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Mumbai: Coffee Day Enterprises Ltd (CDEL), the owner of the Café Coffee Day chain, claimed that its scale and operational efficiency will help it take on competition from international coffee shops.

“We have seen out all the storms. The first wave of competition came in 2005 and then four years ago we saw another player enter the market. Big brands came and said that they will open 500 to 1,000 stores and so we decided that we need to reach a scale of at least 1,500 stores by 2015 to remain ahead of competition," said V.G. Siddhartha, founder of CDEL, on the sidelines of a press conference to announce the launch date of his firm’s initial public offering (IPO).

Siddhartha said CDEL’s footprint is four times the combined footprint of its competitors. “We employ around 13,500 people in the coffee retail business," he said, adding that scale is an important edge for the company.

CDEL had 1,538 stores as on 30 June and 61% of these are in the seven cities of Delhi, Mumbai, Bengaluru, Chennai, Pune, Kolkata and Hyderabad.

The company plans to raise 1,150 crore through its IPO at a valuation of 6,700 crore. The public issue will open on 14 October and close on 16 October. It has fixed a price band of 316-328 for the share sale.

The firm plans to spend around 632 crore to reduce its debt. It also plans to spend around 150 crore to set up new stores and refurbish existing ones.

CDEL owns Coffee Day Global Ltd (formerly known as Amalgamated Bean Coffee Trading Co. Ltd), the company that runs the cafe chain. CDEL also owns Coffee Day Hotels and Resorts Pvt. Ltd, Global Technology Ventures Ltd and Tanglin Developments Ltd.

Private equity firms KKR India Advisors Pvt. Ltd, New Silk Route PE Asia Fund Lp and Standard Chartered Private Equity Fund are investors in the company.

KKR India Advisors, New Silk Route PE Asia and Standard Chartered Private Equity invested $149.07 million in the holding company in February 2010, according to VCCEdge, which tracks investments.

For 2014-15, CDEL reported a revenue of 2,548.7 crore compared with 2,352.7 crore in the previous year. In 2014-15, it reported a loss of 87.2 crore compared with a loss of 77 crore a year ago.

Having reached its target of setting up 1,500 stores in 2014-15, the company closed down the underperforming ones. While it shut 176 stores, it opened 126 new ones. “We invested aggressively in expansion in the last four years and we opened several smaller stores too," said Siddhartha.

Before deciding to go public, CDEL decided to close some stores. “We took a call on the stores that were not consistent with the customer experience that we wanted to provide. So we closed down several small stores, stores without washrooms, etc.," he added.

Over the last couple of years, the firm has also undertaken several measures to improve its operational efficiency. Till three years ago, CDEL was sourcing food from 210 vendors. “Now we are buying food from only four vendors and we have moved to cold chains across India. In each city, we have an assembly centre, we bake the bread, put the filling and send it out to stores," said Siddhartha.

The centralized supply chain helps in flexibility with the product mix and makes it easier to introduce new options on the menu, he added.

In India, the coffee landscape has changed in the last two years. Gloria Jeans Coffee exited last year, whereas Barista and Costa Coffee are rationalizing their stores.

“Coffee retailing in India has its own inherent challenges," said Rahul Leekha, director and investor in Di Bella Coffee, while sharing that the retailers need to focus on keeping the costs low, opt for revenue sharing rentals and focus on food as well.

“The coffee retail market in India is growing in double digits with two clear leaders emerging in the space; at one end there is Café Coffee Day and at the other end there is Starbucks, which from a consumer perception is a more aspirational brand, and many others in between have fallen by the wayside," said Siddharth Bafna, partner and head of the corporate finance and transaction services practice at Lodha and Co., a financial consultant. Starbucks has 79 stores across six cities.

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