When Matt Chitharanjan and Namrata Asthana moved to Delhi from Chennai they missed drinking freshly roasted coffee. As they began sourcing high-quality coffee from farms and roasting it, they discovered an immense customer base for speciality coffee. Thus, in 2013, was born Blue Tokai, which derives its name from the blue plume of the peacock found in the Malabar region.
Today, besides online sales, the company also has standalone cafes to popularise coffee brewing. Blue Tokai sources coffee from 40 estates, has three roasteries in Gurugram, Mumbai and Bengaluru, and operates over 40 cafes. Its rivals in the speciality coffee business include The Flying Squirrel, Seven Beans Co., Rage Coffee, The Coffee Co, KCRoasters and Sleepy Owl. Blue Tokai’s best-known foreign competitor is Starbucks.
Shivam Shahi, co-founder and COO, who joined Blue Tokai in 2015, spoke about the challenges and future plans of the coffee start-up, which has grown to become the largest speciality coffee player in the country. Edited excerpts:
What is the size of the speciality coffee market in India?
In the last decade or so, there has been a significant shift of consumers from commodity to speciality or premium coffee globally and in India. The Indian coffee market is expected to reach over $4.2 billion in size by 2025, with out-of-home consumption accounting for around 20 percent of the market. Additionally, the Indian coffee retail chain market is expected to reach the $850 million mark by 2025.
When we started, the speciality coffee segment in India accounted for a negligible percentage of the overall coffee industry. With the popularity of this segment growing, this share has certainly gone up. However, there are no official figures available on its current standing. But we expect this segment to grow in the next 4-5 years.
How competitive is the speciality coffee segment in the country?
The speciality coffee segment in India is fragmented, with around 20-25 players operating only in certain sections of the value chain. For instance, some players operate as roasteries, a few as café chains and then there are others that operate only through online channels.
What are the main challenges you foresee in the coming years, especially from foreign companies?
India is one of the most preferred coffee-producing countries in the world. As a brand that has been at the forefront of the speciality coffee culture in India, we have longstanding relationships with over 40 estates. For foreign players, the import duty on coffee is 110 percent, making it a highly expensive proposition to bring in coffee from other parts of the world. As a company that only works with Indian coffee producers, we do not see non-Indian coffee as our direct competition — our aim is to take the best of Indian coffee to the world.
What is your current turnover? Where do you see the company in five years and how do you plan to reach there?
Last year the firm had a turnover of around Rs 42 crore. We are expecting 2x growth in the current year. While e-commerce sales have doubled, the FMCG segment has been showing 4x growth in the last three months.
Blue Tokai has a current annual run rate (ARR) of Rs 100 crore, with the business growing at around 85 percent CAGR in the last six years. While it is a bit early to comment on the performance in the next five years, we are looking at growing 2x in the next year and continuing the momentum in the coming years.
What is the annual growth in coffee consumption in India and how has consumption changed in the last few years?
The compound annual growth for the retail coffee segment in India was 8.4 percent, from 2016-2020. This segment is expected to grow at a CAGR of 6.3 percent from 2021. Over the years the coffee consumption pattern has changed with exposure to global brands and more disposable income in the hands of consumers. Initially this was confined to big cities. But now the craze for speciality coffee has spread to tier-2 and -3 cities as well.
This change is evident in the B2B segment involving corporates and co-working spaces as well as smaller corporates, which are looking for good coffee solutions and shifting to speciality coffee.
From roast and ground coffee, easy-pour sachets, starter kits and equipment for easy home brewing, Blue Tokai has evolved over its eight-year journey with changing consumer tastes, especially among its core aficionados in the 20-40 age group.
With several coffee start-ups in the fray now how do you manage to hold an edge? What is your USP?
We are India's largest and fastest growing speciality coffee company and are at least 2.5x bigger than our closest competitor in this category. Given the pace at which Blue Tokai has been growing so far, we should be widening this gap further in the coming years. We are the only speciality coffee brand at scale in India with a presence across the value chain, both vertically (from farm to cup) and horizontally (physical outlets, D2C, B2B, e-commerce, modern trade etc.). Given that all current players are building a brand within sub-segments, we feel that there’s enough and more space for everyone to grow and further India’s coffee culture.
So far, Blue Tokai has roasted more than 1,000 tons of coffee and served close to 3 million cups. On the coffee ranking scale of 1 to 100, Blue Tokai products consistently score in the range of 84 to 87. Only the rarest form of coffee scores above 90.
What was the impact of the Covid-19 pandemic on your operations? How did you address it?
The omni-channel presence of our eight-year-old start-up helped us navigate the coronavirus challenges. As the cafes bore the brunt of Covid-19, e-commerce helped the firm to sail through the crisis. After the second wave, booming FMCG sales have added a new dimension to our growth. And now, when cafes have re-opened, they are doing more than the pre-covid level of business.
What are your plans for expansion and new products?
We hope to strengthen the FMCG segment by increasing the 150-plus sales outlets to 1,000 by March and to increase the number of cafes to 100 by 2023. Blue Tokai may also rely more on the FMCG segment as the cafes may not help in attracting customers beyond a point.
We have set up two processing plants recently to help small coffee growers and improve the quality of produce. Plans for coffee from non-traditional areas like the NorthEast, Telangana and Andhra Pradesh are also on the anvil.
Do you intend to explore overseas markets?
We have started operations in Japan, where per capita coffee consumption has been on the rise in the last decade though the country traditionally is a tea-drinking nation. The response is good as the people have found our products more akin to their taste. Blue Tokai will explore more markets next year.
How will you fund your expansion?
The firm raised Rs 17 crore recently in a pre-series B bridge round led by Anicut Angel Fund, which will be sufficient to meet its immediate expansion plans.