Hot or cold, finely ground or coarse, arabica or robusta, mellow or strong... coffee lovers are rather choosy about their perfect cuppa. Smelling an aromatic opportunity, coffee entrepreneurs are pouring their heart and money into innovating newer flavours and pairings of ingredients. 

Speciality coffee chains are not only growing in number but also attracting significant interest from venture capital funds. Cumulatively, they have raised close to $100 million over the last two years — $37 million across five rounds in 2023, and $66 million across twelve rounds in 2022, according to data research and analysis firm Tracxn. And this year, in barely three months the sector has already raised $13 million in just two rounds.

Gaining flavour 

While the global coffee market has grown 2.5-3 per cent year-on-year, as per reports, in India the growth is 10-15 per cent, with a compound annual growth rate (CAGR) of 8.9 per cent from 2020 to 2025. 

It is not just the quantum of coffee consumed but also the quality and variety that is seeing a sea change.

“People now want coffee in different flavours, made using different techniques. Some like their coffee bitter, some like it floral. Everybody has a different taste profile. All coffees cannot be roasted the same way. The demand is growing and somebody needs to answer that,” says Matt Chitharanjan, co-founder of Bengaluru-based Blue Tokai Coffee Roasters.

Artisanal coffee — made from high-quality seeds sourced directly from farms — come in varied flavours. Treated with special care, they are different from regular coffees right from the harvesting stage to their processing and storage, Chitharanjan says.

The brand sources from the entire coffee-growing belt in India — namely Karnataka, North Kerala, Tamil Nadu, Orissa and the North-East. 

Bengaluru-based coffee brand Hatti Kaapi, too, is launching cold brews and other blends using single-origin coffee beans (sourced from a specific region and not blended with others) from plantations in Karnataka.

Coffee chains are also changing tack to suit changing moods and seasons. 

Third Wave Coffee, for instance, is reinventing its menu to beat the extra-blazing summer this year.

“Our team has worked on a couple of limited-time offerings for summer. We will soon launch tropical fruit-inspired beverages and food items to bring the summer vibe to Third Wave Coffee cafes,” says co-founder Ayush Bathwal.

Third Wave Coffee has raised $35 million in a Series C round. 

Third Wave Coffee has raised $35 million in a Series C round. 

As the chains attempt to think big and better, investors appear more than happy to play along. Blue Tokai Coffee Roasters has raised $30 million in its latest funding round, while Third Wave Coffee raised $35 million in a Series C round. 

Blue Tokai wants to expand its offerings in existing outlets while also venturing into 50-60 more cities, Chitharanjan says.

The chain has about 98 cafes countrywide, with the brick-and-mortar outlets accounting for 75 per cent of its revenue, and the online segment making up the rest. The estimated revenue for FY24 is around ₹220 crore.

After raising ₹10 crore in a recent pre-Series A round, Hatti Kaapi wants to raise more to open newer outlets and build other verticals such as food.

US Mahendar, Chairman And Managing Director, Hatti Kaapi

US Mahendar, Chairman And Managing Director, Hatti Kaapi

“We’re raising funds to seize more opportunities. Our foremost goal is to introduce Indian traditional filter coffee to the global market. With the raised capital, we’re prioritising investments in research and development, learning and development, and building capability across verticals,” says Chairman And Managing Director US Mahendar.

Roasted to perfection

Speciality coffee is a global megatrend that is now gaining popularity in India, investors point out.

Coffee companies are increasingly focusing on quality, with single-origin coffee beans being one of the popular offerings. This means they become involved in the procurement process right from the harvesting to the processing stage.

Blue Tokai’s Chitharanjan explains that speciality coffee must score above 80 points on flavour, body, acidity, and sweetness, among other factors.

“Most of the coffee we buy is anywhere from 83 to 86 points. We are now working with small-scale coffee growers who lack the resources or knowledge to produce speciality coffees; we buy the coffee cherries from them and process the coffee ourselves,” he says.

There is little doubt that artisanal coffee roasters and brands have captured more than just a niche following. The proof is in the drinking... speciality coffee and roasteries are to be found today even in places where one would least expect them.

“Health-conscious consumers are switching their caffeine source from colas to pure coffee, turning it into the fastest-growing hot beverage category across the world. In India, speciality coffee is riding a wave and cafés are popping up even in the remotest of towns. We expect the sector to grow at least 5x in the next decade,” says Vikram Chachra, Founding Partner, 8i Ventures.