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Analysis of the cafe market in India

Release date 26.09.2023

Number of pages 46

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The relevance of research

The subject of this study is the cafe market in India. The cafe market in this study is understood as a set of enterprises that form the supply of the market, the number of consumers that form the demand of the market, as well as the relationship that arises between sellers and consumers.

Purpose of the study

Analyzing the state of the cafe market in India, assessing the market size, analyzing competitors, as well as determining the factors affecting the cafe market in India.

Content

Part 1. Overview of the Cafe Market in India

1.1. General information about the research object

1.2. Market volume. Dynamics of the cafe market in India, FYs 2018-2023

1.3. Trends and prospects

1.4. The stage of the life cycle of the cafe market in India

Part 2. Factors affecting the market

2.1. Social factors

2.2. Technological factors

2.3. Economic factors

2.4. Political factors

2.5. Conclusions about the impact of factors affecting the market

Part 3. Segmentation

3.1. The fastest-growing cafe segments in India

3.2. Geographical segmentation

Part 4. Competitive environment

4.1. The main companies (TOP 5) of cafe market in India

4.2. Shares of major companies in the cafe market in India in FY 2023

4.3. Profiles of the main companies

4.4. Analysis of the range of services

4.5. Key success factors on the cafe market in India

Part 5. The main determinants of demand

5.1. Number of potential buyers

5.2. Income

5.3. Preferences

5.4. Prices for cafe services

5.5. Inflation expectations

Part 6. Estimation of investment attractiveness of the market

Part 7. Forecasts and conclusions

7.1. Forecasts of the Indian economy until FY 2028

7.2. Barriers existing in the market

7.3. Globalization of the industry

7.4. Market Growth Drivers

7.5. Forecast of the cafe market volume in India for FYs 2024-2028

7.6. Key conclusions. Recommendations for entering the market

Part 8. Methodology

Research excerpt

Part 1. Overview of the Cafe Market in India

1.1. General information about the research object

The subject of this study is the cafe market in India. The cafe market is understood as a set of enterprises that form the supply of the market, the number of consumers that form the demand of the market, as well as the relationships that arise between sellers and consumers.

The coffee market is part of the catering industry.

Consumers in the cafe market are individuals – the population of India, visitors to the country, as well as enterprises and organizations ordering catering services for employees, holding events with the offer of snacks.

The market under study directly depends on the general economic indicators of the country. The solvency and changing mentality of Indian residents, who are increasingly guided by Western standards of consumption, determine the cost of eating out.

India is largely a tea-drinking nation, even today. And according to experts, this is not going to change at a large level. The culture of coffee shops is not just about the beverage, it is about the entire package—community building, conversations, and an engaging experience both on social and business community levels. In this regard, there are many establishments in India among the players of study market segment that position tea as the main drink.

Types of café:

a specialty coffee / tea shop,
a trendy hangout spot,
a cozy neighborhood café.

1.2. Market volume. Dynamics of the cafe market in India, FYs 2018-2023

From bustling cities to serene towns, cafés have become popular meeting spots for people of all ages, offering a cozy atmosphere, delectable beverages, and a place to socialize.

Coffee as a segment pick up more in the post-pandemic era. There is a healthy growth rate after pandemic.

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Diagram 1. Dynamics of the cafe market volume in India for FYs 2018-2023, billion rupees

1.3. Trends and prospects

The organized sectors of Food service market in India grew at a strong rate the past decade and will continue to grow.
The Café industry is predominantly driven by millennials, full-time workers, parents of under-18s, city dwellers, and teenagers. Moreover, people who lead busy city lives or have more disposable income by living at the family home into adulthood drive the demand for eat-outs at café.
Growing westernization.
The Cafe Market has been witnessing extremely significant growth in the urban areas where a comparatively larger working population is inclined to accept western cuisines, including baking, thus accelerating the bakery products demand upsurging the market growth.
There is an evident growing coffee culture in India. From ‘chai pe charcha’ to ‘let’s discuss it over coffee’, a lot has changed in the beverage preferences of Indians. In a country where chai has dominated the beverage preferences for ages, coffee is gradually creating a niche among consumers. In the early 2010s India was largely a tea drinking nation, with coffee reserved for occasional moments. ”Today, coffee boasts versatility. Amidst a new wave of coffee enthusiasts, diverse occasions now beckon for coffee enjoyment, be it catching up with friends, holding working meetings, or simply just some me-time on weekends,” said representative of Starbucks.
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1.4. The stage of the life cycle of the cafe market in India

From the point of view of the life cycle, the cafe market is at the stage of growth.

