Mumbai: Coffee Day Resorts Pvt. Ltd, which operates the Cafe Coffee Day retail chain, will use a recent investment of Rs960 crore in the firm to at least double its coffee shops to 2,000 and increase the network of its Way2Wealth venture.
Growth strategy: A Cafe Coffee Day outlet. Three private equity firms have agreed to invest Rs960 cr to buy nearly 25% of the company. Hemant Mishra / Mint
“We will also use some of the money to buy coffee retail chains in China, the Middle East and eastern Europe, and 10-15% of our sales will accrue from international markets,” chairman V.G. Siddhartha said in a phone interview from Bangalore.
Three private equity investors—Kohlberg Kravis Roberts India Advisors Pvt. Ltd (KKR India), Standard Chartered Private Equity Ltd and New Silk Route—on Wednesday agreed to invest Rs960 crore to buy a nearly 25% stake in the company, which also owns a private equity fund Global Technology Ventures, three resorts in southern India under the Serai brand and Terra Firma Pvt. Ltd, a waste management business.
Siddhartha said management control of the firm would remain with him.
“We are excited to partner with a company that has achieved significant domestic scale and is ready to enter a new phase of growth,” said Sanjay Nayar, chief executive officer of KKR India, which invested Rs360 crore of the Rs960 crore in Coffee Day after almost a year of negotiations.
Coffee Day’s strategy for growth involves eliminating middlemen, not just in buying beans but also in the running of the outlets; the 1,000-strong chain is entirely owned and managed by the company.
The firm’s closest competitor, Barista Coffee Co., which was acquired by Italy’s Luigi Lavazza SpA in 2007, operates around 200 outlets in India.
Coffee Day already owns 20 coffee shops overseas. Siddhartha said he plans to double the number in about four years.
The coffee shop business in India has lately seen considerable foreign participation, with brands such as Costa Coffee, Gloria Jean’s Coffee and Lavazza, among others, setting up cafes in India.
Competition is expected to intensify when Starbucks Corp., the Seattle-based chain of coffee shops and the world’s largest in this business, decides on a local partner to enter the Indian market.
The founder of Cafe Coffee Day is unfazed. “If I beat them here, I can beat them anywhere,” he said.
Siddhartha’s move from the very beginning was to take advantage of the coffee plantations he inherited to add value to and vertically integrate the business. He gradually built up the 350 acres his father owned by acquiring coffee plantations that came under the hammer due to global swings in coffee bean prices. This has helped him scale up faster than the competition as well as keep a tight leash on costs.
“We control our costs as we own 10,000 acres of coffee plantations that provide us 25,000 tonnes of coffee,” Siddhartha said. The firm buys an additional 25,000 tonnes a year from the market to stock its cafes.
The coffee plantations owned by Siddhartha grow close to $12 billion (Rs54,120 crore) worth of coffee beans a year, while the global trade is as much as $120 billion, he said.
“We have invested in a company that has established its presence in the consumption business and has a couple of ideas. We are at an early stage of evaluating them,” said Jacob Kurien, a partner at New Silk Route, which manages a $1.4 billion fund and has investments in 12 Indian companies.
New Silk Route is betting on the potential upside of these new ideas that will have a substantial scale in the future, Kurien said.