The Hindu Business Line : Barista's new brew

Slump in business — that in a nutshell describes the situation Barista finds itself in. There's a new CEO at the helm, and high on his agenda is consolidation.

Yogesh Samat, CEO, Barista

IT'S not a job that many in corporate India would envy. At least, not for the time being. For, Yogesh Samat, the new Chief Executive Officer of Barista Coffee Company (BCC), has inherited a pile of problems as the man in charge of the coffee retail chain which had come to India over three years ago, with the vision of ushering in a `coffee drinking revolution' in the country and redefining `pub hopping'.

Somewhere down the line, however, the BCC gameplan went awry. Explains Jagdeep Kapoor, Managing Director, Samsika Marketing Consultants, "While Barista started off with a clear strategy, it tried to spread too fast. As a result, it spread itself thin."

Adds an ex-Barista senior manager, "Things started going wrong with the Tatas' funding, which led to Barista expanding indiscriminately. The sole objective seemed to be to open more stores with the purpose of creating shareholder value."

The market is rife with stories that Tata Coffee hiking its equity in Barista Coffee Company is `inevitable', up from the 34.3 per cent it had picked up over two years ago. The Amit Judge-promoted Turner Morrison Group holds the rest of the stake. "BCC is obviously under pressure to perform; the only way is through more funds," says an industry analyst. Samat declines to comment on the matter. "These are board matters. I cannot comment," he says, adding that within a year-and-a-half, Barista Coffee Company was projected to begin making net profits.

Today, however, dealing with an exodus of key senior management personnel from departments such as marketing and finance, turning around the business in quick time, and coping with non-performing stores are just some of the problems Samat has on his plate. Samat will obviously need to use all his Hindustan Lever experience if he has to steer BCC back into healthy growth mode.

The 40-year-old newly designated CEO, however, is putting up a brave face. Ask him if he believes he took over as CEO on the back-foot, and he counters, "No. It's a challenge."

Priorities at BCC have been redefined — consolidation instead of expansion, and taking the business into a different phase are now on the agenda. Explains Samat, "Organisations are not always on hyper-growth path. We are now readdressing the business at a fundamental level. We expect to be in consolidation mode for about a year."

As far as people in key positions quitting the company (including global business head Sandeep Vyas) in the post-Ravi Deol era is concerned, Samat is of the opinion that "organisations undergo transition and change; we are in that phase now". Two senior managers have been brought in from the Tata group — Brotin Banerjee as Head of Marketing & Strategy has moved from Tata Chemicals, whereas K. Venkataraman has been brought in from Tata Tea as Head of Finance.

Meanwhile, the reorganisation exercise at the coffee retail chain is being implemented on several fronts.

Relocation of outlets and exiting non-starters are perhaps the most significant of these. While calling store relocation a "routine exercise for any retail chain", Samat admits, "We will exit unsustainable outlets. From the locations currently, we will knock off about 10." The unviable stores that BCC proposes to shut down will be those from a combination of metros and SEC B and C towns and cities. Most of these will be standalone stores. For the record, about 15 Barista stores are in malls, the rest being standalones, 130 in all.

For obvious reasons, Samat expects the ratio of mall stores to increase against standalones.

Industry experts are of the opinion that BCC should have done this (that is, exit non-performing stores), much earlier. Says Samsika's Kapoor: "Instead of quantity and spread, Barista should concentrate on quality and focus. What's the point in supporting stores which don't perform?"

Another change that has taken place at BCC is that for the first time since the coffee chain began operations in India, it is taking the franchise route to expand operations. While one theory suggests that the Tatas want to de-risk the existing business model, industry watchers are sceptical whether this strategy will work for BCC in the long run. "The company wants to raise money through franchising because its funds have dried up. However, the franchising model may not, by and large, be feasible when it comes to expanding in high-risk cities (for example, Amritsar)," points out Marya Gaurav, President, Franchise India Holdings.

Cost reduction at the operations level will be the other key ingredient of BCC's new brew. While Barista has talked of cost-cutting exercises in the past as well, Samat says the chain is now addressing its supply chain economies slightly differently. "Cost reduction implies engaging the entire value chain and driving operating efficiencies. Besides, investing in training is a high focus area for us now," he says. Insiders say the coffee chain is now reverting to the stringent three-week-training schedule for its frontline staff.

Brotin Banerjee, Head of Marketing and Strategy, says product development and innovation within foods and beverages is on course. "Two levels of research have been done. Product innovations on the food and beverage front are expected to be rolled out next month onwards," says Banerjee.

According to sources, these `innovations' could include a range of `non-coffee beverages', and speciality teas. While the objective of the exercise is obviously to broaden the consumer base and woo non-coffee drinkers to the store, industry experts sound a word of caution. "This would not be the Barista as it was originally conceptualised," says an analyst.

On the price front, across-the-board price reductions by up to 25 per cent, which BCC undertook beginning April this year, have generated satisfactory response, claims Samat. "There has been a 47 per cent increase in footfalls in the past four months," he says. International coffee blends, for example, are priced at Rs 45 now, against Rs 80 or Rs 90 earlier. Prices of classic cold coffees were brought down by over Rs 10. So were prices of standard cappuccino coffees, from Rs 40 previously to Rs 30. Frappes, too, saw price reductions from Rs 55 to Rs 40 per cup.

On the possibility of further price reductions, Samat says, "As long as we can get a larger number of consumers, we are open to ideas. Further price reduction is not impossible; in fact, it might just be a possibility."

Pursuing marketing strategies such as selling coffee-related merchandise at Barista stores will, meanwhile, be reviewed in the consolidation phase.

Among other strategies is customising stores to suit localities, says Banerjee. "Depending on the type of footfalls and clientele a store generates, we will alter the ambience accordingly. For example, some Barista stores are frequented more by young people, for which we are planning a younger look," says Banerjee.

Other exercises such as co-promotions with movies and co-branding with synergistic product categories will carry on as routine marketing exercises.

As for advertising, the coffee chain recently hired Rediffusion DY&R on a first-year budget of about Rs 3 crore.

And even as there has been a clamp on overseas expansion, BCC retains its joint venture in Sri Lanka and operates through three stores, in addition to a franchisee agreement for all the Gulf Co-operation Council (GCC) countries through two stores.

So will all this help Barista Coffee Company to turn around? "It's very tough. Now, there is a scramble to retrieve whatever is lost," says an ex-Barista senior manager. The storm in the coffee cup is obviously still brewing.

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