Coffee industry in India growing at 21% until 2025

The coffee retail chain market in India is forecasted to touch USD 855 million by 2025. The retail chain coffee market in southern region is projected to touch USD 253.8 million by 2025 growing at a CAGR of 21.04 per cent over 2017 to 2025.

Definition / Scope
Market Overview
Top Market Opportunities
Market Drivers
Industry Challenges
Pricing Trends
Regulatory Trends
Other Key Market Trends
Market Size and Forecast
Market Outlook
Distribution Chain Analysis
Competitive Landscape
Competitive Factors
Key Market Players
Strategic Conclusion
References
Appendix

Definition / Scope

Coffee is a brewed drink that is made from the roasted and ground seeds and grown in subtropical and tropical climates. 2.5 billion cups of coffee are drunk every day globally. Coffee provides 54 per cent of the world’s total caffeine.

There are majorly two types of coffee – Arabica and Robusta. Arabica tends to have softer and sweeter while Robusta has harsher and stronger taste and twice as much caffeine as Arabica beans. Arabica coffee is considered to be superior to Robusta.

Market Overview

The origin of coffee in India dates back to around 1600 AD when the Indian Sufi Saint, Babu Budan, went to Mecca. However, the coffee cultivation grew popular during the British rule and beyond.
13 different varieties of Indian coffee can found based on their regions. The major Arabica producing regions are Araku valley, Anamalais, Biligiris, Brahmaputra, Shevaroys, Pulneys and Bababudangiris. The major Robusta producing regions are Wayanaad, and Travancore. Nilgiris, Manjarabad, Chikmaglur and Coorg are well known for both Arabica and Robusta varieties of coffee.
India accounted for 3.30 per cent of the global coffee production in 2017-18.
The Coffee Board of India is responsible for looking after the research, development and domestic and international promotion of India coffee.
The coffee is grown in Indian regions that receive 2,500-4,000 mm rainfall across more than 100 days. The coffee growing areas in India have diverse climatic conditions, making it suitable for the cultivation and production of varieties of coffee.
The consumption of coffee in India is majorly concentrated in Southern region which represents 90 per cent of the total domestic production.

Top Market Opportunities

Coffee cultivation in India is expanding to non-traditional areas like Andhra Pradesh and Odisha on the Eastern Coast and Tripura, Manipur, Assam, Nagaland and Arunachal Pradesh in the North East.
The bulk coffee production is exported and the domestic industry focuses its marketing on export promotion. Around three-quarters of coffee production in India is exported and rest is consumed domestically. The largest importers of coffee in India are Italy, Germany, Russia, Belgium, USA, Poland, Turkey, Spain and Libya.
Coffee is the second most traded commodity in the world. The coffee industry as a whole is USD 20 billion industry globally.
The number of cafes in India is expected to increase from 3500 to 6200 by 2021.

Market Drivers

Entry of international brands

The international brands like Café Coffee day, Starbucks, Costa and Barista have entered Indian coffee market. They have number of coffee chains and outlets in every mall and markets. Starbucks operates 126 outlets across 10 cities of India, as of October 2018. While Cafe Coffee Day operates 1530 outlets across 28 states of India. People visit to these chains to have an experience of the kind of coffee being served.

Availability of variety of cofee

Coffee brands are trying to offer as many options to meet the customer’s need of coffee. The availability of wide range of coffee type and flavour is attracting the customers. The different types of coffee beverages available in Indian coffee house includes Espresso, Cappuccino, Caffe Latte, Cafe Mocha, Cold Coffee, Instant Coffee and others.

Coffee shops as hangout place

Coffee retail shops have become a popular hangout place for the youth in India especially between the age group of 16 to 45 years old. People go to coffee shops for reading, working and casual discussion. Further, the complimentary services such as wifi and music provided by the coffee shops are attracting the youths to coffee shop.

Industry Challenges

Tea continues to be the first hot drink choice for large Indian consumers. Currently, over 80 per cent of the Indian households drink tea.
Climate change has been the major challenges for coffee growers in India. Coffee needs likely dry and wet seasons and they cannot tolerate extreme temperatures. The frequent temperature fluctuation in India has created challenges for farmers. The recent Kerala rains had a devastating effect on coffee production all over India. Losses up to 82,000 tons of production is predicted by Coffee Board.
The producer price of coffee is not solely determined on the basis of cost of production but international prices, domestic inflation and exchange rates.

Pricing Trends

The below table shows the variants of coffee and their price in India.

Regulatory Trends

The Coffee Board of India is the main agency for providing research and development support to the coffee industry. Since 2002, the Coffee Board of India has been carrying out the India International Coffee Festival. This a biennial event held in India in collaboration with other industry stakeholders.

The research of the Coffee Board is engaged in training in quality and safety management of the coffee. The quality control division is engaged in the implementation of quality standards for coffee in India. Further, The Coffee Act 1942 has provision of compulsory registration of all owners of coffee estates.

