The Coffee Wars
In 1996, the tea-drinking gentry of India was lured by the brewing magic of Café Coffee Day. Soon, a section of Indian society ditched the wooden benches of dilapidated tea stalls and moved to air-conditioned glass rooms where the novel act of drinking coffee was being romanticized. Over the years, coffee transformed from being an aspirational drink taken in a plush café to a necessary daily beverage, and then began the coffee wars. Today, the café culture in India is going through a boom, thanks to the numerous new coffee brands that are setting up shop across the country. Blue Tokai, Subko, and abCoffee are just some of the brands that have made a remarkable impact on the coffee culture of the country. Not to mention, D2C brands such as Sleepy Owl are now making it incredibly easy for consumers to get their coffee fix. Subko too has a wide range of available products for global customers on their website. India is one of the top 10 coffee-producing countries, with the overall coffee industry valued at approximately INR 25,000 Cr. As the industry continues to expand, several international players are coming in with heavy budgets, integrated media presence, and, an aggressive expansion. At the same time, we have Indian homegrown brands and cafes that are thriving through digital communications and brand advocacy. The Coffee Wars A Lesson in Marketing
Matt Chitharanjan, Co-Founder & CEO, Blue Tokai Coffee Roasters shares, “When we had started off, there was no specialty industry, it was only commodity coffee where the quality of the coffee was not the primary focus. Coffee was seen as more of a functional thing, there was very little emphasis on transparency, and roasting to maximize the flavour of the coffee. That is when we started kicking off that movement.”
Chitharanjan rightly points out that today almost any city in the country will have at least one or two cafes that are serving good quality coffee, sourced from a reputable roaster with a barista who’s trained in the art of brewing.
Barista, one of the pioneers of India’s café culture, opened its first store in Delhi’s Vasant Vihar back in 2000. Rajat Agrawal, CEO, Barista Coffee Company, shares, “Barista is one of the trendsetters in making consumers aware of the real coffee culture, which was there in the West. The initial 8-10 years was more about educating people and post that it was monetizing on the opportunities created”.
Consumers who were trained by the likes of Barista and CCD are now responding quickly to the new crop of cafes that are growing in the country. There are now talks of the brewing process, the beans’ country of origin, and not to forget the flaky croissant to go with it. People have come a long way and they are looking for better experiences, and here you have a readymade market.
Ajay Sachde, Founder, Love & Latte, a chain of 15 cafes in the city of Mumbai agrees that the growing coffee and cafe culture in India was transformed by V. G. Siddhartha, the founder of CCD. “He was the first to explore and evolve the coffee culture in India. It started long back in 1996, I guess when the first Cafe Coffee Day was inaugurated. After that, a few other players such as Barista entered, and more international chains Costa Coffee, and Dunkin’ Donuts. We started in 2011.”
The expansion of café culture in the country has led to growing competition, as brands are now luring both GenZ and Millennials. International brands such as Starbucks and Tim Horton’s are pitted against homegrown speciality cafes that are dotted across neighbourhoods of Indian cities. Starbucks, whose market positioning stems from the words of its Founder and CEO, Howard Schultz, “We are not in the coffee business serving people, but in the people business serving coffee,” has a total of 349 stores in the country. One of its 2023 ad campaigns, ‘It Starts With Your Name’ is centred around a trans woman and is reflective of this culture. So, how are the new-age Indian cafes coping with such large-scale campaigns?
Chitharanjan states that he does not see any of the homegrown brands or international players as disruptors. “As of now, India is incredibly underpenetrated in terms of coffee. If you look at the cafe segment, there are hardly four to five thousand branded cafes in the entire country. Compare that to a market like China, where there are 10,000 cafes in the city of Shanghai itself.”
Makwana believes there is an opportunity for every player to grow. He adds, “If I draw a parallel to the Western world where the market has hit saturation in terms of the industry size and marketing communications, there is a fight to attract the customer with an offering or experience and grab that share. People are gravitating towards branded products and premium play, which is why this pie is growing. The frequency of visits has increased, and there is a strong influence because of globalization.”
Mishra reckons it’s always good to have competition because the overall pie grows. Macro indicators like the affluent population segment, Gen-Z consumers, and the coffee category growing at a double-digit rate accelerate the coffee segment. He shares, “It is always good to have competition because the overall pie grows. Macro indicators like the affluent population segment and Gen-Z consumers lead to the coffee category growing at a double-digit rate. When new brands come in, they look at the market leader and its performance. They notice the number of stores that Starbucks has opened, and this probably propels them to open more stores for their brands. This is good for the coffee category and builds positivity in our minds. The confidence is in the consumer and the tremendous market potential that India has. Coffee as a category is still at 21% penetration, and tea is at 96% penetration.”
Many homegrown brands are developing communities that aid in spreading its name. Brands are also organising events to engage the community, attracting more people to their doorsteps.
Barista’s Agrawal believes that a coffee shop is more of a neighbourhood engagement, rather than what requires national-level marketing to create urgency. He says, “My idea is to retain and get more people to come to you and the best way is to expand. That is what we have been doing successfully over the last few years. With new players coming in, there is a near-term impact which you always see in the business. But we’ve noticed that once the initial wave has settles down, and compeition has come in, we go back to our original wallet share. It’s not only about the product, it’s always about building that emotional journey with the consumer”.
But what has given rise to this sudden coffee boom where both large and small players are managing to co-exist, brewing a fierce coffee competition? According to Adrit Mishra, COO, Starbucks, a few factors are contributing to this. According to him, “Cafes being the place to unwind and meet people is still the same, but we have seen newer occasions being created over the last 10 years. The earlier cafe was also a place primarily being used for work. The typical period when people would flock to cafes was between 11-7, but now both post-dinner and breakfast consumption have increased. Additionally, coffee penetration in India was 10-11%, and now it’s 21%. The other evolved factor is that the cafe is no longer just a functional destination, it is now tied closely to the community aspect”.
