Global coffee retailers rely on PE funds to brew success

International coffee chains, turning profitable after restructuring their business models, are relying on PE funds to sustain their retail operations in India.

While bigger players such as UK’s Costa have the backing of franchisee Devyani International in which PE funds have invested, smaller players such as Australia’s Di Bella Coffee is seeking to raise ₹100 crore through PE players this year.

“Rentals continue to remain the biggest challenge but Costa is not leaving India. We have managed to turn EBITDA positive in the past six months and PE funds like ICICI Ventures have remained invested in the company for the past four years,” says Virag Joshi, CEO, Devyani International.

Having shut down several unprofitable stores, Costa Coffee hopes to cross the 100-store-mark this year.

“The PE players are closely watching the business and know that it takes a longer gestation period in the beverage category. We will get a share of the PE funds invested in Devyani International. Today, we have an annual turnover of ₹105 crore with profitability between 5 and 6 per cent of this turnover,” added Ashish Chanana, COO, Costa Coffee (India). Australia’s Di Bella Coffee is brewing plans of raising ₹100 crore this year from PE funds to expand its stores.

Having turned around its operations about two years ago, the coffee chain claims to have reaped profits and turned EBITDA positive at a time when the largest player Starbucks is yet to come out of the red.

Rahul Leekha, Director, Electel, the Di Bella Coffee licensee in India, said, “We are now getting ready to raise ₹100 crore by the middle of this year from PE players and HNIs. Today, we have turned 25 per cent EBITDA positive and are seeking a turnover of ₹45 crore. There has been a change in our strategy with a revenue share arrangement with landlords apart from upgradation of manpower and processes.”

After closing stores in the past, it currently has ten stores with plans of adding eight this year. Its largest store, measuring 4,000 sq ft in Mumbai, is expected to be launched next month.

“There would be four back to back stores in Mumbai when our Australian owner Philip Di Bella comes down next month.

“The bubble is bursting on the online space and investors are getting cautious.

“But, there are HNIs who have evinced interest in our chain since we are now profitable,” he added.

Meanwhile, other international chains such as Starbucks and Barista continue to face challenges in terms of profitability and rentals.

While Barista is scouting for a new owner, Starbucks recently announced a change in its top guard.

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