This is evidenced by:

growth in consumption per capita;
market volume growth.

The market growth potential remains quite high.

The growth stage is very important for companies, as it creates the most favorable conditions for market dominance and for increasing profitability and stability.

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Pricing is becoming one of the ways to compete.

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Part 2. Factors affecting the market

2.1. Social factors

Population

India has overtaken China as the world’s most populous country, according to UN population estimates, the most significant shift in global demographics since records began. More than 17% of the world's total population lives in the country, and despite the gradual decline in growth rates, the population continues to grow. According to the UN’s projections, which are calculated through a variety of factors including census data and birth and death rates, India now (by April 2023) has a population of 1 425,8 million people, surpassing China for the first time.

Diagram 3. Dynamics of the total population[1] of India, million people

Dynamics of the total population[1] of India, million people

Stable population growth is ensured by a high birth rate, which exceeds the natural and migration decline of the population.

According to UN estimates, India's population is set to rise to 1 515 million in 2030.

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Urban population

Traditionally, most of the population of India lives in rural areas, but since about the 50s of the XX century, there has been a tendency for the urban population to grow. Since the beginning of the XXI century, the pace of urbanization in India has accelerated. Over the period of 2011-2022, the share of the urban population has grown by more than 4,5% and amounted to 35.87%.

According to UN forecasts, by 2035, the percentage of India's population living in urban areas will be 43.2%.

Diagram 4. Share of urban population of India, 2011-2022, %

The main reasons for the urbanization of India are the increase in the number of private enterprises and the development of cities, as a result of which the number of jobs occupied by representatives of rural areas is growing. According to World Bank estimates, the urban population of India produces more than 2/3 of the country's GDP and generates 90% of the state's income.

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Caste discrimination

The peculiarity of the social structure in India is the great national, religious and linguistic diversity, as well as social differentiation, which is largely due to caste, which still exists in India, despite the fact that the rights of all castes were constitutionally aligned more than 50 years ago. Despite the country's policy of reducing caste discrimination, most of the population in India lives below the poverty line. At the same time, the gap between a small group of the super-rich and the rest of the citizens is very large. No more than 12-15% of the population can be attributed to the middle class.

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Standard of living

According to various estimates, the minimum average wage in India for 2022 is about $ 100 or a little more than 8 thousand rupees, and the maximum may exceed 1 thousand dollars, reaching 143 thousand rupees. The level of income in India is determined not only by education and profession, but also by the region of residence. The most low–income are agricultural areas, and the best in terms of salaries are cities with well-developed infrastructure. In private companies, the level of wages is higher than in the public sector.

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Covid-19 pandemic

The outbreak of the COVID-19 pandemic has significantly affected the cafe market in India. Restrictions on the movement of people and self-isolation, introduced in different parts of the world to curb the spread of coronavirus, led to a significant reduction in cafe attendance during the pandemic. However, the Covid-19 pandemic has led to a surge in orders of ready-made food and beverages over the Internet and an increase in delivery volumes.

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2.2. Technological factors

Grow of internet users

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Despite the large number of internet users in the country, the internet penetration levels took longer to catch up equally. At the same time, the number of women who have access to internet is much lower than men in the country, and the bias is even more evident in rural India. Similarly, internet usage is lower among older adults in the country due to internet literacy and technological know-how. By encouraging internet accessibility among marginalized groups including women, older people and rural inhabitants in the country, India’s digital footprint has significant headroom to grow.

33% of active Internet users live in the nine largest metropolitan areas of India. The number of Internet users from rural areas has increased by 13% over the past year. Entertainment, video streaming, online shopping, games, social media and education are the main areas that users access via the Internet.

Positive influence of the factor.

Innovations

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Seasonality

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2.3. Economic factors

Gross domestic product (GDP)

Of all the factors and empirical data that give an insight into the shape of a national economy, there aren’t as many indicators more telling than GDP. GDP is the total market value of all final goods and services that have been produced within a country in a given period of time, usually a year. Real GDP figures serve as an even more reliable tool in estimating in which direction a country’s economy may be heading, as they are adjusted for inflation and reflect real price developments. The dynamics of GDP is decisive in the vector of development of the entire economy of the country and determines the key trends of consumer solvent demand, economic activity.

