Ravi Deol, CEO, Barista Coffee Company: Bringing the coffee culture to India

Success hasn't come easy for Barista. It has had to educate consumers on coffee-tell them the difference between espresso and cappuccino.

Six months ago, a middle-aged Italian from New York came running into a Barista in the riot-torn city of Ahmedabad. Having found a relatively safe place to sit, the man ordered an affogato (a scoop of vanilla ice cream drowned in a fresh shot of espresso). As he was sipping it, he suddenly burst into a hysterical mass of tears. When one of the anxious baristas (Italian for bartender) enquired, the man revealed that the last time he had an affogato was 20 years ago in his provincial home town in Italy with his grandmother. The whole experience of finding an authentic affogato in the middle of bloody riots was, then, simply too overwhelming for him.

If Barista Coffee Company, which runs the Barista coffee bars, needed a testimonial to the authenticity of the Italian coffee drinking experience that it is trying to market by the cup in India, it couldn't have got a better one. But the question is, in a country where 70 per cent of the people drink tea will coffee ever stage a cultural coup?

It just might. Since opening its first store in Delhi in February 2000, Barista has mushroomed to 105 stores in 18 cities-that's one store every nine days-serving 30,000 customers a day. Revenues in 2001-02 soared to Rs 65 crore from Rs 25 crore the first year. By the end of current fiscal, it wants to raise the store count to 250 including a couple in SriLanka and Dubai.

Ask Ravi S. Deol, Barista Coffee Company's 39-year-old CEO, if it's an Indian Starbucks he has in mind, and he mumbles a reluctant yes but quickly adds that he doesn't think the $2.6-billion American coffee chain, which at last count had 5,689 outlets in 28 countries, is global enough. "We want to be global in every sense of the word," he says without a hint of embarrassment.

Yet, there's little doubt that Barista's role model is Starbucks. Walk into any Barista, and you would find the atmosphere informal, the colour orange (for Joy) and the décor unpretentious. Substitute the colour orange with green and white and you could be sitting in Starbucks. Fun posters, a message board, and TV screens with music videos set the mood. There is an open kitchen behind the bar so you can watch your coffee being made. Deol says that unlike Starbucks', the Barista experience is closer to that of the Italian espresso bar. (But that may not be entirely true, since Starbucks was also inspired by its founder Howard Schultz's trip to Italy.)

BATTLE OF THE BREW: HOW THEY STACK UP

BARISTA ANNUAL SALES: Rs 65 crore STORES: 105 (in 8 cities) FOOTFALL: 400/cafe/day CUPPA CAPPUCCINO: Rs 40 PLANS: 250 stores by fiscal-end; go global, starting with a store in Sri Lanka by October this year MOVENPICK ANNUAL SALES: Rs 4 crore* STORES: 2 (Chennai & Bangalore; Delhi outlet temporarily closed) FOOTFALL: 400-500/cafe/day CUPPA CAPPUCCINO: Rs 40 PLANS: 8 more stores by the end of the year and to expand the size of the outlet in Delhi CAFE COFFEE DAY ANNUAL SALES: Rs 10 crore+ STORES: 50 (in 9 cities) FOOTFALL: 600/cafe/day CUPPA CAPPUCCINO: Rs 20 (Rs 25 in Delhi & Bangalore) PLANS: 100 stores by December, 200 by March 2004. 50 outlets in Mumbai alone by 2002-end QWIKY'S ANNUAL SALES: Rs 4.3 crore STORES: 21 (in 5 cities) FOOTFALL: 600/cafe/day CUPPA CAPPUCCINO: Rs 30 PLANS: To double number of stores by next year; expand to Pune and Kolkata

Changing Lifestyles

Just like Schultz, Deol-and Amit Judge of the Turner Morrison group, which has promoted Barista Coffee Company-seem to have proved right about coffee's universal appeal. But the success hasn't come easy. Barista has had to, first of all, educate consumers on coffee-tell them the difference between espresso and cappuccino. Then, it has had to create a knowledgeable counter staff that could interact confidently with customers. Its 600-odd baristas are specially trained and skilled, and then tested at making coffee before they are allowed to serve customers.

