Storm in A Coffee Cup - The Barista Story
Storm in A Coffee Cup - The Barista Story
Storm in A Coffee Cup - The Barista Story
at
Submitted by
MARY CHERIAN
&
H. AJAY KHANNA
H. AJAY KHANNA was a Faculty with the Dept. of Management Sciences, PSG
College of Technology, Coimbatore. Presently he is with the Central Government
organization Bureau of Indian Standards, in an administrative capacity as Assistant
Manager based at Chennai.
Executive Summary
Barista Coffee Company, which runs the Barista coffee bars, was setup in Feb
2000 by Turner Morrison group to stir up the liquid coffee retailing market with its
ambitious plans for expansion. Within two years, it became India’s largest and fastest
growing chain of espresso bars and won lot of top awards for excellence in specialty
coffee retailing. Success didn’t come easily to Barista. It was continuously educating
consumers on the coffee experience and was gunning for more stores in India and abroad.
The strategic alliance with Tata Coffee was followed by 2 successive CEO’s charting
different paths for Barista. In addition to this, there was the impact of the acquisition of
the entire 65.6% stake of Turner Morrison by Sterling group’s (Fresh and Honest coffee).
Subsequent years saw Barista change colours, with a major part of its revenues coming
from merchandising, space selling and a variety of food rather than just coffee. News of
acquisition by Lavazza and Starbucks imminent entry into the Indian market is fuelling
speculation about the future of the industry and its dominant players.
Ethiopia. It was only a goat herder by the name Kaldi, who noticed his goats acting
Today, coffee is a giant global industry employing more than 20 million people.
This commodity ranks second only to petroleum in terms of dollars traded worldwide.
With over 400 billion cups consumed every year, coffee is the world’s most popular
beverage. If you can imagine, in Brazil alone, over 5 million people are employed in the
cultivation and harvesting of over 3 billion coffee plants. Sales of premium specialty
coffees in the United States have reached the multi billion dollar level, and are increasing
Coffee it is said came to India in the 17 th century, when Baba Budan, a pilgrim
traveling to the holy places of Islam, brought back seven coffee seeds from Yemen.
These seeds were then planted in the hills of Chandragiri, situated in today’s
Later the commercial exploitation of the drink made more and more enterprising
and pioneering planters take to the cultivation of coffee(Refer Exhibit 1 - State wise
production details). Over the years small holdings coalesced into larger ones that created
bigger coffee estates, almost all of them situated in the Coorg district of Karnataka. The
industry was sailing without many problems till 1930, when the winds of the global
economic depression derailed it. An industry which had always forged ahead on its own
approached the government for succor. This led to the setting up of the Coffee Cess
the world war became an obstacle for all export routes of Indian coffee, the Coffee Board
transformed itself into a marketing outfit. Planters would sell what they produce to the
Board and the board took on the responsibility of marketing it. This was institutionalized
by the government in 1952, when the Coffee Amendment Bill passed by Parliament made
it mandatory for all planters to compulsorily sell their produce to the Board.
Coffee board was enjoying monopoly till 1960s, when liberalization, aided by a
lot of support from Tata Coffee, got the control on coffee on the Coffee Board and the
situation of monopoly was loosened. This new chapter in the industry’s story has
breathed new life into many plantations, allowing larger outfits like Tata Coffee to dream
big and make their mark through brands in the global coffee market.(Refer exhibit 2 - for
Espresso, a recent innovation in the way to prepare coffee, obtained its origin in
1822, with the innovation of the first crude espresso machine in France. The Italians
perfected this wonderful machine and were the first to manufacture it. Espresso has
become such an integral part of Italian life and culture, that there are presently over
Barista coffee company, which runs the Barista coffee bars in a branded liquid
coffee retail chain promoted by New Delhi based Java Coffee Co., a subsidiary of Turner
Morrison group. With an initial investment of Rs.55 crore, Barista started its first chain
at Delhi, in Feb 2000. The coffees served at the chain were researched and created by an
Italy based consultant. Though India is accustomed to traditional coffee habits, Barista
alternative taste for espresso based beverages, supplementing the coffee drinking habit.
