Coffee retailers grapple with mounting losses

In 2012, Australia’s largest premium brand Gloria Jean’s coffee had broken even and was planning to launch 30 to 40 cafes every year with a sub-franchise model. Two years later, the Australian coffee chain is now winding up its cafes at high street locations such as Colaba Causeway in Mumbai.

To exit business Making losses to the tune of almost ₹13 crore annually, its franchise, the Landmark group, is planning to sell the rights of Gloria Jean and exit the business. Today, international coffee chains such as Costa Coffee (with an estimated annual loss of ₹6.5 crore), Lavazza and Di Bella Coffee are struggling to make money and are restricting their number of outlets. Most CEOs of these companies have recently quit citing differences with the respective franchises over their expectations from the coffee retail business.

“Unlike the west, Indians are not looking for a caffeine rush in the mornings and that is the time when most coffee retailers make their sales. Indians like to go to cafes to interact but not necessarily buy coffee. The market for coffee retail is still not mature but retailers are punting on the future of coffee,’’ says Santhosh Unni, former CEO of Costa Coffee.

With profitability dwindling for most international coffee chains, their respective franchise partners are unwilling to invest further in the business.

Devyani International, the master franchise for Pizza Hut, KFC and Costa Coffee, has admitted that among all its food businesses, it is coffee which is the most challenging. “Among all our formats, it’s the coffee retail with Costa Coffee that is the most challenging business. Volumes are still low compared to the rest of our formats as the rental-to-sales ratio is low. Coffee as a business has not grown much,” said Virag Joshi, CEO, Devyani International, a subsidiary of RJ Corp.

GFA Global, the master franchise for brands such as Pizza Corner and Coffee World, is also focusing on the eastern and southern markets for its coffee outlets. “Coffee retail requires capital and is facing more competition than other formats. While we have portfolio, it’s Pizza corner which is our largest brand,” says Joseph Cherian, CEO, GFA Global.

Café Coffee Day, Starbucks However, CCD (Café Coffee Day) and Starbucks are possibly the only two coffee retail chains, which continue to expand and the reasons for their success are different. While CCD has the advantage of being a vertically integrated company where retail is not the largest chunk, Starbucks has the advantage of being a strong brand with the backing of the India’s largest corporate house — the Tatas.

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