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- My aim is not to offer Indian products but to offer products that suit Indian tastes - An interview with Santhosh Unni, Chief Executive Officer, Costa Coffee India. (Posted on 29/12/2011)
Santhosh Unni, Chief Executive Officer, Costa Coffee India is the man behind the sustainable growth model adopted by Costa Coffee in India post 2009. He has been instrumental in turning the company EBITDA positive at the enterprise level in 2010, just within a year of his joining. With an experience spanning over 20 years, he has spent significant time in understanding the global hospitality industry practices across a spectrum of industry verticals like general management, business development, operations & marketing.
What are the expansion plans of Costa Coffee in India for the next three years?
We are presently, a four city brand, namely Delhi, NCR, Mumbai, Pune and Bangalore. However, in 2012 we see us expanding into three new areas - Hyderabad, Chennai and Punjab. This will be followed by Kolkata in 2013. And from then on, we will remain an eight-city brand for a while, until we have leveraged the potential in these cities.
New store openings will be anything between 50 - 70 outlets per annum, but a lot of this would depend on the ability of these markets to accept quick penetration. We are in business for profitable growth and not for outlet expansion alone.
How do you see the Indian coffee market evolving over the next five years?
The QSR segment is expanding rapidly in India. Growth of Café's is a natural extension of this phenomenon. Costa is predominantly a metro centric brand, and its viability in tier 2 cities will take time. The consumers in large cities compared to those in smaller towns, have a higher propensity to spend, which in turn will attract more international and local brands in this segment. Notably, some of these international brands have so far been operating in markets that have become fairly saturated and are now looking out at developing economies of the World for fueling future growth. India with its large land mass and population will naturally be an intrinsic part of their growth strategy.
How ready is the Indian market for high-end coffee brands like Costa Coffee, Starbucks, Di Bella, etc?
India is still predominantly a tea drinking country & coffee drinking has not as such become a fad yet. Social occasions is the key driver of traffic into a café. However the process of building a coffee culture like the one that exists in the West is on, but would take a little more time.
How will Costa retain its position in light of the increasing competition?
If you benchmark us with the competition, we are undisputedly several notches above competition on several counts. We have tried to distinguish ourselves through three factors:
1. An outstanding and ever evolving store ambience.
2. Superior quality of our Coffee, which has clearly come out in consumer research.
3. A great range of café food to choose from.
Our endeavour is to continue strengthening our position on each of the above.
How much do you invest on each of your outlets?
We invest anywhere between Rs. 60- Rs. 80 lac per outlet depending on the channel. However, I must clarify that investment alone cannot ensure growth. In a maturing market like India, one needs to be prudent and ensure that growth is sustainable and profitable. Growth has to be well paced. Extravagant growth bleeds a business and slow growth will give competition an edge. Our performance on "pace" has been good so far.
What unique marketing strategies do you intend to adopt in view of the upsurge in the coffee chains in the country?
India is all about "food" and "social occasions" and a lot of our strategies naturally revolve around these two elements.
With regard to food, we carry out two significant churns in a year, one in Summer and the other in Winter, wherein we introduce a new range to our menu. We also spend a lot of time and effort building food products which are localized in taste. So while we work within the contours of Western Café food, they are localized to suit the Indian palette. For instance, our Calzon product comes in two Indian fillings - Chettinad Paneer and Chettinad Chicken.
In order to cater to the high demand for socializing space, the stores that we open today are remarkably different from the ones we opened in 2006 with regards to the channel, size, décor, color scheme, seating, furnishing, etc. Further, this is one area where there will considerable changes in the months to come.
From a brand building standpoint, most programmes are around local store marketing and building communities around our stores. As a brand we are yet to attain a size which can leverage mass media to the fullest. However as we grow, there will be a movement in this direction.
Our Loyalty programme "Costa Club" which was launched in the UK early this year has had a great run and we would be adapting the same in India by the end of 2012.
Further, through a UK acquisition, Costa in the UK has recently entered the coffee vending business with "Costa Express" and this should be making its way into other International markets including India very soon. Strategically we have made a distinction between "Vending" and "Dispensing". While Dispensing is today a crowded space, catering to the lower end of the market, the Costa Vending machine replicates what we do in a Costa manned outlet in a mechanized manner. These machines are ideally suited for channels like multiplexes, shopping centre's, metro stations etc. where customers are looking for "Coffee on the go".
What challenges are being faced by Costa Coffee in India?
There are three major challenges confronting us today, and I would tend to believe that they are common for the whole of Indian retail as well.
1. Real Estate in India is becoming un real.
2. Hiring and retention of competent manpower.
3. Slow pace of growth of the Café segment.
What have been the lessons learnt this year?
Since we are taking the risk of opening larger stores, we must be sure that we are making the right real estate choices. There is considerable investment of Rs. 60-Rs.80 lacs which goes into each outlet and a wrong decision can put us back quite a bit. Moreover, a store is typically signed up on a nine year lease and a wrong decision can hurt us for long.
Besides this, we have also made our hiring and training process a lot more robust. While everyone is losing people, the only respite is that we lose a lot less in comparison to the industry.
What made you exit Punjab three years back?
When we entered India in 2005, consumerism was still at a very nascent stage. A lot of our decisions on city, channel, size of store etc. were dictated by a need to understand how our format performed in different environments. Having tested the format in a few tier 2 towns in Punjab & UP for a while, we decided that strategically its important to consolidate in a few large cities rather than operating one of two stores in peripheral cities. So we decided to take a pause on Punjab and Central UP and focus on the Delhi / NCR Mumbai & Pune. This required a few store closures in this region.
Having established ourselves with 60 stores in the Delhi / NCR region, we find ourselves in a much better position to re-enter Punjab today.
What are your expectations from the coming year?
I am hoping that the Café segment would expand with the advent of new players like Starbucks, Di Bella, etc. And when that would happens, I am confident that Costa would be able a garner a larger chunk of the pie. The next 18 months should be quite interesting as new players start laying foundations in an interesting market place. By Anu Bararia (India Hospitality Review)