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Retail chains leave India’s historic coffee houses in peril

At first glance, the Indian Coffee House in New Delhi looks more like a decrepit school cafeteria than a venerable gathering spot for the city’s intelligentsia.
AFP | By HT Correspondent, New Delhi
UPDATED ON JUN 28, 2009 10:06 AM IST

At first glance, the Indian Coffee House in New Delhi looks more like a decrepit school cafeteria than a venerable gathering spot for the city’s intelligentsia.

Everything about the cafe -- from the shabby, outdated furniture to the rickety ceiling fans and mostly greying male customers -- suggests visitors have stepped into a time warp.

The atmosphere is a stark contrast to the shiny outlets that have popped up across India in recent years -- with their sophisticated marketing, piped music, flatscreen televisions, wireless Internet access and aura of international modernity.

As the ceiling fans rotate lazily above fly-spotted monochrome photographs hanging crookedly on the walls, it is clear why the Indian Coffee House, and others like it, are struggling to compete in the fast-changing retail coffee industry.

While definitive figures are difficult to come by, the sector is believed to be worth between 100 million and 150 million US dollars a year, growing at an annual rate of up to 30 percent.

Young, urbanised Indians who can afford to splurge on high-priced lattes and espressos have swapped the old-world charm of traditional outlets for more up-scale coffee chains, both home-grown and imported, such as Barista, Costa Coffee and Cafe Coffee Day.

The chains have aggressively targeted the brand-conscious 15-35 age group in this traditional tea-drinking nation, where coffee consumption is now around 94,000 tonnes a year, up from 55,000 tonnes in 1991, Coffee Board of India figures show.

By contrast, Indians consumed 810,000 tonnes of tea in 2008, up from 520,000 tonnes in 1991, according to the Tea Board of India.

Bidisha Nagaraj, president of marketing at Cafe Coffee Day, India’s largest retail cafe chain, says modern coffee shops are “positioned as a social hub and aimed at consumers who are young and young at heart”.

The company operates almost 800 outlets in 112 cities across the country with 2007 revenue of 76.3 million dollars, according to consultancy firm Technopak Advisors.

It has more than tripled its presence in the last four years and plans to have more than 1,000 stores nationwide by 2010.

Nagaraj welcomed the continued survival of traditional cafes, saying they “have been the pioneers of creating coffee culture in the country”.

But she said “we need varied players addressing different target audiences with different formats”.

One of Cafe Coffee Day’s main competitors, Italian-owned Barista, has more than 200 cafes in 31 cities and is planning to add another 300 in the next three years.

Vishal Kapoor, head of marketing and product development at Barista, said the sector shows no signs of saturation or slowing demand.

“India has a capacity for 5,000 cafes at the current point in time. In the organized segment we’ve got only about 1,100 to 1,200 cafes, so I think there’s great hope for all of us without eating into each other,” he said.

“When we get into a new town, the entire idea is that even if I have to start with one store, to ramp it up to two to three stores.”

The comparatively smaller chain of Indian Coffee Houses -- mostly limited to larger cities -- cannot compete with higher-priced outlets offering innovative fare and slick ambiance.

The most expensive item on the Indian Coffee House menu is mutton biryani at less than two dollars. Most patrons are stubbornly resistant to any change in format or price -- which seems to be ensuring that it remains uncompetitive.

Described by one newspaper as “the thinking man’s favourite haunt” in the central shopping district of Connaught Place, the cooperative management of the storied cafe has been threatening to close it for years because of low profits.

“We only make 7,000 rupees (148 dollars) a day, and that is not enough” to pay for rent, utilities and renovations, said manager Pratap Singh.

Several similar cafes around the city have closed recently, but the demise of the Connaught Place venue would signal the end of an era, said some of its die-hard adherents.

“This is the last vestige of intellectualism in the city,” says K. Gopal Pandey, referring to India’s leading thinkers, revolutionaries and politicians who have frequented the place since it first opened in a tent in the 1950s.

“There is no other place for retired people to relax,” says R.B. Pathak, 70, a retired civil servant who has been coming for almost 40 years.

Barista’s Kapoor said retail cafe chains have a large enough clientele to limit themselves to one social demographic.

“Each of us have our own market. We target young executives and working people. It’s a place where the young generation spends a lot of time,” he said.

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