Jul 16, 2008

Business - Trusted Brand Cafe Coffee Day

For Naresh Malhotra, advisor and board member of venture capital firm Sequoia Captial India, the crowning glory of his stint at retail coffee chain Café Coffee Day (CCD) was when the chain set up shop in the coffee capital of the world, Vienna. This was back in 2005, and Malhotra had naysayers in plenty telling him how foolhardy the idea was - after all, selling coffee to Venetians was much like carrying coals to Newcastle. But Malhotra was undeterred. “I tasted about 30 to 40 cups of coffee being sold in Vienna, and the quality was not up to the mark,” he recollects, reposing his faith on the century-old backbone of procuring high quality coffee from Amalgamated Bean Coffee Trading Co, the parent of CCD, and the entire coffee experience that the brand has successfully been able to create. “We would like to take CCD to North America as well,” announces Malhotra, who now sits on the board of CCD, after he quit as CEO last year. While the jury is still out on whether or not CCD’s Vienna foray - where it has three cafes - and its planned entry into other countries will live up to expectations, one can safely say CCD has been able to create an enviable track record and brand image in India . Starting from its first café in Bangalore’s Brigade Road in 1996, CCD now spans 102 cities with a network of 620 cafes, outpacing nearest rival Barista not only in terms of its width of network, but also in the constant innovations that the chain has institutionalised in every aspect of the business: customer service, logistics and supply chain efficiency, and the various formats it has experimented with depending on the target audience. The evidence of the connect CCD has been able to make, particularly among the youth, comes from the findings of Brand Equity’s Most Trusted Brands 2008 survey - in the food services category, CCD ranks No 2, while Barista lags at No 5. “CCD today has become the largest youth aggregator, and from a marketing stand point, the success has come by focusing on the 3As: accessibility, affordability and acceptability ,” explains Bidisha Nagaraj, president – marketing, Café Coffee Day. From the present 620 cafes, CCD plans to touch more than 900 — and a turnover of Rs 700 crore — by the end of the current financial year. Which means practically launching one store every other day

This is where CCD has perfected the first A of the 3As, accessibility. With presence in multiple cities, varied formats like cafes, garden cafes, lounge cafes and Xpress Cafes across different catchments like high streets, malls, multiplexes, offices, educational premises, and railway stations, CCD has been able to make its brand presence felt through the sheer number of stores. “Customers knew that we are an anytime, anywhere café ,” says Nagaraj. Adds a former CCD official: “The various formats picked the catchment and delivered what the customers needed. So if it’s near the airport, a 24-by-7 café services the traffic moving in that catchment.” Malhotra says that the aggressive ramp up started sometime in 2001 — till then, the brand had managed to grow to just 18 cafes from its 1996 launch. The post-2001 period saw a near manic expansion of the retail network . Sudipta Sengupta, senior VP – marketing & sales, Nirulas, and former senior GM – marketing at CCD, recalls how in those early years, almost everyone in the company was involved in site searching. So if prime locations were not available , corner roads and dilapidated structures were frozen upon and long nine-year leases were signed. The upshot: for a property rented a few years ago, CCD continues paying a rent of just Rs 60,000 per month, explains Malhotra. Sengupta adds that revenue sharing had come into vogue, which enabled CCD to offer more to the landlord as business grew within the café . Even within a single catchment, CCD adopted a cluster approach strategy with as many as four CCD cafes dotting a single street. The plan definitely acts an entry barrier for competition as it means consumers get habituated to the brand, but the logical question is how did the brand insure itself against cannibalisation of footfalls. Nagaraj says this was never a problem, and cites the example of four cafes at Indira Nagar in Bangalore, all of which are profitable, she claims. “The success of these clusters indicates that there was latent need in the market. It helps us increase the pie rather than distribute it,” she states. Malhotra believes that the clusters not only help reinforce brand image, they also make it easier to manage operations . “Supplies can be managed, and replenishments done quickly if one cafe runs out of stock... and having one manager for a set of cafes improves efficiencies and reduces costs.” The cheap real estate acquisition and cluster strategy has enabled CCD to keep its pricing competitive. For instance , CCD has priced its vending machine coffee at Rs 15 and its cappuccino at Rs 33 — which, according to Malhotra , are lower by 30%-40 % when compared to similar offerings at Barista. CCD has also followed a ‘no-segmentation’ approach when it comes to the customer: even though the majority of CCD patrons are in the age group of 18-to-29 years, the segment above 29 flocking to format is on the rise, says Nagaraj, adding that the brand is pitched at ‘the young and the young at heart’ . And it is here that the comparisons with Barista are inevitable and most pronounced. Also, this is where Barista appears to have lost the plot — and the phenomenal first-mover advantage it once had over CCD in a promising market. Observers believe that the constant change in management at Barista didn’t help the brand one bit. “A brand needs to be focused and cannot aim to be everything that everybody wants it to be,” says consultant Harish Bijoor. “Barista did not show consistency as far as the brand promise was concerned. The change of ownership from Turner Morrison to Tata Coffee to Sivasankaran to Lavazza further dissipated the brand.y of the brand.” Bijoor adds that CCD, on the other hand, appealed to that genre of coffee cravers who were young, but didn’t have to necessarily beg, borrow or steal to have a cup of coffee. “The pricing, ubiquity and consistency have helped CCD. Ubiquity is very essential for a retail brand — just a variety of good offerings is not enough,” he says. It’s not as if CCD didn’t face any challenges on its way from being a largely south Indian retail chain to becoming a national brand. Sengupta recollects the time when the format reached 100 cafes in Delhi, the challenge being to create the brand image in a non-coffee-drinking market. “We tried to attract them with our food offerings tweaked to suit the local palate. Once they were hooked, we got them to try coffee,” she explains. Even as offerings were innovated upon, CCD realised that the ambience within cafes needs constant upgradation. The tag of ‘hip’ and ‘cool’ for youngsters, a place for business meetings for professionals or a quite evening at the lounge required constant improvements on elements like providing Bluetooth and Wi-Fi connectivity and extensive merchandise. And when it comes to building buzz, CCD has never resorted to mass media advertising — it’s the chain’s 600-plus stores that talks about the brand, says Nagaraj. In fact, the first time CCD was seen in an ad was when the brand appeared in a cobranded TV commercial for one of Yamaha’s motorbikes. The chain has, in fact, struck a goldmine through co-branding activities with brands like Levi’s , Apple iPod and Airtel, all on the back of targeting the audience that CCD addresses . Nagaraj believes the brand has been successful in providing convenience and experience at the same time. For now it’s comfortable cruising for CCD. But competition is not far down the horizon. With foreign players like Gloria Jeans making a foray into the country, and even Starbucks waiting for a chance to get in, customers could quickly make a beeline for the new formats. Maybe, says Nagaraj, but with a huge market waiting to be tapped, she isn’t very worried. In fact, she says India can take up to 5,000 cafes. “So no one is a threat here... the more the merrier .” CCD is readying to add more formats to its portfolio, with book cafes and even sports cafes on the anvil. “We are looking at addressing the older age group with offerings like Wi-Fi and even meal options instead of snacks. And in some time, CCD will get Landor Associates to look at ways and means of strengthening the brand,” Nagaraj reveals. Sengupta says that in the time to come, locations will prove to be of strategic importance for the chain. “They need to keep growing and get more footfalls. That will shut out the competition ,” she states. Consistency in food and beverages across the length and breadth of the network is critical, adds Malhotra. And just to underscore the point, he stresses that CCD is not worried about players like Starbucks. “In fact, they have reasons to be scared of us,” he says.

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