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Index of Industrial Production (IIP)

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2.4. Political factors

Geopolitical tensions

The tense political situation in interstate relations negatively affects the whole world and the world economy. Restrictions imposed on Russia by a number of countries create logistical difficulties and increase the likelihood of a global crisis, as well as affect the level of world prices for energy and food.

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The Policy of attracting foreign direct investment (FDI)

The Government of India considers FDI as the main source of short-term financial resources for economic development, which imply a long-term nature. Accordingly, for a long period, the Government's goal has been to attract and stimulate FDI as a complement to domestic capital, technology and skills for accelerated economic growth and development.

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2.5. Conclusions about the impact of factors affecting the market

Тable 1. STEP-analysis of factors affecting the Indian cafe market

Part 3. Segmentation

3.1. The fastest-growing cafe segments in India

According to experts of café market, India is one of the world's fastest growing markets for coffee and tea retail chains. Many international and regional coffee chains are entering the Indian market or expanding their presence in the Indian café market:

Third Wave Coffee and Blue Tokai both entered the business after Starbucks and have together managed to set up about 150 stores in the last three years. Blue Tokai has plans to expand by adding 200 new stores within the next three years.
UK-based food-to-go and coffee chain Pret A Manger announced in 2022 a franchise agreement with India's Reliance Brands Limited to open up to 100 stores in the country within the next five years.
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3.2. Geographical segmentation

There are 29 states in India with at least 720 districts, including about 6,000 villages, and more than 8,200 cities and towns. There are also union territories. Each district/village/city has a Postal Index Number (PIN) to ensure fast delivery. The Index consists of six digits. In total, India has 19,101 Postal Index Numbers and 154,725 post offices of the Indian Post.

Geographically, the cafe market in India is segmented by States / Union Territories. The most attractive states by GDP:

Maharashtra
Tamil Nadu
Uttar Pradesh
Gujarat
Karnataka.

The top 5 states share around … % of India’s total economy.

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The largest Indian states by population are:

Uttar Pradesh
Maharashtra
Bihar
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The cities and settlements in India are categorised on the basis of a grading structure devised by the Government of India. There are the following categories:

Tier-I cities
Tier-II cities
Tier-III cities
Tier-IV towns
Villages.

There are about 8 Tier I cities, 26 Tier II cities, 33 Tier III cities and over 5,000 Tier IV towns, while there are more than 638,000 villages in the country.

Part 4. Competitive environment

4.1. The main companies (TOP 5) of cafe market in India

The cafe market in India is fragmented, with a large number of local, international and global players. Competition is highest in Tier 1 cities (see section 3.2), while competition is significantly lower in remote regions. It is expected that the number of players in the market will increase, and the existing players will adhere to the strategy of strengthening positions.

The largest cafe market players in India:

Cafe Coffee Day, www.cafecoffeeday.com
Barista, https://barista.co.in
Starbucks, https://www.starbucks.in/
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Тable 5. The main companies participating in the cafe market of India

4.2. Shares of major companies in the cafe market in India in FY 2023

As of fiscal year 2023, the leader of the Indian cafe market is …

Other companies account for …% of the market.

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There are a sufficient number of network players with relatively small market shares and many small non-network players in the cafe market of India. According to the Herfindahl-Hirschman index, the estimated market is low-concentrated (HHI <1000), competition between brands remains at a high level.

4.3. Profiles of the main companies

1. Cafe Coffee Day

Coffee Day Global Limited ('CDGL' or 'the Company') was originally incorporated as "Amalgamated Bean Coffee Trading Company Private Limited" on 6 December 1993 under the Companies Act, 1956. On 3 February 1997, the status of the Company was changed to a public company and the Company deleted the word "Private" from its name. Subsequently, the Company has changed its name to Coffee Day Global Limited with effect from 20 March 2015. The registered office of the Company is located in Bangalore, Karnataka. The Company is a subsidiary of Coffee Day Enterprises Limited. Coffee Day Global Limited together with its subsidiary entities and a joint venture company is hereinafter referred to as "the Group".

