Education

How can Café Coffee Day meet the Starbucks challenge?

Vishwadeep Kuila | Updated on November 23, 2017

CCD will need to position itself such that it is seen as a popular hangout for younger people. Photo: Nagara Gopal

CCDlead

Today, the coffee chain market is more than Rs 1,000 crore and is growing at almost 30 per cent each year. The market is dominated by a few brands with CCD the largest in terms of turnover and the number of outlets in India, followed by Barista – a distant second.

Other players are Costa Coffee, Mocha, Coffee Bean & Tea Leaf and Gloria Jean’s. Currently, India has about 1,800 coffee outlets, or cafes, and business sources claim India can accommodate another 2,700 cafes. This seems plausible given that, against global per capita coffee consumption of 4 kg a year, India stands at 0.82 kg.

The CCD Journey

The Amalgamated Bean is among India’s top two coffee producers and exporters, with 10,500 acres of coffee plantations in Chikmagalur. It produces 7,000 tonnes of coffee every year and sources another 35,000 tonnes from other plantations. About 25,000 tonnes are exported and 3,000 tonnes used in CCD cafés.

The company started with its first store in Bangalore in 1996. It took six years to reach 35 outlets across the country by 2002.

However, by 2008 CCD had opened 595 outlets. And in 2012, the count stood at 1,400. In the same period it went from zero to a Rs 800-crore turnover.

Currently the company has three formats: CCD, CCD Lounge (Premium Format), and CCD Square (single-origin coffee, from one estate, not blended).

In addition to this, the company has 900 CCD Express (kiosks for take-away) and 16,000 vending machines in offices.

CCD had a clear vision that the outlets would not be coffee-drinking places. They would be the perfect hangouts for young people and a place for occasional casual meetings for corporates.

Therefore, the business model was built towards enabling CCD to be a good hangout place, both in terms of its ambience and the pricing.

The philosophy of the brand is well captured in the tag line ‘A lot can happen over coffee’.

While all was going well for CCDs, Starbucks with its 50:50 joint venture with Tata Global Beverages, entered the Indian market in its second attempt.

The Global player

Starbucks started in 1971 with one outlet but today, with more than 15,000 stores in 50 countries, Starbucks is the premier roaster and retailer of speciality coffee in the world. The company in India, called Tata Starbucks Ltd., launched its first outlet in Mumbai in October 2012.

Starbucks expanded its presence to Delhi in January 2013 by opening two outlets at Terminal III of the Indira Gandhi International Airport and later one in Connaught Place. Initially, Starbucks opened a combination of standalone outlets located at malls, airports, metro stations, and commercial complexes. The company plans to expand its retail footprint in India by opening outlets in hospitals, near gyms or health stores, educational institutions and corporate campuses.

The decision to open outlets inside Tata-owned retail stores and properties would depend on the brand’s premium positioning. As of June 2013, Starbucks operates 15 outlets in two cities. The company plans to have 50 outlets in India by the end of 2013.

The Problem

The business head at CCD has various questions on his mind.

Should CCD even recognise the entry of Starbucks as the latter is in a far more premium segment than CCD?

Would the brand image of Starbucks just be of one-time novelty value or will it be able to shift consumers to a more premium concept in the long term? Therefore, should CCD react? And, if yes, how ?

You are the head of Marketing at CCD and you have been asked to recommend insightful marketing inputs in this scenario with a special focus on the strategic direction for the brand. As both the companies in question are live companies, you can gather additional information on their current strategies from secondary research.

(The writer, an alumnus of IIM Ahmedabad, runs Brand Vectors, a marketing consultancy. This case has been written purely for student analysis and does not claim factual accuracy. The figures, drawn from secondary research sources, are used only as inputs for the respondents to devise strategy. The writer does not claim to have any first-hand information from the companies mentioned here.)

Published on November 28, 2013

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