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Smelling the coffee

As iconic brand Starbucks gets ready for an Indian foray and the country sees 200 new cafés set up each year, a look at how the coffee culture is brewing. Shalini Singh reports.

business Updated: Feb 25, 2012 21:49 IST
Shalini Singh

There’s a good chance you're reading this article sitting in a café. These hubs of interactions over a ‘social lubricant’ called coffee have, in the last decade, spawned a whole new way in which urban India, especially the younger lot, socialises.


Valued at US$190 million (Rs 931 crore), the organised café market in India home to over 1,500 cafes is estimated to be growing at an annual rate of 25-30%.
After home-grown Café Coffee Day (CCD) took the lead in 1996, several international chains followed suit. Shift in demographics, increased urbanisation and greater disposable income levels have led to the cafés’ popularity.

According to a report by Technopak Advisors, India can absorb an additional 2,300-2,700 cafes over the next five years. With 200 new cafes being added every year, there’s a gradual move to shift coffee from being a traditional beverage consumed mainly in the south to a mainstream beverage in other parts of the country. “Two years ago India could accommodate 5,400 cafés but had only 1,500. The pace of growth has been slow,” says brand strategy specialist Harish Bijoor.

“In India, Coffee Culture 1.0 was created by the 23, 600 indigenous coffee houses in south India. Coffee Culture 2.0 came with 1, 970 cafés of CCD, Barista etc. Version 3.0 is going to start in 2012-13 when Starbucks comes in with their ‘tentative aggression’,” he says.

“The Indian market has room for many coffee houses that meet different customers’ needs,” says John Culver, president, Starbucks China and Asia Pacific on their Indian foray. Existing players are welcoming the entry. “The west is a matured market whereas we’re in the nascent stage of the business. The idea is to evolve from being a hangout to people becoming coffee connoisseurs. New players such as Starbucks will help this journey,” says Santhosh Unni, CEO, Costa Coffee India. K Ramakrishnan (Ramki), president marketing, CCD, sees the entry of an iconic player as “building awareness about the category”.

Till that happens, three factors need to be considered. One, the present state of cafe penetration is still low in India. “The key players haven’t even covered all Tier-1 cities yet,” says Unni, while Ramki adds that “all cafe brands put together have reached only 180 towns of India’s 6, 000 towns .” Two, consumption of coffee in India versus other countries has to catch up. “The per capita coffee consumption in India is between 80-250gm compared to 4kg in US, 4.8kg in Brazil and 8kg in Austria,” says Ramki. Three, coffee as part of culture. “Despite Barista being around in Delhi for over a decade, no one wants to make coffee at home. It comes with tradition,” says Keshav Devan of Devan’s Coffee and Tea, an independent blender and supplier in Delhi that has been around for over 50 years. “High quality coffee is not appreciated in India because Indians still don’t know their coffee compared to countries such as Italy and the US,” says Bijoor.

Moving towards becoming one of the biggest coffee producers in the world, India has shifted from being dominantly Arabica-producing to Robusta in the last 50 years. (These are the two popular species of coffee with Arabica accounting for 3/4th of the world production). “Arabica is the Basmati of coffee. Of the 310, 000 tons of coffee we produce, 2/3rd is Robusta. This is not good because the world will want better coffee,” says Bijoor.

For that matter gourmet coffees are hard to come by because of prohibitive import duty rates. “For high-value consumers, gourmet coffees are available at select places. The rest of the population still needs to get used to drinking coffee per se. Currently, we service the market, once consumption goes up, we’ll look at loosening import duties,” says Anil Bhandari, chairman, India Coffee Board. “India is a tea-driven country, where the annual consumption of coffee translates into eight cups per Indian. Tea is 12 times that. We are far away from being a coffee-drinking nation — it’ll take us at least two decades to get there,” says Bijoor.