In 2019, CCD was at the top of its game – it was the largest coffee chain in India and was operationally profitable. But it was the same year when its founder VG Siddhartha committed suicide and India lost a visionary entrepreneur. So why did this happen? Well, it turns out everything wasn’t well with CCD’s business. The company did grow to become India’s biggest chain, but this growth came at a cost. CCD was under a big debt, and by 2019, this number had grown to 7,214 Crore Rs. And Siddhartha couldn’t cope with all the pressure from his lenders and decided to end his life. This was when Siddhartha’s wife Malavika took over and in the last four years,.
She has tried everything to save the company. Its total debt has reduced from 7,214 Crore Rs to 1,363 Crore Rs, on a unit level its stores have gotten more efficient, and the company is now trying to script a comeback. But this plan wouldn’t be easy. CCD now faces tough competition from new players, both local and international. So, in this video, let’s first understand how CCD went through its lowest moment, and how Malavika is now trying to revive it. Siddhartha came from a wealthy family in Chikkamagaluru, an area that is known for coffee plantations. In his young days, Siddhartha wanted to make a career in finance,.
And so he moved to Mumbai after his graduation. Here he worked for two years in a stock broking firm JM Financials, and after gaining enough insights about the stock market, he returned to Bengaluru to start his own trading business. For this, he borrowed 7.5 lakh Rs from his father and started Way2Wealth Investment Consultancy. Now, this was in the early 1980s, and India’s stock trading scene was much less competitive. So much so that Siddhartha at that time, made 1 lakh Rs per day. And all this money that Siddhartha made from trading, he used to buy coffee plantations. By 1992, he owned around 5000 Acres of Coffee plantations. Even though these coffee plantations were a huge reason behind starting CCD, the way.
He bought these lands was his first mistake. All of this land was bought mostly on credit. So, Siddhartha had a lot of land at this time, and he was using it to grow coffee. And, this was also the time, when India had opened up its markets to the world. And like other sectors, the coffee market also saw massive changes. Up until then, the government decided the prices of coffee, and according to Siddhartha, coffee growers in India were getting less than 1/3rd of the price compared to growers from other countries. And so, as the markets opened up, the prices for Indian coffee shot up. Siddhartha seized this opportunity, and he started exporting Indian coffee. And since he had thousands of acres of land and a family background of coffee plantation, he became India’s largest coffee exporter in just three years.
By now, Siddharth’s ambitions had grown. He wanted to be more than just a coffee producer. And so, with the vision of ‘connecting people over a cup of coffee’, Siddharth started the first Cafe Coffee Day outlet on Brigade Road in Bengaluru, in 1996. They sold one coffee for 25 rupees, which was 5 times the cup of a regular filter coffee at the time. But this didn’t impact CCD’s business, their target audience was young, affluent people, who didn’t mind spending 25 Rs for coffee, but wanted a good vibe and facilities. CCD at the time, offered internet at their cafe, and things like these set it apart from other traditional chains. This was the beginning of CCD’s journey, and by 2019, the year SIddharth committed suicide, they were the biggest coffee chain in India with 1,752 cafes across the country,.
With an annual revenue of 3,569 crore rupees. But this was not the only business Siddhartha was doing. See, CCD’s parent company is Coffee Day Enterprises Limited (CDEL), and in 2019, only 50% of its revenue came from its coffee business, the rest came from a bunch of totally unrelated businesses. Firstly, there was his trading firm Way2Wealth, which I mentioned earlier in the video. Then there was a logistics company SICAL Logistics. Then there was the construction company Tanglin Developments, which developed technology parks and SEZs. He also had a luxury hotel and resort chain under the Serai brand. And finally,.
He also had a venture capital firm called ‘Coffee Day Trading’ where they invested in tech startups. Siddharth was juggling multiple businesses under the same company, and this ‘over-diversification’ was his next big mistake. Now, I don’t want to go into detail about each of these other businesses, but one thing you should know is, that most of these were built on debt. In 2019, Siddhartha had a total debt of around 10,000 crore Rs from all his businesses. And because of this distraction, Siddhartha’s focus on CCD’s business was lacking and it was evident. See, CCD started in the 1990s, and for a long time, it didn’t have any meaningful competition. But in the last decade or so, this market has changed. New players like Starbucks,.
