Press release November 20h 2012
Rabobank Report: “Rajaccino” - The Rise of Coffee Culture in India
Coffee culture in India is flourishing thanks to the efforts of a few specialist coffee chains and the instant coffee
players, says a new report from Rabobank. Coffee drinking has spread across the country and consumption has doubled.
Specialist coffee shop chains, which have established themselves as a ‘hangout’ for urban youth, are projected to reach
4,000 in numbers by 2015 (CAGR of 21 percent). This growth is a result of favourable demographics, rising income levels,
rise of mid-sized cities and high population density. High real estate costs, manpower attrition and difficulties in
managing the supply chain will continue to be the key challenges.
Although specialist coffee chains’ contribution to India’s total coffee consumption by volume may not be significant,
these coffee shops have added more visibility to the coffee culture. The first specialist coffee shop by Café Coffee Day
opened up in 1996 and the company has since grown to a market leading position with 1,350 coffee shops spread across
India. At present, there are around 2,100 specialist coffee shops in India, and given that there are multiple
international coffee shop chains trying to expand their base in this important market, consumers are likely to have even
more options within the next three years.
For a burgeoning segment of the Indian population, coffee chains are also offering a new snacking/leisure experience.
These coffee chains offer an experience similar to that in developed markets. The opportunities for coffee chain growth
arise from the favourable demographics with low per capita consumption and increasing income levels, the rise of
mid-sized cities and a high population density with its associated potential for the expansion of the coffee shop
network.
"The impressive growth expected of specialist coffee chains in India offers numerous opportunities for both local and
international players, provided that they can overcome inherent obstacles" says Nitin Kalani, Beverage Analyst at
Rabobank International, author of the report.
Sourcing coffee beans is not the key barrier for specialist coffee chains, with coffee beans accounting for an
insignificant proportion of the total cost of a cup of coffee. For example, the cost of coffee beans in a ‘Cappuccino’
is about 8 percent of the sale price. To be successful, operational efficiency (e.g. managing rent and manpower costs)
is more important than focusing solely on raw material costs.
Real estate overheads are a major concern, with coffee chains facing strong competition for acquiring prime premises.
Furthermore, coffee shops must be big enough to accommodate a large number of people with around 95 percent of consumers
in India preferring to drink on-site rather than to take away (compared to around 60 per cent in the US). Competition
for industry manpower is likely to continue to be a challenge due to high rates of staff attrition. On top of this, the
sourcing of other beverages, food and merchandising – all an essential part of the coffee shop 'experience' – continues
to be a problem as players struggle to establish quality, reliable supplier relationships.
India remains a tea drinking country with sales of the traditional beverage still outperforming that of coffee. With
growth in coffee consumption outpacing that of tea however, coffee culture is expected to continue to flourish for the
foreseeable future.
ENDS