A Barista outlet: Scrabble for some, but it's golf for ex-CEO Deol

It's barely 10 hours since the news of his quitting Barista Coffee Company broke, but Ravi S. Deol is looking relaxed and happy. He's just wound up a satisfying game of golf at DLF greens in Haryana, near Delhi. Ask him about his handicap and he says "it was near (the price of a) mocha (40), but now is closer to (that of a) cappuccino (30)". But expect his colourful coffee industry lingo to change (and, perhaps, the handicap to improve) in the days to come, as the Managing Director of India's most high-profile coffee chain prepares to call it a day.

But why is Deol quitting all of a sudden? "Well, it wasn't a sudden move. I was planning for it for some time now," says Deol. Until the news leaked, Deol was supposed to make the announcement at the company's next board meeting on June 15, 2003, although he had already informally informed the directors. He doesn't leave the chain until August this year when his three-year contract expires, and even thereafter will continue as a non-executive director on the board.

But this may not be a simple case of a young CEO wanting to do more in life, as made out by Deol. That everything was not alright at the Rs 65-crore company has been clear, though not obviously so to outsiders, for almost a year now. Problems with the business model, pricing, even operational issues had started coming to a head as far back as July 2002.

First, nudged by partner Tata Coffee, which owns 34.32 per cent of the company's equity and was apparently unhappy over its bleeding bottomline, Deol decided to turn the business model on its head, beginning July-August last year, by going in for franchisee stores rather than the company-owned stores he favoured. As Tata Coffee saw it, the chain needed to conserve cash and not blow it up on opening self-owned stores. (The company, however, did subscribe to its share of a Rs 8 crore rights issue in December 2002.)

The change in approach, however, did not yield any dramatic results. So far, there is only one franchisee-owned store (in Kolkata) and another in Delhi will open only now. Deol claims the company recently tweaked the franchisee model (as recommended by its consultant, PricewaterhouseCoopers) and is now hunting for only mega-franchisees with a long-term commitment to the business, and the ability to cover entire regions, such as Punjab and Maharashtra (sans Mumbai), and not merely single retail outlets.

Again, in order to increase its taking per order, the chain effected a 15-20 per cent price hike in August 2002. It was a big mistake, and Barista realised that several months into the price hike: footfalls were dropping and so were revenues. The reaction: It slashed prices by 25 per cent in May 2003. The official line, however, is that Barista's consumers were moving from a mere novelty-led indulgence to more of a habit and, therefore, prices needed to reflect that. Whatever be the reason, sales have jumped 22 per cent since the price cut, claims Deol.

The truth, however, is somewhere out there. With more price-led direct competitors such as Cafe Coffee Day or brand-led international food retailers like Subway following Barista very closely, city-by-city, outlet by outlet, the options were limited. "Operationally we are already making money, and within a year Barista will turn pat profitable," counters Deol. That takes us back to the nagging question: So why leave at this stage?

Although Deol insists that his relationship with the two major shareholders in Barista (Amit Judge and Tata Coffee) were, and still remain, "very fine", sources say that there was an apparent "divergence of views" between Deol and one of the major shareholders. (Tata Coffee declined to comment and a faxed questionnaire to Amit Judge remained unanswered at the time of going to press). There was a hunt, around the middle of last year, for a head of domestic operations (filled in subsequently by coo Yogesh Samat), to ostensibly allow Deol to focus on Barista's international foray (it has 14 franchisee stores now in Sri Lanka, UAE and Kuwait). The real reason, apparently, was to ease Deol out. Simultaneously, there were rumours on how Tata Coffee wanted to merge Barista with Tata Coffee, through a cashless equity swap but it couldn't come up with an offer attractive enough. "It's pretty obvious that sooner than later Barista will have just one majority shareholder," says a company source.

If one of the promoters couldn't get along with Deol, then why allow him to continue as a non-executive director on the board? Deol skirts the issue, but one of the reasons could be his sizeable holding in the company. Another could be that the promoters wished to offer him a soft-exit. "I have done what I set out to: establish the brand, business model, seed global operations, even planned succession," says Deol who wouldn't reveal what he plans to do next. Still, don't be surprised if he resurfaces as CEO of Starbucks India.

-Shailesh Dobhal