The Hindu Business Line : Cafés here to stay

Cafes will splinter in their positioning. Some will be plain vanilla; some will be for teenyboppers. Some for those in their Thirties. Some for the oldies.

Soon, cafes will cater to niches.

Is the much-hyped café culture for real? How do you see it moving over the years?

- Raksha Gupte, Mumbai

Raksha, this one is close to my heart. In many ways coffee remains my first love. Let me trace some of this café culture for you. The first cafe in the organised space came up in 1996 with Café Coffee Day (CCD) opening its first outlet on Brigade Road in Bangalore. The seeds of this revolution, in a manner of speaking, were sown by this early development. In a generic fashion, however, the café in a different avatar as we know it has been around for a 100 years and more. This is the Udipi restaurant of the sit-down variety and the stand-up avatars of Darshinis, as we call it in South India. The country has all of 63,850 such outlets offering great coffee to all those who desire it.

The future is all about a rapid expansion for the first stage. There are typically three stages in this revolution. The ‘early phase’ of establishing the plain vanilla concept of the café. This started in 1996 and is all of 11 years old as of now. This has resulted in 831 cafés dotting this country. The ‘mid-phase’ is the one we are just about entering. This is the phase in which Indian entrepreneurs such as V. G. Siddartha of Café Coffee Day and Amit Judge of Turner Morrison (who started up Barista) did the start-up work. The category has been developed by the early entrepreneurs and attracted the attention of the biggies in this space across the world.

In will come the biggies now, either on their own, or through a process of mergers and acquisitions. Or through special purpose vehicles specially created. A Starbucks entry is the classic example. But there will be more. In this mid-phase development, the numbers will boom. This is the time when the traditional players such as CCD and Barista will expand on their own numbers to keep pace and even outpace competition such as Starbucks. There will be a complete sprucing up of offerings across the existing chains. New competition will spur on better quality offerings in terms of hygiene, array, service and delight. The consumer is the gainer. The lowest-common denominator café will morph as well in this phase. It will offer more and more variation in form and variety in food, beverages and ambience.

The third phase is one we will enter some three years from now. Café 2010, let’s call it! This is the phase when the numbers would have crossed 2,000 in the country. Then the cafés will become reasonably parri passu in their offerings and the lowest common denominator café will morph further.

Cafes will splinter in their positioning. Some will be plain vanilla; some will be for teenyboppers. Some for those in their Thirties. Some for the oldies. And then there will be rock cafés just as there will be cafés for those who enjoy trance. For same-sex couples, for politics, and for culture. The options are many.

The café culture is bound to survive and thrive. What is important is that café chains need to have their fingers on the pulse of their customers. This will help them morph in the right direction to profits.

Rural markets are difficult to access due to the issue of profitability. Am I right? How are the trends here as of now?

- R. B. Joshipura, Pune

Joshipura-ji, with the growth of average bill share from rural outlets, servicing of these markets direct is today a possibility. Rural marketing, which hitherto was a long-term market seeding operation in the past, is today a break-even possibility in most markets, a profitable proposition in a small percentage, and, of course, remains a profit-nightmare in many markets as well.

The rural market is suddenly not such a slow-burn process anymore. Marketers are seeing light at the end of the tunnel. In some villages the tunnel is longer than the other. In some villages, there is no tunnel at all, to the delight of the modern marketer on his rural marketing hunt.

Newer distribution channels that depend not only on what I derogatorily call the alimentary canal system of distribution we have known for over 80 years in India (namely, the system that moves stock from the factory of the producer to the C&F agent, to the distributor, to the wholesaler and then to the retailer, to whom consumers come to) seem to help in this profit search as well.

Hindustan Unilever’s experiment with rural entrepreneurs who do something similar to a peer-to-peer selling exercise is one such. ITC’s e-chaupal is another model as well. These examples are becoming old now, with newer and niftier models from across a spectrum of durables, household-products and services emerging successful. Small entrepreneurs in this space have the biggest success stories to tell. Listen to them.

Do you see a future for small regional brands that have survived in niche markets over the decades? Or do you see them being trampled over by the big MNC players? How does one approach the future here?

- Sanjay Agarwal, New Delhi

A: Sanjay, in a world that is getting increasingly clonal in its offerings, regional brands offer differentiation abilities that have a USP of their own. Look at it this way. The whole world of brands is becoming a ration shop of sorts. The global brand dream is clear. Everyone in the world must one day use a Lux on their bodies and a Surf on their clothes. Your teeth must touch a Colgate. As this dream becomes more and more of a reality, smaller regional brands will emerge to be clutter-breakers.

I do believe people will get tired of brands that look too factory-made, too synthetic, too organised and too big. Look at a cake of soap. Most of them have the lowest common denominator perfumes. Over a period of time, the marketer understands that most consumers like a particular smell. Therefore the plain vanilla scent, as I call it, emerges. Regional brands will aim to break this clutter. People at large are becoming tired of the big brand message. Big brands are seen to be premium offerings. Small brands that do not advertise as much are considered to be offering more value.

It is important to understand that the region is more homogenous in its needs, wants, aspirations and desires than the nation at large. A person in Andhra Pradesh thinks and emotes in a more homogenous manner than a person in India as an averaged-out cluster market. National brands offer brands for the averaged-out cluster while regional brands offer specific offerings to the localised and more homogenous mass. I, therefore, do believe that regional brands have a good future.

As national brands find it difficult to penetrate some clusters where these regional brands are strong, and as they scent the opportunity of these local brands, acquisitions will become a norm.

Regional brand players can have one of two business revenue models. The first could be to build, operate and continue to operate regional brands for the distant future, or the second wherein they could act like ‘brand planters’ who will build brands with the pure purpose of a sale to a bigger entity. Once the old brand is sold off, get back to the activity of creating more. Brand harvesting was never as good as this before!

(Harish Bijoor is a business strategy specialist and CEO, Harish Bijoor Consults Inc. Email:askharishbijoor@ thehindu.co.in)

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