The directives such as Bureau of Indian Standards and the Bureau of Indian Standards Act, 1986, Export Inspection Council of India and the Export Act, 1963, and Agricultural and Processed Food Products Export Development Authority are applicable to coffee.

Other Key Market Trends

Karnataka, Kerala and Tamil Nadu account for 71 per cent, 21 per cent and 5 per cent of overall coffee production in India respectively.
In 2017/18, Karnataka accounted for 50 per cent of the coffee land under cultivation at 226,244 hectares and produced 222,300 MT of coffee.
Karnataka has the highest soil productivity at 983 kg’s per hectare followed by Kerala at 774 kg’s per hectare.
Italy is the largest export market in terms of volume for both Arabica and Robusta coffee. India exported 70,438 tons of coffee beans to Italy comprising of 6,999 tons of Arabica and 63,127 tons of Robusta coffee. Other major export destination included Germany, Russia and Belgium.

Market Size and Forecast

In FY18, the coffee production in India stood at 316,000 MT.
In FY18, the coffee export from India was worth US$ 963.28 million and stood at 395,014 MT.
During 2017-18, the top three importers of Indian coffee were Italy (25.16 per cent), Germany (10.51 per cent) and Belgium (5.97 per cent).
Of the total coffee production in India, 30 per cent is consumed domestically and rest 70 per cent in exported.
From 1951 till 2018, the area under cultivation for coffee has increased from 92,523 hectares in 1951 to 454,722 hectares in 2018.
In the same period, the area under cultivation for Arabica coffee as percentage of total area has declined from 73 per cent in 1951 to 50 per cent in 2018. While the area under cultivation for Robusta coffee has increased from 27 per cent in 1951 to 50 per cent in 2018.
In 2018, Arabica produced only 30 per cent of the total coffee production while Robusta produced 70 per cent.
The coffee consumption in India has increased from 60,000 tons in 2000 to 130,000 tons in 2018.

Market Outlook

The coffee shops/cafes market in India is expected to grow at a CAGR of over 11 per cent during 2016-2021.
The number of organized café chains in India is expected to increase to around 6,200 in 2020 from 3,500 in 2017. Starbucks now operates in seven cities of India namely Mumbai, Hyderabad, Pune, Chennai, Bengaluru, Delhi and Kolkata with more than 100 coffee outlets. Cafe Coffee Day has more than 1,550 outlets across the India. Barista Cafe has 250 stores and plans for 550 by the end of 2019.
The coffee retail chain market in India is forecasted to touch USD 855 million by 2025. The retail chain coffee market in southern region is projected to touch USD 253.8 million by 2025 growing at a CAGR of 21.04 per cent over 2017 to 2025.

Distribution Chain Analysis

The major channels included modern, traditional retail and national and international café chains. The sale of branded and packaged coffee mainly takes place from traditional retail i.e. large and small kirana stores.

These stores accounts for nearly 70 per cent of the total sales by value. Modern retail channels represents about 20 to 25 per cent of total retail sales.

Competitive Landscape

The retail coffee chain in India is highly concentrated at the top and fragmented at the bottom. Nestle and Hindustan Unilever Ltd (HUL) are the two firms dominating the packaged coffee industry.

Nestle and HUL have about 51 per cent and 49 per cent market share respectively. Tata Grande coffee is a major entrant recently. There is high and intense competition in Indian coffee industry especially in instant coffee segment. In the coffee retail industry, Cafe Coffee Day and Starbucks are the biggest players.

Competitive Factors

India is the third largest producer of coffee in Asia after Vietnam and Indonesia.
India is the third largest exporter globally and second largest in Asia after Vietnam.
Coffee is the sixth largest producer of coffee in the world.
Indian coffee is widely known to be the best coffee grown in the shade as opposed to direct sunlight anyplace in the world.
There are 16 varieties of coffee in India which are sourced from 13 different regions.

Key Market Players

Allanasons Pvt. Ltd. is the biggest exporter of Arabica coffee from India. In 2018, its export volume stood at 10,719 tons or 28 million USD worth of exports. Olam Agro India Pvt. Ltd. is the biggest exporter of Robusta coffee from India. In 2018, its export volume stood at 17,640 tons or 31 million of Robusta coffee exports.

Strategic Conclusion

Coffee is becoming popular in India during the last few years among youths. The coffee is getting popular with the spread of foreign and home grown coffee shops. The emergence of coffee chains like Barista, Cafe Coffee Day, Starbucks and Costa are driving the growth of coffee industry.

Besides, increasing disposable income, urbanization, influence of western culture, exposure of foreign brands and change in lifestyle are increasing the demand for coffee. However, the bulk of the coffee production in India is exported rather than consumed. The domestic industry does marketing on export promotion.

Appendix

CAGR – Compound Annual Growth Rate
FY – Fiscal Year
MT – Metric Tonnes
USD – US Dollar