Now that the consumer can differentiate between an espresso and a cappuccino, the aim is to transform the indulgence into a habit. And one of the ways it is trying to do that is through sheer reach. Barista will set itself up any place where there is enough of a footfall-shopping malls, big retail outlets, banks (like ABN-Amro), movie theatres (PVR in Delhi), offices (HSBC and GE), airports, and hotels. "We have to be wherever our customers want us, and that is the template," declares Yogesh Samant, BCC's 30-something coo, who comes from Hindustan Lever Ltd.

To be sure, Barista has a whole lot of things going for it. Compared to its competitors, Qwiky's, Café Coffee Day, and Movenpick, the early bird Barista has a higher brand profile. It also has deeper pockets, thanks in part to Tata Coffee, which in August 2000 picked up a 34.3 per cent stake for Rs 26 crore. Besides capital, the alliance gives Barista a shot at supply-chain integration, with TCL supplying the beans and the Taj hotels (part of Tata's Indian Hotels) feeding it with food items like baguettes, croissants and desserts. Points out M.H. Ashraff, Managing Director, Tata Coffee: "The association results in Barista having a captive production base, which gives it an advantage over its competitors." And the fact that the per capital coffee consumption in India at 42 gm (compared to 4.5 kg in the US) is abysmally low, leaves plenty of room for growth.

"We have to be wherever our customers want us, and that is the template" Yogesh Samant, COO, Barista

Still, the going won't be easy for Barista. So far it has invested Rs 60 crore in building its chain of 105 stores, but accumulated losses are as much as a fifth of its equity capital of Rs 36 crore. The operating profit is a decent 17 per cent of sales, but Barista's expansion spree means that the bottomline won't be turning black anytime soon. By Deol's own admission, the company is not expected to break even at the net level before the end of fiscal 2003-04. Then, Barista imports everything from chairs to coffee beans to coffee machines. That makes it vulnerable to currency fluctuations; even a marginal depreciation in the rupee will make Barista's imports costlier and crunch its margins.

In fact, barely a month ago, coffee prices had to be increased from Rs 30 to Rs 40 per cup. Fortunately for Barista, there was no impact on sales, but in a market like India, price is usually a big issue with consumers. Says Neeraj Jain, ceo, Movenpick: "Prices will play a major role in another two years when people begin to differentiate between instant and brewed coffee." Some other industry experts believe that the moment some other high-priced player (Starbucks?) enters the market, Barista will find itself sandwiched between the premium and mass market brands.

Competition is at Barista's heels too. As things stand, Barista is geographically well distributed. A third of its stores are in north, another one-third in west, and the rest is distributed between south and east. But its rivals are now beginning to make inroads.

Café Coffee Day, owned by the Rs 200-crore Amalgamated Bean Coffee Trading Company, already has 50 stores and is expanding rapidly in north-Barista's stronghold. It plans to have 200 cafes by March 2004. In south, where Qwiky's and Café Coffee Day dominate, Barista is admittedly weak. Coffee chains' success will attract more players and, at the least, strategic investors, who will deepen the pockets of rivals like Qwiky's.

The greatest pitfall, however, could be in Barista's bid to go global. A holding company has been set up in Switzerland to facilitate opening of stores world wide. For starters, two outlets will be launched this year, beginning with Sri Lanka in October, followed by one in Dubai. Says Deol: "We know that some of these markets have already evolved, but if we can succeed in India, we can succeed anywhere." But if coffee pubs are about a way of life, just what brand connotation will Barista have compared to, say, Starbucks? What the American company, which is on a global expansion binge, sells is not coffee but hip Americana.

For that reason too, Starbucks in India will likely lead to an exodus of customers from the Baristas and Qwiky's. To stand its ground, Barista will have to differentiate itself both in terms of price and the coffee it serves. But for the next few years at least there is unlikely to be any storm in Barista's coffee cup.