The Hindu Business Line : A welcome coffee break

The Indian - and, more specifically, the Kerala - market is decidedly price-conscious. And the testing ground for much of that price resilience is the retail market.

The corner teashop at the village square or the coffee shop next to the college has always occupied a special place in the hearts of most Malayalees. As the site for interminable discussions on the state of the world or affairs of the heart, the coffee shop is the quintessential icon of the Keralite passion for social discourse.

And so it was with more than mere curiosity that the residents of Kochi heard the news last week that Tata Coffee Limited (TCL) was launching a new coffee outlet named Tata Mr. Bean Coffee Junction in their own city.

Whether the Mr. Bean Coffee Junction will be a regular coffee shop on the lines of the upmarket outlets of Barista and Coffee Day that now dot the landscape of India's metros, is not quite clear. But one thing is clear - TCL is on the right track.

Coffee, after all, is one of the world's most important primary commodities; it ranks second only to petroleum in terms of dollars traded worldwide. Over 400 billion cups are consumed each year, making coffee the world's most popular beverage. It is also a source of livelihood - worldwide, 25 million small producers rely on coffee for a living.

Despite acres of coffee plantations in hill districts like Wayanad, Kerala is not really a significant centre for coffee - there are only around 25,000 workers in Kerala's coffee plantations. Yet it is one of the three States in the south - alongside Karnataka and Tamil Nadu - that account for India's annual coffee yield of around 300,000 tonnes.

Not surprisingly, therefore, as prices get consumer-friendly, the world's coffee-shop market is crowded. In many countries there are near-monopolies: in the United States, for instance, the famed Starbucks chain has 51 per cent of the market. That is the sort of space that TCL is perhaps hoping to fill in Kerala, starting with its commercial capital, Kochi.

DIFFERENTIAL PRICING

The Starbucks experience has lots of lessons for other coffee retail entrepreneurs as well. For example, differential pricing. In the online magazine Slate, Tim Harford, a columnist for the Financial Times, explained the Starbucks way of sidestepping the painful dilemma over how high to set prices: "Price too low and the margins disappear; too high and the customers do. Any business that is able to charge one price to price-sensitive customers and a higher price to the rest will avoid some of that awkward trade-off."

Is this the tactic a new outlet like Tata Mr. Bean Coffee Junction should toy with? Perhaps, but then again, perhaps not. The Indian - and, more specifically, the Kerala - market is decidedly price-conscious.

And the testing ground for much of that price resilience is the retail market. So TCL's Kochi venture will be watched with great interest.

But TCL can be sure it is in good company. Even Colombia's National Federation of Coffee Growers is going retail. Since 2002, the federation has opened a dozen coffee shops in Colombia under the Valdez name.

More recently, it has opened stores in New York, in Washington, DC and, boldly, in Seattle, the hometown of Starbucks. Another 300 more shops are planned for Europe, the Americas and perhaps Asia over the next five years.

That is certainly something worth discussing over a cup of coffee.

The writer can be contacted at kgkumar@gmail.com

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