Barista means bartender in Italian and the ambience recreated at the barista
espresso is distinctly Italian. The sleek interior with a startup cost of Rs. 50 lakhs per
outlet, one can smell the aroma of coffee across the orange interiors. Under the glass
counter, chocolate cakes sit temptingly beside stuffed sandwiches. The ambience is
created in a manner that the families can enjoy a cup of coffee and spend quality time
over a game of scrabble, while teenagers can strum a guitar. There is also a television for
sports fans, a board covered with post it notes where people can leave messages for
About the staff, Barista teaches them how to clear tables, brew coffee to the exact
temperature and also gives them attitude training. They have to learn the customer’s
names to be their friend and confidante. Deol (Former CEO, Barista) had also started a
Barista training academy in Delhi, where new recruits undergo an 18 days induction
The blends are made from Arabica beans grown in the high altitude of South
India, which come vacuum packed to maintain freshness; Barista offers wide varieties of
coffee both warm and cold. Barista also has different kinds of brewed coffee. A tall glass
of latte or mocha at barista cost Rs 40 without the frills of cream or special flavor. With
various extras, the price could escalate to Rs.90. Sandwiches were priced at between
Rs.30 and Rs.40; where as an espresso at a five star hotel coffee shop will be around
Rs.100. Barista also offers a select range of rich deserts: walnut brownies, Savoy cakes,
tikka sandwiches, cheese and tomato sandwiches and roll and slimmers’ choice
sandwiches are the favorites. Also one can get a whole range of chicken snacks namely
smoked chicken, capsicum, onions, gherkins, mayonnaise and lettuce seasoning and tikka
sandwiches stuffed with tandoori chicken tikka, onion tamarind chutney and more…
Customers @ Barista
The general effort of the management at Barista is to make itself a brand where
the key thrust is engagement and not entertainment thereby looking to create an espresso
culture. Barista’s target segments include professionals, working couples and families of
upper and upper middle class who detest the loud ambience of coffee pubs. Industry
observers tend to define Barista’s role in consumer perception as an urban getaway rather
than a hangout like other coffee pubs. Barista concentrates on discovering latent
consumer needs and customer interaction is a crucial process. This helps Barista create
average of 45 minutes in the café. A Delhi based research shows that Barista’s target
consumer spends nearly 57 percent of the day outside home. The customer profile
changes as the day advances. The first half witnesses a lot of students dropping by to kill
some time over a cup of coffee followed by professionals coming during the day in the
afternoons or in the early evenings. As night progresses the bar is filled with families and
friends. The ratio of male and female customers at Barista espresso bars is 50:46 while
76 percent are regulars. The Ex-Marketing head of Barista Coffee Company, Sandeep
The location of the outlet also plays a role in determining the kind of customers
stepping in. At Khan market in Delhi, journalists, industrialists and politicians frequent
the outlet while the outlet in Bandra in Mumbai is noted for socialite customers. Barista
also ensures each customer type gets to enjoy his/her kind of music. Initially Barista
forced jazz on every one. As the younger customers wanted fresher music, it started
playing latest numbers to keep them happy. After all, the purpose was to offer fast,
Competitors
Barista faces competition from international and regional players such as Café
Coffee day, Qwicky’s coffee bars, Mr. Bean Coffee Junction, Coffee World, etc. Though
the competitors also offer different kinds of coffee, the “coffee experience” at Barista
makes all the difference. The reason is that Barista doesn’t look like the Udupi
restaurants, where strong and sweet south Indian coffee is served and the ambience is
also crucial in distinguishing Barista from the competition. Barista has been positioned
between the luxury of five star coffee shops at the high end and the Udupi restaurant at
the low end. Also Barista has a national presence which its competitors cannot boast of.
Barista’s expansion plans were the most frentic in liquid coffee retailing that one
couldn’t imagine. In Feb.2001, Deol made plans of opening 50 outlets across India by
the end of April as part of the immediate expansion strategy and increasing it to 100 by
the end of the year 2001. On May 2001, Deol expected the company’s equity to be Rs.25
invested Rs.35 crore in 75 outlets believing that all the stores were making cash profits,
only the payback differed in each outlet. On an average, each outlet averaged around
700-800 customers a day, which goes up to a 1000 during weekends with an average
Deol decided, after the first face of network building, the second phase of
expansion would be looking at the work places of corporates, travel segments like
railway stations, airports etc., He was also strong in his decision that if Barista intends to
undertake the expansion, it should be on its own and not through any franchisee. He
believed, this strategy would clock sales of Rs.32 crores by the fiscal ended March 31,
2002.
