Specialist coffee chains in India expected to double to 4,000 by 2015, report says

Mumbai: Riding on a newfound coffee culture and specialist coffee chains opening outlets in India, consumption of coffee is expected to get a major boost. According to a new report by Rabobank, specialist coffee shop chains, which target the out-of-home consumption of urban youth, are projected to double to 4,000 in numbers by 2015 (CAGR of 21%).

At present, there are around 2,100 specialist coffee shops in India. Given the multiple international coffee shop chains trying to expand their base in India, consumers are likely to have even more options within the next three years, the report said.

This growth is a result of favourable demographics, rising income levels, rise of mid-sized cities and high population density. However, high real estate costs, manpower attrition and difficulties in managing the supply chain will continue to be the key challenges.

Sourcing coffee beans, the report said, is not the key barrier for specialist coffee chains, with coffee beans accounting for an insignificant proportion of the total cost of a cup of coffee. For example, the cost of coffee beans in a 'Cappuccino' is about 8% of the sale price. The report said to be successful, operational efficiency (e.g. managing rent and manpower costs) is more important than focusing solely on raw material costs.

The impressive growth expected of specialist coffee chains in India offers numerous opportunities for both local and international players, provided that they can overcome inherent obstacles,'' said Nitin Kalani, beverage analyst at Rabobank International.

For a burgeoning segment of the Indian population, coffee chains are also offering a new snacking/leisure experience, which is similar to that in developed markets. The opportunities for coffee chain growth arise from the favourable demographics with low per capita consumption and increasing income levels, the rise of mid-sized cities and a high population density with its associated potential for the expansion of the coffee shop network.

The report said although specialist coffee chains' contribution to India's total coffee consumption by volume may not be significant, but they have added more visibility to the coffee culture.

However, India remains a tea drinking country with sales of the traditional beverage still larger than that of coffee.