International coffee retailers are brewing plans to launch more outlets, especially in smaller towns and cities. Discretionary spending may be low, but coffee chains are eyeing tier- 2 and -3 cities to beat the high saturation levels and rentals in the metros.

While UK-chain Costa Coffee is gearing up to enter towns such as Ludhiana and Jalandhar in Punjab, Australia’s Di Bella Coffee recently launched a 5,000 sq. ft. outlet in Hyderabad, its largest.

“High rentals are a challenge, but that is not going to stop us from opening 40-50 stores a year and entering more cities in Punjab,” says Santhosh Unni, Managing Director, Costa Coffee. With 107 outlets, the coffee chain intends crossing 150 outlets this year, and emerging as the second largest player after CCD (Cafe Coffee Day).

Di Bella Coffee has two flagship stores measuring 3,000 sq. ft. and 5,000 sq. ft. in Hyderabad. “High rentals and saturation in cities like Mumbai has made us enter tier-2 and -3 cities, which are still not exposed to international coffee chains. There have been great sales out of Hyderabad as the city still does not have an international coffee chain. At 5,000 sq. ft., we are the largest coffee retail outlet in the country,” says Sachin Sabharwal, Managing Director, Di Bella Coffee.

No slowing down

Considering that the last quarter has been challenging for quick service restaurants, coffee chains do not believe in slowing down. “Discretionary spends have been down since the last quarter, but the boom in retail is still happening, which will offset it,” adds Sabharwal. Di Bella Coffee has ten outlets in Mumbai.

Meanwhile, CityMax Hospitality, the master franchise for Gloria Jeans Coffee, plans to open at least 15-20 stores a year. While it is present in Mumbai and Delhi as well as smaller cities such as Pune and Ahmedabad, more tier-2 city launches are on the anvil.

Much potential

As Vishal Sawhney, President, City Max Hospitality says, “Coffee retail is still a huge market and there is demand. After tier 1 cities, we need to expand more into tier-2 and -3 cities.”

Last week, Pan India Food Solutions, the master franchise for the Coffee Bean and Tea Leaf, entered Punjab with two stores in Chandigarh. “We intend opening one store every 3-4 weeks as there is demand for local area coffee formats even in smaller cities such as Chandigarh,” adds K.S. Narayanan, Chief Executive Officer, Pan India Food Solutions.