By this time, the speculation on Starbucks impending Indian launch had nerved
up Barista’s frenzied expansion. Since Starbucks’s entry will hasten the market
segmentation process, Barista tried to grab the share of the pie before the arrival of
Starbucks. But Deol was highly confident that Starbucks had always struggled wherever
they lacked the first mover advantage. On Feb.2001, Deol had plans to have 800
employees by the year end from 180. He also had plans of taking the Indian grown brand
On July 23rd 2001, Tata coffee, Asia’s leading coffee company picked up 34.3
percent equity stake in Barista Coffee Company (enterprise value of little under Rs.100
crore on 2001) through all-cash deal (cash deal of Rs. 26 crore). Besides Tata’s, Barista
employees held an equity stake of 8 percent. The balance was held by the promoter
Turner Morrison, which continued to be the largest stake holder. This combination gave
and international markets. This also opened up institutional segments for Barista like
hotels (the company had also announced its association with all Taj group of hotels with
the opening of its first Barista espresso bar at Taj Mahal hotel, Mansingh road in New
Delhi), airports (nearly 60 percent of the countries airport lounges are run by Tatas) and
in-flight services. Since Starbucks didn’t have a roastery in Asia or roastery partner for
Asia it made Barista’s way easier. Tata tea’s earlier acquisition of an international outfit
Everybody felt that the strategic tie-up would see the birth of a powerful new
entry in the coffee industry that would enable Barista to achieve market leadership.
Meanwhile Deol planned to install vending machines through Cimbali, an Italian partner
On October 2001, based on the market research by Barista coffee and Indica,
Deol felt that a gap existed in the Indian coffee’s home brewing market. As a result, it
invested Rs.4 crore in the home brewing market by becoming the first to introduce home
brewing products and equipments by a coffee retailing major. Barista wanted to extend
customers’ loyalty to their homes. For this, Barista introduced a home brewing
equipment, the French press. The home brewing products were retailed through select
Barista coffee espresso bars. This move was clearly an attempt to penetrate beyond the
institutional segment. However Deol maintained that the company was aiming at gaining
After five months, Barista had 38 espresso bars across seven cities, serving
14,000 customers each day. Deol was aiming to have 76 bars across 12 cities by March
had plans of starting overseas outlets in the Middle East and South East Asia in the
current year, including Malaysia, Oman, UAE, Bahrain, Egypt and Africa.
Petroleum and Indian Oil Corporation to open off premise joints. Since petrol retails like
Indian Oil Corporation and Hindustan petroleum are converting their retail outlets in
metros into convenience stores with restaurants, cyber cafes and shopping malls Barista
By 2002, Barista had an annual sales of Rs. 650 million, had spent Rs. 600
million to establish itself, operating profit was 17% of sales and in the process had
accumulated losses.
In Jan. 2003 there were 67 espresso bars and Barista wanted to increase it to 150
by the end of 2003. In Mumbai alone Deol wanted to expand its existence from 20 to 50.
He was investing Rs.45 crore per out let and was expecting a sales turnover over of Rs.85
crore by 2003 end. With the help of the home brew market, he believed that it was
achievable.
Barista coffee also entered into marketing alliances with Planet M, Cross Words,
and Art today, Acrus, Ebony Star world etc. These joint promotions with Planet M and
Crosswords reiterated the bond between coffee aficionados and book or music lovers. In
addition, Barista coffee planned to launch a new music collection of CDs by entering into
a tie up with Sony, Evian and Fareerilel. It had also joined hands with Spic Macay (the
society for the promotion of Indian classical music and culture amongst youth), a two and
free.
To meet the demand, Barista started outsourcing sandwiches from Oberoi. It also
went for a tie-up with Nilgris and Monginis for their supply of cakes and sandwiches.
Barista also made a tie up with Dutch bank ABN Amro to launch “Bancafe”, a unique
café in the bank concept. While banks would have Barista coffee dispensing machines
on their premises, in reverse, the ABM Amro kiosks and ATM’s would also be at Barista
outlets. Deol believed, since coffee drinking was not a destination but an impulse and
since close to 80% of the time was spent away from home, it would open up bank
The Barista Coffee Company had drawn up aggressive plans to expand its
retailing business globally and floated a special purpose Vehice (SPV) which would be
the holding company for overseas expansion. BCC also set up a wholly owned
subsidiary, BCI (Barista Coffee International) in Mauritius which would be the holding
company for groups’ expansion of geographic segment. The idea was to have different
companies for different geographical regions to go for joint ventures or into franchisee
agreement with a local partner in different countries. At part of the first phase, Barista
entered Singapore, Bangladesh, Srilanka and Thailand. The second phase would be in
In 2003, funds had started to dry up because of the rapid expansion of Barista
Coffee compounded by one quarter of the coffee chains going at a loss. But Deol was
still concentrating on expanding Barista’s network. At that time, Tata was having 34.4
percent stake in Barista Coffee, Barista employees held 8 percent equity while the
Judge as the chairman of Turner Morrison, Ravi Deol as CEO, R K Krishnan Kumar as
Chairman, TATA coffee, Homi Khusrokhan as Managing Director of TATA tea, Tariq
By the end of 2003, the strategic alliance between Tata Coffee and Barista didn’t
look comfortable. Competitive pressures and suggestions from the new shareholders,
forced TATA to make radical alterations in Barista’s original model sculpted by Deol.
