Blending coffee with franchise success

The Indian coffee industry is currently about four to five hundred crore market, and is still growing. Many national and global cafe brands have already established their presence in Indian market and several others are gearing to enter Indian café world. Franchising has enabled them to grow faster as the franchisors can expand into new markets with minimum capital risk where as the franchisees can start their business with minimum risk of failure. Franchising also offers sustainable growth to both brands and investors.

The present scenario is exciting for all three: the brands, investors and the consumers. The gap in the coffee market offer franchisors a scope to extend their footprint in new locations. The investors get an opportunity to start their ventures. Also, the increasing competition among cafe brands is benefiting the consumers too.

Market drivers

Speaking on the current developments in the café industry in India, Tony White, Regional General Manager, Gloria Jean’s Coffees International comments: “Domestic coffee consumption in India has increased significantly over the past 10 years, but there is still ample scope for growth, especially in terms of franchised operations.” The increasing spending habit of Indian youth indicates that the coffee shop market is certain to grow drastically.

Indian consumers visit cafés in shopping mall, high street, school, college, hospitals etc. Cafes have gained the reputation of being the best meeting point for social as well as corporate purposes. The factors driving the Indian café sector are:

Rise in purchasing power: With rising income level of the Indian consumers, discretionary spending on food and beverages has also increased. More and more people do not mind spending extra bucks for their favourite cup of coffee in a branded café in comfortable ambience.

Social meeting points: The growing trend of people visiting cafeterias for social and business engagements has encouraged the prominent café brands to penetrate even in the smaller cities. The cafés offer an excellent meeting point for people to chat, relax and even have business meetings over a cup of coffee. Youth appeal: Nearly half of Indian population comprises people who are of age 25 or younger. Young people more often look out for a place where they can hang out with friends. Students get a higher pocket money which the can spend in cafes. They are an important consumer segment for the café brands seeking large customer base.

Focusing brands

The Indian coffee industry is dominated by many national as well as international brands, which have been well accepted by the consumers. Café Buddy, Brewberrys, Café Desire, Barista, Café Day Xpress, Cuppa are few of the national players while Costa Coffee, Gloria Jeans Coffees, Café Oz are some international players. Starbucks will be entering India through a joint venture with Tata. Dunkins’ coffee has also taken franchise route for expansion into India.

Franchise scenario

Franchise model has helped many café brands to expand quickly, profitability and grow their brand further.
Sharing how franchise model has helped the brand to grab a large market share, PK Gupta, Founder, Café Buddy’s says: “I was convinced that franchising is the only mode that makes it possible for a brand to expand rapidly and cost-effectively. Café Buddy’s as a brand serves the masses. It would not have been possible to mark our presence across the nation without franchising.”

Café Buddy has 110 franchise and 35 company owned cafés across India. The brand’s franchise fee is Rs one to three lakh. Whereas, seeking for committed and entrepreneurial spirit in a prospective franchisee, Brewberrys investment starts from Rs 7 to 40 lakh. Brewberry has 50 franchise outlets so far.

Café Desire, another popular brand is present pan India with 35 franchise outlets in malls, high street market and residential markets. The brand has a demand Rs 50,000 franchise fee deposit which is refundable.

Gloria Jeans Coffees, an international brand has also become popular among consumers. It is present in cities like Mumbai, New Delhi, Bengaluru, Pune and Chennai via master franchisor Citymax Hospitality Pvt Ltd.

The Coffee Bean & Tea Leaf is seeking franchisees and targets across premium high streets and malls in all major metro cities in India.

Challenges

Along with opportunity lie the challenges for both - new players and as well as existing ones. Indians are price sensitive and are used to a cup of coffee not costing more than Rs 15 to20 in small restaurants. Organised coffee shop chains have price range between Rs 50 and 75. As Indian consumers have become increasingly brand conscious they are willing to pay more. But if the brands will further increase their prices, then they are sure to be in a tight spot, as customers have plethora of options to suit their budget.

The café owners will have to bring in product innovation, customisation and maintain quality and service standards to lure the clientele. How critical are these factors for operational success of the stores is explained by Ronak Kapatel, Director, Brewberrys Hospitality Pvt. Ltd. He shares: “We do not just provide coffee to our guests but also provide them with lip-smacking cuisines that are cooked in the cafés only. We understand people do not come to café just to have coffee; rather they come to sit, talk and relax.”

Location can also be a problem as existing cafe players have already snapped up premium locations in big cities. So the competition for premium space is going to blow up. Existing players would face another challenge of retaining clientele and as well as employees. Kapatel tells: “One of the major challenges is to get a good location at reasonable commercial rates.”

Finally….

However despite the bottlenecks, the cafe sector has enough potential for all the players. The question now is whether they can successfully brew a winning potion. The sector is not only promising for aspiring entrepreneurs but also for people working in the sector this would mean more job options. Besides this consumers too are in a win-win situation!