The Company is engaged in the business of retailing of coffee and other products through its chain of outlets under the Cafe and Xpress kiosks formats, under the brand name 'Coffee Day'. The Company also derives its revenue from retail operations from the sale of coffee beans and other related products and services in respect of coffee vending machines. It is also is engaged in selling coffee to domestic and overseas customers.

Coffee Day Enterprises is present across the following sectors: Coffee, hospitality and other operation. However, ...% of the consolidated net revenue of the Company was contributed by the coffee business during the year under review, followed by ...% from the hospitality and ...% from other operations.

Тable 6. Coffee Business of Coffee Day Enterprises Limited

2. ...

3. ...

4. ...

5. ...

4.4. Analysis of the range of services

The largest players in the cafe market in India offer a variety of services, including coffee and tea beverages, snacks, sandwiches, and desserts. Some also offer merchandise such as mugs and coffee beans for sale. Many cafes provide free Wi-Fi and a comfortable atmosphere for customers to work or socialize. Some cafes also offer catering services for events and meetings.

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Тable 7. The range of services of the main market players

4.5. Key success factors on the cafe market in India

Adapting to new cultures around coffee.
Location: The location of the cafe plays a crucial role in its success. Cafes located in busy areas such as commercial districts, shopping malls, and tourist spots tend to attract more customers.
Quality of products: The quality of coffee, tea, snacks, sandwiches, and desserts offered by the cafe should be high to attract and retain customers.
Customer service: Good customer service is essential for any business, and cafes are no exception. Friendly and attentive staff who can provide personalized service can go a long way in building customer loyalty.
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Part 5. The main determinants of demand

5.1. Number of potential buyers

The cafe's services can potentially be used by the entire population and guests of the country. Taking into account the growing population of the country (for more information, see paragraph 2.1), the study business has a potentially extremely wide coverage. However, youth people are the target customers for cafes in India. So, about 80% of cafe audience of Barista is to 45 years of age, followed by elderly people.

At the same time, according to the World Bank, the average (median) age of the Indian population is relatively low. More than 60% of the country's population is of working age, and the proportion of elderly people is less than 10%. About 65% of India's population is under 35 years of age.

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5.2. Income

Compared to 1950, per capita income (PCI) in India has increased by more than 500 times. In 1950 The PCI was Rs 265 per capita. In financial year 2020, PCI reached 105.2 thousand rupees, which is 52.4% higher compared to 2012. In FY2021, due to the pandemic, the level of per capita income decreased, but in financial year 2022, the indicator was restored to the pre-pandemic level. In FY2023, the indicator continued to grow and reached 112,3 thousand rupees.

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5.3. Preferences

Authenticity: cafes that offer authentic Indian cuisine and beverages.
Ambience: cafes with a comfortable and inviting ambiance that provides a relaxing environment to enjoy their food and drinks. For Indian coffee lovers, the beverage is synonymous with different emotions and occasions.
Quality: high-quality ingredients, fresh food, and beverages made with care and attention to detail.
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5.4. Prices for cafe services

The price level of cafe services can be estimated by the Zomato average order values (AOV) in food delivery sector. ...

The food delivery sector is expected to experience unchanged average order values (AOV) over the financial year 2024, as projected by Zomato's CFO, Akshant Goyal, even with steady food inflation.

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5.5. Inflation expectations

There are two indices that are used to measure inflation in India:

1. the consumer price index (CPI)

2. the wholesale price index (WPI).

These two measure inflation on a monthly basis taking into account different approaches to calculate the change in prices of goods and services.

The CPI, which refers to the Consumer Price Index, analyzes the retail inflation of goods and services in the economy across 260 commodities. The CPI-based retail inflation considers the change in prices at which the consumers buy goods.

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Part 6. Estimation of investment attractiveness of the market

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The positive factors of the investment climate of the cafe market in India dominate over the negative ones. A comprehensive assessment of the factors of investment attractiveness is "plus" 2.73 points – a favorable investment climate.

The most positive factors:

The most negative factors:

7.1. Forecasts of the Indian economy until FY 2028

Since independence in 1947 India has significantly improved the main socio-economic indicators, while the country moved to accelerated growth rates only at the beginning of the XXI century. Over the period from 2000 to 2017, India's economy grew 3.3 times, and the average annual growth rate of real GDP was 7.1%.