Tatas’ felt that Deol’s plan of increasing the number of outlets when some of the outlets
were not performing well had to be looked into seriously. That meant, instead of quantity
This cold war led to a lot of changes in the strategies that Deol had formulated for
Barista. First among the changes was a 15-30% price cut. “Barista was an Indulgence
brand that consumers would experience once in a while. The focus should be to make the
brand a habit. For that democratization of coffee should be done. For example, the
international coffee blends, would be placed at Rs. 45 against Rs. 80 or Rs. 90 earlier.
Prices of Cold Coffees should be brought down by over Rs.10 so were the prices of
cappuccino coffees, from Rs.40 to Rs.30. Frappies too should have Price reductions from
The next change was to move to woo the business class. Till now, Barista had
been a leisure brand, where students, shoppers and young executives would unwind and
recharge. But these customers come visiting between 5.00 p.m. and midnight, leaving
Barista’s expensive assets unutilized at other hours. In order to make its assets sweat
more during the day, barista should get business visitors, who could use the espresso bars
technology. Most importantly, Barista, instead of setting its own stores, it should only
franchise.
The changes not only reflected in the business strategies but also in the people
heading the business. Two key persons quit their posts, first being Global Business Head
Sandeep Vyas and the second being the CEO Ravi Deol. Though Deol’s statement in the
press mentioned that he would be heading to London Business School for higher studies,
the industry felt that he didn’t wish to continue with the recent happenings and didn’t
want to renew his contract since the three-year contract with Barista would be ending in
Though the news came as a shock, both Barista and Tata coffee got into the scene
immediately and made COO Yogesh Samat to take charge as the new CEO of Barista
(prior to that Samat was a former Hindustan Lever official, who used to head Lakme
Salvon). Two Senior Managers were brought in from the Tata Group – Brotin Banerjee
as Head of Marketing and Strategy (moved from Tata Chemicals) and Venkataraman as
The new group felt, taking the Franchisee route was the only way to raise money;
Consolidation instead of expansion would be the new agenda. They decided to exit
unsustainable outlets and help Barista Coffee Company to turnaround. In 2004, the
Sterling group acquired the entire 65.6% stake of Turner Morrison in Barista Coffee
Company ltd. With this acquisition, Tata Coffee now owned 34.4% stake in Barista and
Fresh & Honest Coffee of the Sterling Group company would hold 65.6% stake.
in the market for selling their own coffee brands and adding to this wagon of load, they
had to turnaround successfully what Deol had left of the Brand Barista.
The new group was instrumental in making Barista change track. Barista changed
its positioning from a premium retail outlet to that of a hangout or a meeting place
frequented by young people. Barista cut prices of nearly all items in its menu card by 25
per cent. A cup of standard cappuccino coffee at Barista is available for Rs 30, down
from Rs 40 earlier, while cold coffee Frappe is available for Rs 40 per cup against Rs 55
earlier. Also Classic cold coffee is now cheaper by Rs 12 at Rs 33 a cup. Apart from this,
Barista has also introduced new low-priced beverages. These price cuts have resulted in
In another change, Barista diversified its hot beverages menu and introduced
several speciality teas. By mid 2004 Barista had almost 35 % of its revenues coming from
selling to ensure that our high street assets are made to `sweat' to the best extent possible.
Today various brand managers are realising that Barista provides them with a platform to
attract and interact with over 12 lakh consumers who frequent Barista and are in the age
"We have certain select properties within Barista such as tent cards, posters, table
top menu, cuts outs etc which can be utilised by other brands to interact and offer
Barista has also been relying on several promotions to boost its revenues. Some of
the major ones are a Close Up cassette of Shaan, Lee and Archies gift vouchers, movie
After consolidation and seeing Barista turning around, Brotin Banerjee, Head –
Marketing and Strategy set out expansion plans. The existing Barista stores in the South
has been witnessing double-digit growth, in footfalls as well as revenue year after year.
For the first time, Barista was seeking to expand through the franchisee route model and
planned to enter B-class towns in the country and middle-class localities in the metros
such as North and East Delhi. By 2005-06, Barista planned to have over 300 outlets
Another change will be the new look that these new stores will be flaunting.
There will be marked changes in the signage, seating arrangements (comfort and normal
seating), new-in-store collaterals, uniform mood posters and a wi-fi enabled environment.
