Coffee chain Blue Tokai to go big offline, sets target of 80-90 outlets each year

Blue Tokai founders (L to R): Shivam Shahi, Namrata Asthana and Matt Chitharanjan

Blue Tokai, a homegrown speciality coffee and bakery brand, is banking on the expansion of its offline retail stores, which accounts for a good chunk of the company's revenues, and quick commerce to fuel growth over the coming years, co-founder and CEO Matt Chitharanjan told Moneycontrol in an interview last week. 

The firm also looks to more than double its revenue over the next three years, he added.

“We have crossed Rs 400 crore in ARR (annualised revenue run rate)...We are looking to reach an ARR of Rs 1,000 crore over the next three years...(we also) expect to close this financial year (FY26) with 155 or so outlets...opening around 80-90 outlets annually,” Chitharanjan said.

The company is well-capitalised to fund those expansion plans, thanks to its successive fundraises. The goal of opening 80-90 outlets each year is higher than what Blue Tokai has done so far. It has opened only 70 stores in the last 18 months.

Since inception in 2013, Blue Tokai has as many as 133 stores across eight cities.

Plans to increase its offline presence comes at a time when competitive intensity in India's fast-growing $300 million speciality tea and coffee cafe market is brewing. Blue Tokai competes with companies like Third Wave Coffee, Slay Coffee, Sleepy Owl Coffee, Hatti Kaapi, and other chains, such as Café Coffee Day and Starbucks, all of which are looking to become the market leader.

Out-of-home coffee market

At a more macro level, India’s out-of-home coffee market is expected to reach $2.6-$3.2 billion by 2028, with a compound annual growth rate (CAGR) of 15-20 percent, according to a recent report by market research firm Redseer.

“We are seeing out-of-home consumption growing much faster than in-home consumption. Most of the growth is coming from offline expansion, through our own outlets. So that is where our focus is,” Chitharanjan said.

To give its customers a more specialised coffee experience, the brand is launching five experience stores across Delhi, Mumbai and Bengaluru, which will boast live kitchens, and more expansive coffee offerings. The first store will come up in Delhi in the next two months, the company said.

The qcomm opportunity

While a majority of the coffee chain’s business is coming from its offline stores, the rapidly growing trend of quick-food deliveries has proven to be a big growth lever. According to Chitharanjan, quick commerce has “definitely grown faster than e-commerce business.”

He, however, did not shed light on how much of the company's revenues come from which channels.

It's not just Blue Tokai, several new-age brands are now saying quick commerce presents a larger opportunity than e-commerce, thanks to its hyperlocal focus.

Blue Tokai has also partnered with Swiggy’s 15-minute food delivery app, Snacc, to sell products like breakfast staples, bakes, healthy options, beverages, and quick snacks.

“Right now, we are at 30 locations with them (Snacc). It is a bit early for us to say how it is going to play out. (But) we see it as very complementary to the deliveries from our own cafes, because it is a much smaller menu there. If consumers are looking for something like an immediate coffee, we are now on Snacc. If they want a wider set of options, we are also on Swiggy and Zomato,” Chitharanjan added.

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Impressive as Blue Tokai’s quick commerce growth may be, Chitharanjan is of the view that it will “never be the majority of our business.” Most of the company’s sales are expected to come through its offline stores as more firms and customers eye an omnichannel strategy, under which sales will be driven by a mix of online strategy and offline presence.

Learning from rivals’ mistakes

Blue Tokai is, however, taking a measured approach when it comes to expansion, to avoid the mistakes its rivals have made. WestBridge-backed Third Wave Coffee, for instance, faced a management rejig and a round of layoffs while trying to scale.

“We have never been a super-high growth, high-burn business...Growing and scaling in a sustainable manner has always been a part of our DNA, and that has helped us to not make the mistakes that some of the other brands have,” Chitharanjan said.

While Blue Tokai is yet to file its FY24 financials, its revenues increased 70 percent year-on-year (YoY) to Rs 127 crore in FY23. During the same period, its losses widened 3.5 times to Rs 43 crore.

Its arch rival, Third Wave Coffee, saw its revenues jump 346 percent to Rs 144 crore in FY23 from Rs 32 crore in FY22. During the same period, its losses widened 272 percent to Rs 54 crore, from Rs 15 crore the previous year.

Blue Tokai's store count of 133 is more or less in line with Third Wave Coffee, which has over 116 stores and plans to increase the count to 150 by March 2025, as per reports.

Both the new-age companies have a thinner presence when compared to legacy brands. A PTI report in September 2024 said Cafe Coffee Day (CCD) was operating 450 outlets as of FY24.

Similarly, Starbucks, which just saw a change of guard at the global level, and is now tweaking its offerings to appeal more to the Indian consumer, had 421 stores across 61 cities, as of May 2024.

Imminent hurdles

Despite Blue Tokai's growth prospects, the rising prices of coffee globally may take a toll on its margins.

Global climate events have reportedly impacted production in major coffee-growing regions, such as Vietnam and Brazil. As a result, India’s exports have gone up, leading to a shortage of supply and a subsequent increase in prices.

“(The impact of the price hike) will start to hit this harvest period. We will only be able to evaluate the full impact of this, probably, by March. An advantage for us is that because more of our revenues come from cafes, it is much easier to absorb the increasing cost of coffee, since we use coffee less intensely in these formats,” Chitharanjan said.

For instance, the company could sell a cup of coffee at one of its cafes for Rs 250 using as little as 20 grams of coffee powder. However, while selling a packet of coffee powder for the same price, the brand would have to use 100 grams of coffee.

“On the café side of the business, it will hardly impact the business by a single percent. It will have a larger impact on the e-commerce and wholesale business. But it is a bit early for us to say how significant it will be,” Chitharanjan added.

He, however, did not shed light on how much of the price hikes the firm will pass on to the end consumer. It is, however, unlikely that the brand will fully pass on the price increases to customers as it may deter consumption.