V.G. Siddhartha: Everybody Said It Wouldn’t Work
Image: Mallikarjun Katkol for Forbes India
Name: V.G. Siddhartha
Profile: Chairman, Coffee Day Holdings
Why He Won For transforming a commodity business into one of India’s largest retail brands. And for broadening his business beyond retail to logistics, hospitality and financial markets.
I come from a coffee growing family. For 140 years, we have been growing coffee. Coffee is at a 30-year high today, but whenever the prices went down we were worried. As a grower, how do you change the cycle when the commodity prices don’t impact you so badly? That is how I came to retail.
International green coffee is today $20 billion. When I entered, it was only $7-8 billion. But even in those days, coffee retail was $100 billion market [coffee powder, instant coffee and cafés]. Today, it is touching $140 billion.
We first started with exporting coffee, because we didn’t want to go through a middleman. We started exports in 1993 and we became India’s largest exporter in just two years. So, I started thinking that if I can do it then a big international player could do it very easily. The barrier to entry is nothing.
I used to deal with big trade houses in Europe and the US and suddenly started realising that whenever the investment climate in India improves, they will come and put big factories next to ours and give a big threat to me in procurement. So I was forced to look for long-term survival. How do I keep my might in the coffee industry?
Then, we started thinking that we needed to build a brand. We started small with our Fresh and Ground outlets.
There was a young girl working with me and I had asked her to do some market research on the opportunity to set up stores to sell branded coffee powder. She studied the market for one week and asked me, “Are you sure you want to put up these shops? I met people who have been in this business for 20-30 years and everyone said this business is so tough you won’t be able to sell even 5 kg of branded coffee through retail outlets. Don’t waste your time and money.” It was scary for me to hear this; I had an internal target of doing 500 tonnes.
I was worried about entering an unknown market, and losing my money and reputation. My ego was going to be hurt if I failed. Those days, Coorg [from Tata Coffee] was very popular. They were doing 700-800 tonnes and I used to tell my agency that I want a brand name like that. I couldn’t call my brand Chikmagalur — I come from that area — but they convinced me that Coffee Day was a good brand. In 1994, we opened 20-25 stores in Bangalore and 20 stores in Chennai only selling coffee powder.
Today, we sell 6,500-7,000 tonnes of branded coffee in a year [through all Coffee Day brands, through vending machines, cafés and retail stores]. That was the beginning, but I realised that margins were limited in this business and that is the reason we went to cafés.
In 1995, globally, the café culture had picked up and I told my management team I wanted to put up cafés in India. It was a lifestyle business and a great way to build a brand. I told my team I wanted a nice concept store; I had a budget of Rs. 1.5 crore. They said it wouldn’t work. In India, people were selling coffee for Rs. 5 in 1995. I wanted to charge Rs. 25 for a cup. Who will buy coffee from you at that price? My team’s advice was not to do that business. I agreed.
About eight-nine months later, I was walking in Boat Quay in Singapore. They had 20-30 restaurants and at the end of the steps, facing the river, was a corner shop selling beer and Internet access and it was crowded. I came back to India and told my team I want to put an Internet café, we would sell coffee along with Internet access. We were going to do a Cyber Café.
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