Blue Tokai and Third Wave Coffee were now catering to the aspirations of the young and affluent population, a segment that CCD too was going after. But in this race to be more appealing and premium, CCD was lagging behind these new players. And the only solution the company thought of, was expansion. Take a look at this graph, the number of CCD stores grew consistently during this period. But this growth happened on the back of heavy loans. And this is reflected in the company’s balance sheet too. In FY-2018, the company borrowed 3,354 Crore Rs, to repay debt of 2,844 Crore Rs. Next year, the borrowing amount increased to 7,831 Crore Rs, which was used to repay a loan of 5,733 Crore Rs.
Basically Company was taking new loans to pay its old dues back and this was turned into such a spiral, that Siddhartha saw no way out, and ultimately took his own life. So now that we’ve understood the situation of CCD business at the time of Siddhartha’s demise, let’s see how Malavika is trying to revive the company. See, things for Malavika weren’t easy. She was now a single mother of two sons, and her company Coffee Day Enterprise Ltd. had around 10,000 Crore Rs in debt. Her first order of business was to cut down on non-core businesses and focus only on their coffee business. And the biggest challenge was to repay the debt. For this,.
She first sold 90 acres of their Global Village Tech Park to Blackstone for 2,700 crore rupees. Next, she sold their wealth management business way2wealth to Sriram Credit Company for 65 crore rupees and finally, she also put their logistics business up for sale. This was focused on cutting down their non-core business and finding a way to service their debts without borrowing more money. The next challenge was to make CCD’s business sustainable. She then took the toughest decision of all – to shut down their unprofitable cafes one by one. Take a look at this graph. In 2019, CCD had a presence in 243 cities and 1,752 cafes, this number was cut down to 469 cafes in just 154 cities in 2023.
And even though these moves hurt the company in the short term, things are improving now. Its revenue, which dropped from 3,569 Crore Rs to just 582 Crore Rs in FY22, is now growing back. In FY23, it grew to 924 Crore Rs. Next, their operations have become more efficient too. Back in 2019, they made an average of around 1 Crore Rs from one single cafe in a year, but this number has now grown to 1.8 Crore Rs from one cafe, that’s an 80% increase in efficiency. So what does the future look like for CCD? See, even with a decline in the number of cafes, CCD is still the largest coffee chain in terms of number of cafes in India. In terms of revenue, it is the second largest – only behind Starbucks.
But the question is, Can CCD maintain this lead with new competitors quickly closing the gap? That will be a challenge for the company, but it looks like, it is in great shape to take on that challenge. See, the world is going through a fourth wave of coffee right now. The first wave was marked by instant, mass-produced coffee, followed by a second wave, which involved sipping coffee sitting in a cafe. This was led by the likes of Starbucks. The third wave of coffee was represented by independent curated coffee bars, which elevated the art of brewing coffee. And now, we are seeing the fourth wave of coffee, where customers care about the sustainability and the ethical sourcing and origin of coffee.
And in my opinion, CCD can certainly ride this new wave. The company still has thousands of acres of coffee plantations and it can ensure a ‘farm to cup’ model of coffee ensuring ethical sourcing and sustainability. CCD right now, is ready for a fresh start. For the last four years, it has just been putting out fires. Its debt has fallen from 10,000 Crore Rs at one time, to 1,000 Crore Rs. And as I mentioned, CCD is already the largest player in terms of the number of stores, so with a new brand positioning and focus, the company can make a successful comeback. And while this is an untapped opportunity, there is another market that CCD is already dominating – it’s the coffee vending machine market. With close to 50,000.
Coffee vending machines installed across office locations – it is estimated that CCD controls 70% of the office coffee vending machine market in India. This market was worth 165 million dollars in 2022 and is expected to almost double to 315 million dollars by 2030, so another big opportunity for CCD. In the end, I want to ask you, do you think CCD can make a successful comeback? And what are some key challenges and opportunities you think CCD would face? Let me know in the comments, and I will see you in the next one.