Rs. 25 crore to set up 40 new Barista Expresso Bars and Expresso Corners and five new
concept stores called Barista Crème. The premium cafe Barista Crème offers a wide
range of food and beverages, apart from luxurious comfort. The company's revenue mix
currently comprise of 30 per cent from food and 70 per cent from coffee and the Barista
Come 2007 and the storm does not seem to clear up with Italy's largest coffee
maker, Lavazza, set to buy coffee businesses of South India-based Sterling Infotech
Lavazza to buy a 100 percent stake in Sterling's Barista Coffee Co. Ltd. and Fresh and
Honest Cafe Ltd. The Italian coffee company will be investing $130 million in India,
which includes the cost of the Barista acquisition, during the next three years. Lavazza,
with annual revenues of over $1.2 billion, operates in over 80 countries. It has a
significant presence in both out of home (café chains and coffee vending) and retail
businesses. This deal is expected to create synergies between the business of Lavazza,
The storm in the coffee cup will become murkier with Starbucks, the US-based
this year. The company could have entered India earlier, but the delay can be traced to
not finding the right strategic partner according to Dr Joseph Michelli, author of The
Meanwhile there is also news that old partners Tata Coffee Ltd is planning to re-
enter beverage retailing, two years after it sold off its investment in the Barista espresso
coffee chain.
Internationally, however, 2005 saw coffee sales virtually stagnant, moving ahead
at 0.5 per cent. According to a 2005 research report by the United Nations Food and
Agriculture Organisation, India's coffee consumption has been chugging along at 2.2 per
cent per annum. With consumption pegged at 80,200 tonnes, (Exhibit 3) branded coffee
accounts for 53 per cent, unbranded 40 per cent, with cafes constituting 7 per cent.
cent.
Despite these figures, coffee houses have been extending their network because
they provide more than just coffee, says Sunalini Menon, Chief Executive of CoffeeLab,
which provides evaluative services for coffee manufacturers. "They are a venue to
socialise, finalise business deals, conduct interviews, listen to music and read in,".
lucrative to add value activities - book clubs, film clubs, social activities, merchandise
1. http://www.cafecoffeeday.com
2. http://www.qwikys.com
3. http://www.tatacoffee.com
4. http://www.coffeeworld.com
5. www.fresh-honest.com
Exhibit 1
Exhibit 2
Production and Exports: India Vs World * (In '000 bags of 60 kilo each)
@ Board ‘s Estimates
Exhibit 3
TEACHING NOTES
Synopsis
This case encourages students to look at the evolution of a company as the environment
evolves, how the company forsees changes and proacts and how it consolidates its
position. It also helps students look at its revenue and growth models, and how they
evolve over a period of time. It also helps students think on issues like brand extensions,
customer retention, alignment of functional strategy to company strategy and services
marketing.
Use
Audience
The case is appropriate for undergraduate, MBA and executive level courses related to
General management, Corporate Strategy, Marketing Strategy, Services Marketing,
Brand Management and Business Environment. The case explores contemporary
management issues like leadership, brand extensions, alignment of functional strategy to
company strategy, scanning of the business environment, revenue and growth models and
marketing of services.
The students could be asked to search for additional information by surfing the websites
of competitors and use the data to do an industry analysis and a SWOT analysis for
Barista.
Sequencing
Time
This case could be used within a 90 minute block or the instructor can get the students
into groups and ask them to debate if Barista can sustain its growth and will survive and
grow. However, an additional 90 minute block will be necessary for the group discussion
Issues
One of the interesting aspects of the case is that participants can examine how change in
strategic goals change the business model of the firm. They can also examine concepts
like how to become a market driver and how to deliver value to the customer.
Finally, the case is an example of aggressive marketing techniques to establish and build
a brand.
The exhibits are useful to understand production and consumption of coffee in India and
in the world.(Refer Exhibits 1 to 3).
Assignment Questions
Assignment questions could be framed based on the area the case is going to be discussed
on. For example for a Corporate Strategy course, assignment questions could be – How
attractive is the coffee retailing industry in India? Does Marketing strategy align with
company strategy? Give examples from the case. Etc. For a Marketing Strategy course,
the probable questions could be – What Marketing strategies helped Barista achieve the
leadership position in the coffee retailing industry? How did Barista differentiate itself
from its competitors? Etc.
Final Remarks
The long term success of coffee retailers cannot be predicted as the market is still nascent
and is dominated by very few players. The story could go any way for Barista in the next
few years as we see more and more competitive activity. However students can be
encouraged to discuss many scenarios and what strategies to follow to achieve each of
these.