Yet another major global brand, Tim Hortons, opened its first café in March 2022 with a locally inspired menu. The international chain is presently locking horns with a growing crop of Indian cafes. However, Ravi Makwana, Chief Marketing Officer, Tim Hortons India argues that India is still a tea-drinking nation. “What has happened is that a few factors have led to this cultural change. Globalization, growing urbanization, increasing inhabitants in urban cities, a higher disposable income, and predominantly being a nation with a younger demographic have pushed the culture’s expansion. The whole pie is increasing, and each player is finding its sweet spot within that pie. And the pie in India is huge, we are the youngest nation, we continue to grow, and that cultural shift has happened because of these factors and it will continue to happen as India progresses.”
The idea that because the market is large and brands have enough space to sit and claim their positions, while true, raises questions about establishments and their approach to marketing and communication. Ad spends would surely soar in such a scenario, but smaller brands are going Digital, and depending on word-of-mouth, while the Starbucks of the world are making a splash on hoardings on major avenues. Then some brands like to position themselves differently. Abhijeet Anand, Founder & CEO, abCoffee says, “When international players come to India, they position themselves as a premium brand, and want to compete with others in the same category. But we are not at that particular positioning, they come with the notion of selling premium products, as Indians would only buy that. That’s true because a niche market in India will want that. But we target the masses, and the international players have made my life easier because when the bigger brands create noise about coffee, the coffee industry itself, creates enough noise. All I need to do is bring the right value proposition out and that’s what we do”.
Anand believes that the behavioural change in Indian consumers is evolving at a fast pace. Particularly, in the last five years, the young generation today has also grown up watching Western media.
How is it that we utter Starbucks and Blue Tokai in the same breath? While one has spent a considerable amount of money on marketing, the other has not. Blue Tokai made its name by aligning its values with those of the consumers. The brand boasts a transparent business and calls itself a farm-to-cup brand.
Chitharanjan states, “We’ve traditionally spent very little on marketing. We’ve been using our cafes as marketing for the brand, and we feel the best way to understand the product is to taste it, there’s no better place to taste the product than at one of our cafes. We’ve hardly spent two-three percent historically on marketing. We do more educational events, at fairs, in pop-ups, and collaborations with other like-minded brands so that we can leverage each other’s network, rather than a lot of traditional media spending. Instead of spending a crore on a marketing campaign, I would like to open two cafes because I can control that experience and know the guest interactions that are taking place. I can train the staff to guide people who come into that location, explain what’s different about our coffee compared to the other coffee available in the market, and figure out their taste preferences. One thing about specialty coffee is it’s very sticky. Once you get used to that taste of better-quality coffee, it’s very difficult to go back”.
Homegrown brands, cafes, and outlets rely more heavily on digital platforms banking on YouTube, Google Ads, keyword ranking on search, influencer marketing, and collaboration with B2C and lifestyle publishers. While parallelly, Starbucks’ Mishra says, “Starbucks’ marketing strategy is based on two key insights, the power of the brand, and digital marketing being key. Partners are our brand ambassadors and customers are our advocates. In terms of marketing to grow the consumer base, some of the propositions are also integrated as partnerships. For example, we collaborated with Netflix India for The Archies movie launch, which was one of our key initiatives.”
For established chains such as Barista Coffee Company, building and catering to loyalists is also a huge focus. Agrawal reckons, “There is a definitive social interaction done through our social handles, and we do promotions around our products to create more awareness. We are also starting our loyalty programme soon, which helps to integrate the large base of loyalists and we want to create more such loyalists. There is a large CRM strategy that we have implemented where we do a lot of business analytics around what is selling and what is not, the kind of consumption the consumer is doing, and then dispensing targeted marketing campaigns around those consumer portfolios themed to what they are consuming. There is also a strong PR around whatever we do. The best way to grow publicity is word of mouth, which our guests help us activate.”
abCoffee on the other hand banks on the hyperlocal effect of the brand’s communications. Anand states, “We spend about 3-5% of the revenue on marketing. At the moment, we don’t do any television communication or OOH. That’s also because we are a hyper-local brand. Our presence in the neighbourhood defines our performance. We focus on how we can serve our customers, and the neighbourhoods we are located in and then communicate, and target them via social media, specifically Instagram. LinkedIn has also helped us because a lot of coffee-drinking young professionals are on LinkedIn, and word of mouth, and organic marketing has happened on the B2B platform where people discover us. Because it has a value proposition that India has never seen before. We have the industry’s highest retention rate, which is 61%. So, 6.1 out of 10 customers once they discover us, never leave us.”
The one thing that keeps cropping up when talking about homegrown cafes is word-of-mouth. Speaking of the marketing spends of Love & Latte, Sachde says that the brand has grown without any hefty marketing spends. However, he emphasises on awareness and declares that customers are the best brand ambassadors. He says, “Awareness happens only through social media because that is the easiest, fastest, and economical way to reach out to people. Even today, traditional word of mouth works better than any other social media. Social media is good for awareness, but when you can see someone’s excitement when he or she talks about a cafe, then you trust that person. The ultimate brand ambassador is your guest who comes there.”
As places tune up to become Insta-worthy, and the new generation of men and women try to emulate their Western movie gods and goddesses whom they look up to, the business of coffee continues to thrive. For now, both international and homegrown brands have settled down in their respective places, but as new consumers enter the market, the coffee wars are bound to intensify. The big-league cafes find themselves facing an uphill task in the face of more approachable homegrown ones, while the homegrown brands go up against major marketing moolah, a bevvy of executives, and the lure of status.
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