Home >Companies >News >India’s Costa Coffee may brew cola wars

New Delhi: Coca-Cola Co., the American beverage maker that acquired the British company Costa Ltd for $5.1 billion on Friday, may have to look for a new partner to run Costa Coffee outlets in India.

Currently, the coffee chain in India is run by Devyani International Pvt. Ltd, a company of Ravi Jaipuria-owned RJ Corp. that also owns Varun Beverages Ltd which is also one of the largest bottling partners (globally) of PepsiCo Inc., the arch rival of Coca-Cola.

In India, Costa Coffee’s master franchisee is Devyani International, which also runs a bunch of quick service restaurants such as Pizza Hut, KFC, Vaango, Foodie’s Bar and a few other international brands in India. Costa Coffee entered the Indian market under an exclusive franchise agreement with Devyani International in 2005 and had about 100 outlets by 2013. But the company has been making losses.

During the fiscal year ended 31 March 2017, Devyani International shut down more than half the Costa outlets to bring down the store count to 46, according to the company’s latest filings with the Registrar of Companies (RoC). These outlets however make up just one percent of Costa’s total global store count. It noted that the company continued its focus on product innovation, cost optimization, technology upgradation, consumer connect and loyalty programmes to narrow down losses.

According to last reported results with RoC, Devyani had a net loss of 46.8 crore in the year ended 31 March 2017, lower than the net loss of 92.6 crore the year-ago. Its revenue, however, rose 5.3% to 814.5 crore in the year ended 31 March 2017.

On the other hand, BSE-listed Varun Beverages reported a net profit of 235.6 crore in the year ended 31 March 2017, up from 186.73 crore the year ago, as revenue increased to 3,490.56 crore from 2,972.25 crore.

Besides bottling PepsiCo’s carbonated drinks, Varun Beverages in January this year took the distribution rights for PepsiCo’s non-carbonated beverage brands Tropicana, Lipton tea, Gatorade sports drink and Quaker Oats. Varun Beverages now has the franchise for PepsiCo products across 20 states and two Union territories.

Going by the reported numbers, if Ravi Jaipuria decides to let go of Costa Coffee, a new partner would make Coca-Cola’s job easier and allow it to offer its own beverages across Costa Coffee outlets. But, if Costa stays with Devyani, it may be a problem as Devyani’s parent also runs the company that has a distribution franchise for PepsiCo’s beverages.

“It’s a no-brainer that Jaipuria would not hesitate in letting the Costa business go, not the other way round," said a Mumbai-based equity analyst asking not to be named. Back in 2014, added the analyst, Costa did try to get another franchisee partner for India and Jaipuria reportedly did not object.

Spokespersons at the local entities of both Coca-Cola and PepsiCo declined to comment on the issue. “I am not aware of the developments. So, I can’t comment," said Virag Joshi, president and CEO of Devyani International. Jaipuria did not respond to calls and a message seeking comment.

To be sure, most coffee chains have not been doing too well in India. Several, including the country’s largest chain Coffee Day Enterprises Ltd that runs Café Coffee Day outlets and Barista have shut down loss-making stores.

Boutonniere Hospitality, which operates 45 Barista outlets, having shut down more than double that number, reported a profit of 0.63 crore in the year ended 31 March 2017 compared with a loss of 3.45 crore the year ago as revenue grew 491% to 71.60 crore in FY17.

India’s coffee retail chain market, which was estimated at $107 million in 2015, is projected to touch $855 million by 2025, according to a report by San Francisco-headquartered consulting firm Grand Research Inc.

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