Business Today

India's coffee barons

India has traditionally been a tea drinking market. But over the last decade, coffee has made steady inroads into the popular consciousness. It is fast emerging as the beverage of choice for a larger number of the GenNext consumers, and a number of home-grown entrepreneurs is riding this trend to fame and fortune. BT's K. R. Balasubramanyam finds out.

K. R. Balasubramanyam        Print Edition: April 6, 2008

India has traditionally been a tea drinking market. But over the last decade, coffee has made steady inroads into the popular consciousness. Driving this trend are MNCs like HUL and Nestle, domestic biggies like Tata Coffee—and a band of relatively small companies like Coffee Day and Barista that have braved the odds and positioned coffee as an aspirational product, so much so, that a large number of India’s GenNext swear by it.

Till they came along, India’s 200,000-plus coffee growers largely depended on the volatile export market, where margins were thin and the risks immense. Even today, only about 30 per cent of India’s total production of 300,000 tonne per annum is consumed domestically, but in value terms, the Indian market, at Rs 2,000 crore, now equals the export market. In this report, Business Today has consciously handpicked only those brands built by individual entrepreneurs. Thus, big domestic corporations and MNCs don’t figure in this feature. Barista is not featured here, either. Though founded in 1997 by Ravi Deol and Sandeep Vyas, it is now owned by Italy’s Lavazza.

Coffee Man
V.G. Siddhartha of Coffee Day is the man who has created India’s biggest home-grown coffee brand.

V.G. Siddhartha
V.G. Siddhartha
When Café Coffee Day opened its first outlet on Bangalore’s upscale Brigade Road in 1996, it priced a cup of cappuccino at Rs 20. In 12 years, that price has only doubled, but Coffee Day’s business has multiplied many times over. India’s preeminent coffee chain has 547 outlets in the country, besides three in Vienna and two in Pakistan. Its goal: to own 1,000 cafes in India over the next two years.

The interesting twist to the Coffee Day story is that it almost didn’t happen. V.G. Siddhartha, the man behind the chain, comes from a family that has a 135-year history of growing coffee. Despite this, he was a reluctant entrant into this industry, preferring, instead, to work as an investment banker in Mumbai after completing his Master’s degree in Economics from Mangalore University .

V.G. Siddhartha, 48

Designation: Chairman, Coffee Day

Revenues: Rs 500 crore

Employees: 7,000

Specialisation: Roasted and ground filter coffee

Exports: Rs 100 crore; green coffee beans

Owns: 547 cafes, 758 Xpress outlets, 400 Fresh & Ground outlets and 7,000 vending machines

Future plans: 1,000 cafes by 2010

Two years later, in 1984, he launched his own investment and venture capital firm, Sivan Securities, in Bangalore, and began investing the profits from his start-up to buy coffee plantations in Karnataka’s Chikmagalur district. Around this time, he also began taking an interest in his family’s coffee business. That, however, was confined to growing coffee and selling it in the domestic market through the Coffee Board.

The time: the early ’90s. The P.V Narasimha Rao-Manmohan Singh duo was just charting out the liberalisation agenda. The old order was changing, but no one yet had any definite clue about the new order that would emerge. It was around this time that the pashas of economic reforms freed coffee growers from the so-called “pooling” regulations that forced planters to hand over their entire produce to the Coffee Board for marketing. It was, clearly, a bad idea whose time was up. But only a handful of people saw coffee retailing as an idea whose time had come.

Siddhartha was among that handful. He opened his first café at a time when Bangalore was on the cusp of a transformation from a pensioners’ paradise to an IT and lifestyle haven. It was a gamble— Coffee Day was entering a market that had been traditionally dominated by tea—but it paid off. Between 1998 and 2008, domestic coffee consumption went up from 55,000 tonnes to 90,000 tonnes per annum. “We contributed to (and rode that) that growth,” says A.Venu Madhav, Head of Operations, Coffee Day. Siddhartha proudly points out that his chain serves more than 600,000 customers per day. “We serve the finest Indian coffee. Before 1994, good coffee was available in only a few places. Today, Coffee Day has operations in 100 cities and towns across India,” he adds.

Siddhartha was driven by the passion of developing a brand, says Madhav. “Also, what strikes me is his ability to spot opportunities ahead of others,” he says of his boss. The industry vouches for that. Coffee Day was among the top three exporters of green coffee beans in the mid-’90s, but has since moved down the ladder—deliberately. Siddhartha realised that rather than bet on the volatile global markets, he was better off investing his resources on the vast but virtually untapped Indian market. Incidentally, all the coffee served at Coffee Day outlets comes from the 10,000 acres of plantations that Siddhartha owns. “This gives us control over quality from the bean stage itself and makes value addition easier,” Venu Madhav says.

The recent growth in domestic consumption augurs well for small coffee growers as well. Siddhartha, who is the son-in-law of former Karnataka Chief Minister S.M. Krishna, says: “I believe we still have not done anything great for coffee growers, but we can proudly say that we have already laid the foundation that will help growers and the coffee industry in the long run.” It’s not just in the café segment that Coffee Day dominates. It also sells coffee powder through Coffee Day Fresh & Ground outlets and provides takeaway coffee at Coffee Day Xpress kiosks. “This way, we can reach out to different segments of consumers—both in-home and out-of-home—at price points they can afford,” says Madhav.


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