time after time To save the world from mediocre coffee. Coffee, Food Competitors Profiling Café Coffee Day  Amalgamated Bean Coffee Trading Co Ltd leads value sales, with a share of 1.1% in 2011  Café Coffee Day announced plans to redo its food menu to include low priced desserts and sandwiches in its food menu in 2012.  Amalgamated Bean Coffee Trading Co witnessed the fastest growth, mainly due to rapid expansion in the number of Café Coffee Day outlets in 2011. Furthermore, Café Coffee Day carried out aggressive marketing and promotional campaigns in universities and colleges in 2011.
  20. 20. 20 | P a g e  In May 2012, Coffee Café Day launched a radio promotional campaign with the strap line, “Food so delicious that you won't open your mouth for anything else”, promoting its refreshed menu across urban cities including Delhi, Bangalore and Mumbai.  Café Coffee Day introduced three menus- Small Eat, Big Eat, and Sweet Treats- to expand its dessert and food offerings in 2011  The home grown Cafe Coffee Day, with around 1,200 stores (at the end of FY13) makes Rs 38-40 lakh from each of its outlets yearly Starbucks  Starbucks will be positioning itself at the premium end of the Indian coffee market  Starbucks sold coffee, snacks and merchandise worth Rs 14.6 crore in the first financial year of its operations in India ending March, averaging almost Rs 1.5 crore per outlet from its 11 doors in just five months since opening its first outlet in Mumbai last October.  Stores in India don't fit the global design template — each store has been designed differently, with "local" touches incorporated. For example, the store in New Delhi's Connaught Place has ropes and chatai on the walls and henna patterns on the floor, with pictures of Indian spices on its walls. The store in Select Citywalk mall has locally-crafted wood panelling, while the Pune store incorporates localised railings and a rich display of antiques and copper.  Prices at Starbucks are in line with the premium store strategy: the chief executive of the rival coffee chain quoted has noted that Starbucks has increased prices for its food and beverages by as much as 20% in three months. Barista Lavazza  Barista Lavazza launched three dessert variants in 2011 to expand its snack menu  Barista launched an outdoor advertising campaign in South India during 2011.  Barista Lavazza introduced Spicy creamy chicken IN 2011 Costa Coffee  Whitbread Plc’s flagship brand Costa Coffee witnessed strong regional and national growth across India’s chained cafés category in 2011.  The company enjoyed a value share of 5% of chained specialist coffee shops in 2011. Costa Coffee focuses on business professionals (i.e. expatriates) and affluent households in cosmopolitan cities such as Bangalore and Delhi.  The company continued to expand margins and penetration through aggressive promotional campaigns in food courts, particularly eating joints near enterprises such as
  21. 21. 21 | P a g e Google and Microsoft in Hyderabad, Yahoo in Bangalore, or HP in Bangalore, enhancing brand penetration and presence.  Costa Coffee does business of a crore a year from its bestselling outlets, but, on an average, it nets Rs 60 lakh from its 100-odd outlets. Others  Coffee Bean & Tea Leaf (13 stores) and Gloria Jean's Coffee (15 stores) are also planning to double their number of stores in India over the next 12 months. India - Major Coffee Players, Shops & Expansion Plans Copyright © 2013 Internet Securities, Inc. (trading as ISI Emerging Markets), all rights reserved. A Euromoney Institutional Investor company. Company Country of origin Number of coffee shops, 2012 Plan na = not applicable. Source: BMI, Bloomberg, Rabobank, India Economic Times Café Coffee Day India 1,350 targeting 2,000 coffee shops by 2014 Barista Lavazza Italy 215 15-20 franchised cafes every year Starbucks US 1 initial plan to open 50 stores in Mumbai and New Delhi in 2012 Costa Coffee UK 100 300 coffee shops in next five years