Changing India Favors Cafe Coffee Day IPO
International Business Times
Published Oct 09, 2015 03:50AM ET
Changing India Favors Cafe Coffee Day IPO
By Harichandan Arakali -
BANGALORE, India -- The Taylors had just settled down around a table, set in a semi-outdoor enclosure at a Cafe Coffee Day, located at the junction of two of the busiest roads in Bangalore's Frazer Town area. Three generations of the family were waiting for their cold coffees and chocolate cake to arrive.
"It's a nice place to hangout, to talk to people over a cup of coffee, lot of things happen over coffee," said Sam Taylor, in his late sixties and the eldest in the group. He was also recalling the tag line of the cafe chain's advertisements, "A lot can happen over coffee."
Such scenes are commonplace across Indian cities and towns these days, and have played an important role in encouraging Coffee Day Enterprises Ltd., which operates the Cafe Coffee Day chain, to take the company public next week in Mumbai, and raise as much as 11.5 billion rupees (about $176 million).
That money will help the company pay off debt and consolidate the commanding lead its 1,500 or so outlets have across India over foreign rivals including Starbucks (NASDAQ:SBUX), and McDonald's (NYSE:MCD), whose local franchisees are adding coffee outlets within McDonald's restaurants, even as Cafe Coffee Day adds more eating options, including spicy Indian snacks.
The Indian coffee chain market is forecast to grow 20 percent each year from 18.2 billion rupees ($290 million) in 2014 to 54.3 billion rupees by 2020, according to retail markets research firm Technopak. The total number of organized cafe chain stores is predicted to increase from about 3,500 today to 6,200 by 2020.
However, in order to grow at this pace, cafes in India will have to contend with the tastes of a nation of tea drinkers.
Dawn, Sam's wife, said: "I love my chai, but their tea isn't good. Their cold coffee is really good." Her comments are an indication that Cafe Coffee Day is succeeding with selling coffee in many avatars, from plain coffee with milk to double-shot espressos to cold coffee shakes with strawberry flavor.
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The company, which was started in 1996 by its entrepreneur chairman V.G. Siddhartha, and has interests in businesses including holiday resorts to software services, and counts private equity company KKR, venture capital firms New Silk Route and Sequoia Capital as investors.
"I've been going to Coffee Day since they had the first one on Brigade Road (in Bangalore) ... all the young people used to go there because it was also a cyber cafe," recalled Sam's son Mark.
Around the table were Mark's wife, their two children, sister and a cousin. "I used to walk over almost every evening, drink a frappe ... the taste is still the same even after 15 years."
Cafe Coffee Day is also a preferred choice during rest stops on road trips for a growing number of car owners in India, who are increasingly at ease driving from one city to another for business as well as family occasions like marriages or just a holiday get-together. One of the reasons for the preference is the attention to details like clean toilets and running water, often missing at other local outlets. The Taylors themselves have moved to the neighboring town of Hosur. And a stop at a Cafe Coffee Day outlet on a drive to or from Bangalore, is often a natural choice.
Coffee Day Enterprises -- which could be valued at as much as 67.5 billion rupees or $1 billion following the share sale that will open Oct. 14 and end Oct. 16 -- will rely on these changing tastes and spending habits. The company will sell shares in the price range of 316 rupees to 328 rupees, offering 17.55 percent of itself to investors on a post-issue basis, Reuters reported Wednesday, citing a presentation made by the company in Mumbai.
Written By: International Business Times
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