Cafe Coffee Day, fondly known as CCD, is India's largest coffee chain. But what is it that made it the cult choice in India? Hear is VG Siddartha, Chairman, Coffee Day, narrating the journey of the young India's cafe
A lot can really happen over coffee. It is evident from Café Coffee Day, fondly known as CCD, becoming the nation’s largest coffee chain and young India’s choice.
Coming from a family that has been growing coffee since 1870, VG Siddartha Chairman, Coffee Day continues to spend a lot of leisure time on the plantations.
Elucidating on the trigger that lead to the creation of what is called CCD today, he says, "One day I was doing a commodity price study of the average money farmers used to get for growing coffee, it was USD 1.20 per pound whereas Indian farmers used to get 35 cents because there was a system called coffee board," while adding “We were supposed to pool all the coffee grown to the board and they would sell it in a span of 2 or 3 years and we used to get the payment after that.”
Narrating an anecdote that held true until a few years ago, he says “I remember by 1985-90 when I made money in stock market I bought a lot of property because I knew one day markets will open up; I did not want to be in retail.”
In 1993, Siddartha’s colleagues went to meet the then Finance Minister Manmohan Singh, to explain the scenario and the need to liberalise the trade. He says: "He (Manmohan Singh) didn’t ask why he should liberalise it; he asked why did you not come earlier?"
"That was the day Coffee Day was born,” and this is how the largest Indian coffee exporter came into being by 1995, he tells CNBC-TV18.
Below is the edited transcript of VG Siddartha’s interview with Shereen Bhan
Q: What triggered the family of coffee growers to start opening cafes across the country?
A: I started because my family grows coffee since 1870. So, I know a little bit about the plantation. I spend lot of my holidays on the plantations. When I was doing my research I used to work in Mumbai, one day I was doing a commodity price study of last 15 years - 1985 backwards of 15 years, average international farmers used to get USD 1.20 per pound of coffee whereas Indian farmers used to get 35 cents because there was a system called coffee board. We were supposed to pool all the coffee grown to the coffee board, they would sell the coffee in a span of 2 or 3 years and we used to get the payment after that. So, because of the inefficiency of our system, I wouldn't say the government was bad but it was needed in the 70s because there was no fair market.
I remember by 1985-90, when I made money in stock market I bought lot of property because I knew one day the markets would open up. I did not want to be in retail, coming from a finance background, with no idea of branding or retailing. So, I bought properties thinking that one day instead of getting 35 cents I will get USD 1.20.
In 1993, a few of our association members, one of my colleagues went to meet Finance Minister Manmohan Singh. When they explained to him that we are getting 35 cents whereas the international price is USD 1.20 and we want you to liberalise the trade, he didn’t say why should I liberalise, he said why did you not come earlier? That is the day Coffee Day was born.
Q: One was the fact that the government actually opened up the market and put you in that sense on to a more liberal but the other was also survival instinct which I believe motivated you to actually get into the retail business because you felt that the global guys can come to India and produce and will probably have a much better backend operations and will be able to do it at a much greater scale as well. So, there was that survival instinct that kicked in. Is there survival instinct kicking in even today?
A: In 1993, when we started trading in coffee with liberalisation by 1995 we were India's largest exporter. So, we realised if it is so easy for us to be largest trader, exporter in 2 years, big international firms will come and throw me out. Then we started retailing in 1995-1996. First we wanted to put one store, one my colleague I told him we will start the store.
Q: He said don't do it?
A: He said don't do it because your competition is selling coffee at Rs 5, how much you want to sell at? I said Rs 25. He said who will come to your store?
Q: Your views on the competition.
A: The competition has helped me to change. Competition is good for everybody in life. If you had come and spoken to me four years back we would have been very complacent, who will come here but we know if you don't change and if your service standards, your ambience, your products are not good enough you won't survive.
Q: You are saying competition is good because in that sense it validates the category that you created and it is also going to expand the category that you helped create. What are the big changes that competition has forced upon you today?
A: When we started the cafe in 1996 we were very shy to take bigger places. We used to always take 500-600 square feet places especially in Mumbai or bigger cities the rents were very high but now we have realised easily we can take 1,000 to 1,500 square feet - that is needed. 400-600 square feet doesn\\'t work anymore. So, that is the reason all unwanted small stores we always close and go for a bigger place. So, not only competition it is the economy.
Q: I know that you constrained because your draft red herring prospectus (DRHP) has already been filed with Sebi or are in the process of getting your Initial Public Offering (IPO) done but whatever it is possible for you to share with us in terms of your plans and your strategic vision as far as the business is concerned. Do you see yourself over the next five years as being in the top five coffee players in the world?
A: I don't want to talk about numbers but the beauty is (interrupted..)
Q: Strategic vision.
A: Yes, strategic vision I can tell you it is really fascinating. 1996 we were thinking can we have 20 stores in India that was the survey we did and we thought India will take 20 - today whatever the surveyors - Technopak what we have covered for last year shows that organised players are 2000 today. I feel all organised players put together will be 5,000-6,000 stores in five to six years. So, we want to be a decent player in the industry. How can you lose your leadership and really we love our coffee, we love our coffee more than anything we love.
Q: But is the international expansion significant part of your strategy?
A: You should understand today if you talk about any international competition take about American companies. All the big food brands of America and the coffee brands of the US 50 years back or 40 years you go back in history they were nobody, they were very small. Today each company is worth USD 70-100 billion. Somebody like us, if you see our economists' forecast one big world brand is not enough for 9 billion people, that is what I honestly believe, from the heart I believe and our team is committed to make India proud and I am sure that we want to be one of the decent players in the world market in a longer run.
Q: So, whatever information that you can share with us as far as the IPO is concerned how excited are you about the IPO at this point in time and also in terms of being able to use the IPO proceeds because I understand over Rs 200 crore odd towards expansion of operations and about Rs 630 crore odd will go towards debt repayment but you will still be left with a substantial amount of debt of over Rs 2,000 crore odd. How do you intend to pare that down and whatever you can share with us?
A: Honestly in coffee business net debt should be less than Rs 3,350 crore. So, I am sure whatever the DRHP filing we have done, we will clear almost 60 percent of that debt through that and whatever the money coffee generates cash in DRHP we have filed you can look into those numbers. So, only for expansion whatever the money we have kept for retail is good enough for the next 18-24 months. We don't need any more further money but other businesses which has got debt can easily finance and grow business through internal accrual.Note: This article was first published in July 2015 and is being reproduced in the wake of CCD owner VG Siddhartha being reported missing.Subscribe to Moneycontrol Pro and gain access to curated markets data, trading recommendations, equity analysis, investment ideas, insights from market gurus and much more. Get Moneycontrol PRO for 1 year at price of 3 months at 289. Use code FREEDOM.