High operating costs troubling coffee shops

Kolkata: The tragic end of CCD Founder V G Siddhartha is still fresh in the memory and analysts feel the high operating costs are brewing trouble for India's café chains, the rapid rise of the coffee shop culture in a 'tea country' notwithstanding.

"The demand for the coffee shop ethos is unstoppable and footfalls in coffee chains like CCD, Starbucks, Costa and Barista are assured and growing steadily, but these entities face ever-increasing operating costs. Real estate costs severely cramp their profit margins and many are either running in losses or just breaking even," said Anuj Kejriwal, MD & CEO, ANAROCK Retail.

Rentals, as a percentage of operating costs, have more than doubled in the last few years and eat away almost 15-20 per cent of the overall revenues. In prime locales, it even goes as high as 25 per cent. Just seven years ago, rental outgo for such establishments did not exceed 7-8 per cent of their profits. Between 2014 and 2019, rentals across major markets have risen by over 65 per cent, explained Kejriwal.

Today, India has a per capita coffee consumption of 0.03 kg/month. Not spectacular when compared to the US or Finland, where per capita coffee consumption crosses 4 kg and 9 kg/month respectively.

The average size of coffee shops is 500-1,000 sq. ft.