The Battle for India’s Coffee Drinkers in Buzzing Economy

By David South, Development Challenges, South-South Solutions

SOUTH-SOUTH CASE STUDY

A showdown in India over coffee is creating new opportunities. It is also demonstrating how the country is changing, with rising incomes in some places and great disparities in others.

Finding the right place to have a coffee and meet with friends for a chat is important to many urban Indians. And the fight is on for these customers.

Older establishments like the legendary College Street Coffee House in Kolkata (http://en.wikipedia.org/wiki/College_Street_Coffee_House) – owned by a cooperative society – compete with new rivals modelled on the popular American chain Starbucks (http://www.starbucks.com/). This fierce competition takes place in an economic environment of rising food inflation of up to 16 percent this year and economic growth surpassing seven percent.

Coffee is the second most popular drink in India after tea. Its consumption has been steadily growing over the years, rising from 50,000 metric tonnes (MT) in 1995 to 94,400 MT in 2008 (Coffee Board of India). Once mainly drunk in the south of India, the taste for coffee has spread around the country with the rise of fast-paced modern lifestyles. The caffeine (http://en.wikipedia.org/wiki/Caffeine) jolt of a cup of coffee is attractive to people on the move and working hard.

India also holds its own as a coffee growing and exporting nation, accounting for about 4.5 percent of world coffee production and the industry provides employment to 600,000 people. The state of Karnataka accounts for 70 percent of country’s total coffee production followed by Kerala (22 percent) and Tamil Nadu (7 percent).

India has the domestic demand, and it has the product. And now a bitter battle for the nation’s coffee drinkers is underway. The difference between what is on offer at the cooperative-run coffee houses and the newer establishments is stark: at the older places, service is old-fashioned – waiters in white suits deliver coffee and food to tables – with a no-frills menu on offer. Coffee comes in simple forms: black, white, cold, hot for eight rupees (US 0.18 cents). At newer establishments, coffees come in many varieties and permutations, flavoured and with added extras. Menus also can be varied and establishments can include things like internet access.

The appeal of the older establishments is price.

“It’s good here because it’s cheap,” College Street Coffee House customer Arindam Chouwdhry, 19, told The Guardian newspaper. “We can’t go to these new places. We are from the middle class only.”

And turnover is brisk, according to manager, Deepak Gupta. “We serve up to 1,500 cups a day. Business is good.”

Owned by the India Coffee House chain (http://en.wikipedia.org/wiki/Indian_Coffee_House), a worker’s cooperative society with 400 outlets across the country, the Coffee House was established in the 1950s with the mandate to serve cheap food and drink and act as a meeting place. It attracts workers, intellectuals and political activists. But with the huge economic changes in India over the past decade, traditional coffee houses are facing fierce competition.

In the state of Kerala, home to avid coffee drinkers, 15 of the cooperative’s 50 branches are now losing money. In the capital, Delhi, a further 10 coffee houses have closed. Things are so bad for these traditional coffee houses that the most famous branch of the Indian Coffee House has not paid its rent for years and is waiting to be closed by the municipality.

“The younger crowd seems to go elsewhere,” said its resigned manager, Janak Raj.

In many countries, coffee houses have become essential tools for economic development. They not only offer a stimulating drink, but a place to hang out, meet friends and business partners, catch up on news and access the internet. This role in economic development can be found as far back as the coffee houses of Europe during the beginning of the industrial revolution: deals were struck and people could meet the like-minded to hatch business ideas.

Coffee houses and cafes also reflect the economic and social changes in Indian society. They have come to be status symbols, showing what economic power you have achieved. And as services and quality change, they show how the level of prosperity changes.

New competitors to the cooperative coffee houses’ are offering a more modern environment to lure in a trendier crowd. Café Coffee Day (http://www.cafecoffeeday.com/index.php), which claims to be India’s largest chain coffee shop, with the motto “where the young at heart unwind”, has air conditioning, mirrors, comfortable chairs and posters on the walls for decoration. And the price is different as well: choco-frappes go for 95 rupees (US $2.11).This price means the customers need higher incomes to afford to go there.

“McDonald’s is the cheapest hangout and everyone can go there,” said a customer, Sima. “This is much nicer and only a bit more expensive so we come here. But only a few people can go to Barista’s.”

The chain Barista’s (http://www.barista.co.in/users/index.aspx) is 10 years old with 230 outlets. It is growing fast with 65 more new outlets opening this year. According to its head of marketing, Vishal Kapoor, Barista’s does not simply offer coffee, but “an overall experience.”

They bill themselves as “crème” cafes: places where salads and smoothies are on offer beside the coffee.

“It’s very exciting what is happening in India,” Kapoor said. “The classic coffee houses are part of an era that is ending.”

“People use the cafes as places to meet for privacy. “It is a kind of private space,” says Ruchika, a bank worker.

Nonetheless, despite its success, Barista’s is still too expensive for most Indians.

Resources

1) 48 innovations in coffee culture: This eclectic mix of innovations, trends and tit bits on global coffee culture is sure to inspire any budding coffee entrepreneur. Website: http://www.trendhunter.com/trends/coffee-innovation

2) Watch a video report from the coffee houses. Website: http://www.guardian.co.uk/travel/video/2010/apr/01/india-coffee-house-kerala

3) Coffee Board of India: The Board focuses on research, development, extension, quality upgrades, market information, and the domestic and external promotion of Coffees of India. Website: http://www.indiacoffee.org/login.php

4) Practical advice and contacts on how to start a coffee shop. Website: http://www.howtostartacoffeeshop.co.uk/

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