In the 1st quarter of 2022, the Indian economy entered the top five leading economies of the world, overtaking the former metropolis – Great Britain. India provides 3.5% of global GDP, contributes to global economic growth close to that of China and the United States, and is the fastest growing economy in the world.

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7.2. Barriers existing in the market

The main constraining factors for the development of the cafe market in India are:

7.3. Globalization of the industry

Globalization in various countries of the world has helped to form a highly competitive catering industry. Thanks to globalization, modern technologies are being used in the industry to ensure fast and modern delivery.

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7.4. Market Growth Drivers

Drivers of Cafe Market Growth in India:

High level of potential demand.
Expected economic growth.
Growing westernization.
Changing lifestyles.
Increasing urbanization in India.
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7.5. Forecast of the cafe market volume in India for FYs 2024-2028

India's cafe market is expected to grow at a faster rate than globally. For the future until 2028, GidMarket specialists forecast the average annual growth rate of the Indian cafe industry at the level of 17.6% per annum, which is primarily due to growing westernization, young and growth population, continued income growth and economic growth. In fiscal year 2028, the market volume will be 269,89 billion Indian rupees, which is 89% higher than the FY2023 level.

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7.6. Key conclusions. Recommendations for entering the market

Indians look at café concept as a form of adaptation from the West and are slowly getting used to it. As an industry, there is huge potential, and the immense opportunity is attracting new players in large numbers. Many brands have come into cafe market the last five years. The café market in India, led by Cafe Coffee Day, Barista and Tata Starbucks, is also one of the fastest growing categories in the consumer food service industry.

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Recommendations for entering the market:

See paragraph 4.5 «Key success factors on the cafe market in India».
It's crucial to have a clear vision of business concept and identify target market.
Create a comprehensive business plan that outlines your café's objectives, market analysis, financial projections, and marketing strategies.
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Part 8. Methodology

Methods

The following methods of information collection were used as part of the study:

Desk study. Search and analysis of information from various sources, and calculations. Statistics and analytics.
GM forecast. Modern statistical forecasting methods adjusted for the opinion of market experts published in open sources.

Sources of information

Databases of statistics and customs authorities of India
Data of ministries and departments of India
Data from analytical centers
UN, WTO, Comtrade data
Data of trading platforms
Reporting of issuers
Company databases
Industry specialized portals
Company websites
Media archives
Regional and federal media
Insider sources
Specialized analytical portals
Other open sources (websites, portals)

Diagrams

Diagram 1. Dynamics of the cafe market volume in India for FYs 2018-2023, billion rupees

Diagram 2. Stage of the life cycle of the cafe market in India

Diagram 3. Dynamics of the total population of India, million people

Diagram 4. Share of urban population of India, 2011-2022, %

Diagram 5. Dynamics of the number of Internet users in India, million users

Diagram 6. Dynamics of India's GDP for FYs 2012-2023, trillion rupees

Diagram 7. Dynamics of India's IIP for FYs 2013-2023, % (Base FY 2012)

Diagram 8. Dynamics of India's IIP of food products for FYs 2013-2023, % (Base FY 2012)

Figure 9. States of India by population, people

Diagram 10. Shares of the largest competitors in the Indian cafe market in FY 2023, %

Diagram 11. Percentage of India's population aged 15-59 years, % of total population

Diagram 12. Percentage Distribution of Projected Population by Age in India, %

Diagram 13. India's population aged 15-59 years, million people

Diagram 14. Dynamics of per capita income in India for FYs 2012-2023

Diagram 15. Average order values in Indian food delivery sector for FYs 2021-2023, INR

Diagram 16. Dynamics of the inflation rate in India for 1998-2022 and forecast for 2023-2028, %

Diagram 17. India's economy forecast for FYs 2024-2028

Diagram 18. Forecast of the cafe market volume in India to FY 2028, billion rupees

Tables

Тable 1. STEP-analysis of factors affecting the Indian cafe market

Тable 2. Ranking of the States/Union Territories of India by GDP

Тable 3. Ranking of States/Union Territories of India by population

Тable 4. Major cities of India by population

Тable 5. The main companies participating in the cafe market of India

Тable 6. Coffee Business of Coffee Day Enterprises Limited

Тable 7. The range of services of the main market players

Тable 8. Estimation of investment attractiveness of the cafe market in India

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