India's coffee barons

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.

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.


Eyeing the world
C.R. Prasad wants to become numero uno globally.

Challa Rajendra Prasad
Challa Rajendra Prasad
He is already Asia’s largest private label instant coffee manufacturer. Now, he has set his sights far higher—his goal is to emerge as the world’s largest private label instant coffee maker in three years. That’s a long, long journey from the time 20 years ago, when he refused two lucrative job offers and entered an industry he knew nothing about.

Prasad set up the country’s first 100 per cent exportoriented unit for instant coffee in 1988. Called Asian Coffee, it was the first recipient of assistance in India from the Commonwealth Development Corporation (CDC) of the UK and was taken over by Tata Tea in 1993. Prasad, a mechanical engineer by training, then set up Continental Coffee, now called CCL Products, which today exports 10,000 tonnes of instant coffee a year. CCL is present in 49 countries as a private label product. “Our manufactured private labels are #2 coffee brands, after Nestle, in several of these markets,” says Prasad.

 Challa Rajendra Prasad, 56

Designation: CMD, CCL Products

Revenues: Rs 390 crore

Employees: 1,000

Specialisation: Instant coffee varieties

Exports: Rs 217 crore; 15 varieties of instant coffee

Owns: NA

Future plans: CCL Products expects to soon become the world's largest private label instant coffee manufacturer

CCL Products supplies coffee to several private labels across the world. Its USP is its technology, which it acquired from Brazil, that allows it to use low grades of green (or raw) coffee to produce very high quality instant coffee. “Our cost of converting green coffee to instant coffee is the cheapest in the world and at least 20 per cent cheaper than the competition abroad,” he says.

Why did he enter the industry that he then knew so little about? “All I knew was that 75 per cent of India’s coffee production was being exported as raw material. I sensed an opportunity for value addition,” he says. The fact that this space was dominated by MNCs like Nestle and Brooke Bond did not deter him.

Today, his company has also emerged as a major importer of green coffee from Vietnam, Indonesia and from several countries in Africa such as Kenya, Uganda and Ivory Coast for re-exports. However, on an average, 50 per cent of the green coffee that CCL uses today is sourced from India. This widely dispersed sourcing enables him to create a wider range of blends tailored to the tastes of various countries around the world.

So, what’s next on his agenda? It is to manufacture instant coffee in green coffee producing countries and value-added finished products in coffee consuming markets like Europe and the US.

E. Kumar Sharma

Brewing growth
P. Sivanantham is focussing on building brands and launching new products.

P. Sivanantham
P. Sivanantham
The Narasu’s coffee brand has been around in Tamil Nadu for decades, but it is only over the last year that it has started posting steroid-charged growth rates. P. Sivanantham, a second-generation scion of the promoter family, took charge as MD earlier this financial year, and has set a blistering pace, expanding Narasu’s top line from Rs 70 crore in 2006-07 to a projected Rs 125 crore this year. “I’m confident of clocking revenues of Rs 200 crore by 2008-09,” he says.

 P. Sivanantham, 42

Designation: Managing Director, Narasu’s Coffee

Revenues: Rs 125 crore

Employees: 2,200

Specialisation: Roasted and ground coffee, instant coffee

Exports: Rs 75 crore, instant coffee

Owns: 70 outlets

Future plans: Increase distribution reach, add newer products

In the first three months after taking over, Sivanantham carefully assessed existing conditions, travelled abroad to learn about the latest machinery available in the global market and invested in upgrading his equipment.

Simultaneously, he embarked on professionalising Narasu’s, which now has a professional CEO and CFO, independent directors and lots of fresh, young, talent. “Without this, we will not be able to take the next big leap,” he says, adding: “The quality of our coffee is good, but that is not enough to catch a customer’s eye.” Sivanantham will soon launch the instant coffee that he exports to over 20 countries in India.

On the retail front, he already has 70 stores in Tamil Nadu and is planning to expand into the markets of Kerala, Andhra Pradesh and Karnataka.

He has big plans in this segment: he is planning a chain of smart-looking retail kiosks that will sell coffee, masalas and processed food products that he soon plans to launch under the Narasu’s umbrella.

Nitya Varadarajan

Catering to evolved tastes
Cothas Prakas has carved a niche for himself among coffee connoisseurs.

Cothas Prakas
Cothas Prakas
When his father’s death forced Cothas Prakas to take over his family’s coffee business, along with his brother Sreenathan (58), in 1969, it comprised all of four retail outlets in Bangalore.

Cothas Prakas, 63

Designation: Managing Partner, Cothas Coffee

Revenues: Rs 25 crore

Employees: 60

Specialisation: Roasted and ground filter coffee

Exports: N.A.

