Costa Coffee sees rising sips grow its India business

MUMBAI: For British coffee chain Costa Coffee, there’s no going slow on India expansion despite an uncertain global macro environment, which has nudged many businesses to review their growth strategies.In India, where many people still love waking up to a hot cup of tea and debates over chai versus coffee continue to rage, parts of the population are moving from tea to coffee.
Millennials with higher disposable incomes and Gen Z are driving the market opportunity in India, where the coffee space is growing at 10%-12%, double the rate of global markets, said Philippe Schaillee, CEO at Costa Coffee, which was acquired by The Coca-Cola Company in 2019 in a $4.9 billion deal. India, which is among the company’s top 10 markets globally, has the potential to get into the top five markets in five years, Schaillee, who is on a trip to the country, said.
“More and more of the (Indian) population is starting to increase the incidence of all the beverages they drink, starting to shift from tea to coffee and increasingly to premium, specialty coffee, which is partially driven by the fact that they see coffee as a product that delivers healthy energy. We have the benefit of being in a category that is just growing rapidly within an overall economic environment that is slowing down,” Schaillee said in a media round table on Wednesday.

The local food and beverages segment saw some slowdown in the second half of last year, but consumption picked up in the March quarter. “We are definitely not moderating our growth rate in India,” Schaillee said, adding that the company will continue to open 40-50 new outlets every year as targeted. Costa Coffee, which operates in the specialty coffee space in India through its franchisee partner Devyani International, competes with a mix of global giants like Starbucks, Tim Hortons, and new-age players like Blue Tokai Coffee Roasters and Third Wave Coffee in the market alongside traditional chains such as Cafe Coffee Day.
Given the company’s low exposure to the US, the tariffs are unlikely to have any material impact on its business; the steep increase in coffee prices has been a bigger headache for players in the space. “Across the globe, we have passed through green coffee inflation, either directly to consumers or through to our partners and allowed them to decide how they pass on to the consumers,” Schaillee said.
In India, where the firm sources most of its products locally, the strategy will be not to lower the price points, which Schaillee said hampers the experience of quality coffee, but to diversify its range of offerings to include more accessible options. It will also sell more combo packages (with food) that allow brands the scope to offer discounts to consumers.
Costa Coffee has historically had more millennials as its customers, given their higher purchasing power compared to Gen Z, and the same is true for India.