Owns: Four outlets

Future plans: Tap the smaller towns in Karnataka for growth

Thirty-nine years later, that number has not changed, but the profile of Brand Cothas has risen severalfold among connoisseurs, especially in South India. “Our model does not depend on owned or franchised outlets.

Instead, we make our brand available from roadside kirana stores to hypermarkets,” says Prakas. His model works. Today, Bangalore is his largest market, followed by Chennai. Prakas owns two factories in Bangalore, and extensive mechanisation allows him to run these operations with a small workforce of only 60. This also enables him to maintain a consistent quality. “There are extremely evolved consumers who are steadfastly loyal to the distinctive tastes they enjoy.

They can make out immediately if there is any variation.” Prakas expects the next phase of growth to come from his expansion into the smaller towns in Karnataka. Simultaneously, he also handles backend operations like roasting, blending and processing for a global coffee chain (he declines to disclose the name), which will shortly launch retail operations in India. Once that happens, new opportunities will open up for exponential growth.

K.R. Balasubramanyam

The go getter

N. Srinivasan
N. Srinivasan
N. Srinivasan wants to teach people how to make filter coffee and then ride that market.

 N. Srinivasan, 34

Designation: MD, Vivekananda Coffee

Revenues: Rs 15 crore

Employees: 100

Specialisation: Roasted and ground filter coffee

Exports: Rs 5 crore, exports processed filter coffee

Owns: 5 stores

Future plans: To become a pan-India player

He inherited two small retail outlets in Chennai from his father in 2001. In the seven years since, N. Srinivasan, a Bachelor of Commerce from Loyola College, has grown his revenues from a few lakh to Rs 15 crore, and is aiming higher still. “My target is to double this by 2010,” he says.

From the outset, Srinivasan realised the importance of marketing and branding. “We promote the brand, but we also believe in building relationships,” says Srinivasan. Value addition is another mantra he follows religiously.

“I don't sell seeds; coffee processing provides reasonable margins,” he says. While Vivekananda Coffee (to be sold as Madras Coffee in the north) prepares blends in accordance with customer preferences, the company also has its other coffee mixes, which are quite popular.

Srinivasan is now planning to open outlets in Delhi, Mumbai and Singapore. For this, Vivekananda Coffee will shortly launch an advertising campaign “to teach people how to make filter coffee”. A net worth of Rs 250 crore (courtesy a thriving construction business that he owns) ensures that money is not a constraint.

His office staff point out that he doesn’t stand on ceremony. Despite owning a Mercedes Benz M Class, he often jumps onto his two-wheeler to attend to urgent business calls if his more luxurious wheels aren’t at hand. It is this go-getting attitude that makes him a man to watch.

Nitya Varadarajan

A niche player
R. Srikanth Rao has taken his father’s home-grown coffee recipe and turned it into a multi-crore brand.

 R. Srikanth Rao, 40

Designation: Director, Bayar’s Coffee

Revenues: Rs 6 crore

Employees: 40

Specialisation: Roasted and ground filter coffee

Exports: NA

Owns: 8 retail outlets

Future plans: Ramp up to 20 retail outlets by 2010

R. Srikanth Rao
R. Srikanth Rao
Ramachandra Rao, now 71, left his home in Karnataka’s Udipi district about 55 years ago and reached Bangalore in search of fortune. After a brief stint at a hotel, he set up a small grocery shop in the then pensioner’s paradise.

Among the items he sold was a filter-coffee powder he blended himself that soon became extremely popular. So, in 1971, he decided to focus exclusively on roasted and ground coffee. By the late ’80s, his sons, R. Nagaraj Rao (42), R. Srikanth Rao (40) and R.Umesh Rao (38) joined the business. In 1992, they registered Bayar’s brand and began selling their coffee powder under this brand name. “We process our coffee using hot-air roasting German machines. This ensures that the seeds retain their aroma,” says Srikanth Rao, Director.

Initially, the company focussed mainly on the hotel segment. “Hoteliers are quality-conscious and not easily lured by promotional schemes,” says Srikanth. This allowed Bayar’s to bypass the cutthroat competition of the open market and build critical mass. Having achieved that, it has recently expanded its footprint to the home-consumer segment.

Bayar’s has opened eight retail outlets in Bangalore over the last three years and 20 more are in the pipeline. It has also closed a deal with a UK coffee major for supplying roasted bean to its Indian retail chain. Srikanth Rao is now planning to move out of his comfort zone in Karnataka and has identified the popularity of espresso blends in North India as the opportunity he wants to ride. How he handles this move will determine whether Bayar’s can become a national brand.

K.R. Balasubramanyam