Recently, we published a piece on the rise of new-age cafes in India following the pandemic. These businesses have a distinct advantage over legacy MNCs or other players due to their better understanding of Indian markets.
Many investors today are willing to make bets on the new generation of coffee chains that are run by startups. Third Wave Coffee, for example, raised $35 million during its Series C funding round. Blue Tokai Coffee Roasters also raised $30 million. There are also many other players like The Flying Squirrel and Indian Bean who offer organic freshly roasted powders via their D2C marketplaces and websites. They give tough competition to the legacy players. Some of these players have also opened their cafes.
We also spoke with experts to better understand the latest trends. Here are eight key trends that have helped startups flourish.
Corporate consumption increases
Startups are unlocking a new channel of demand through aggregators: corporates. Nitya Aggarwal, Vice President, 3one4 Capital, said that servicing corporates in this area is a huge opportunity for the future. Most of these players use location strategies to attract corporates. Some of these players are also experimenting with the B2B model, giving vending machines away to corporations.
Beyond metros: Demand for Demand
The pandemic has changed many things, including consumer habits and employment opportunities. WFH has become a common practice as many employees returned to their hometowns to work during the pandemic. It has led to more job opportunities for small towns. Many people in Tier II and III prefer to work from coffee shops. "We are seeing bespoke chains built in India beyond Tier I with healthy footfall and margin profiles," she said.
D2C is on the rise
Coffee chains are also able to capitalize on the increase in demand for D2C brands. Since coffee chains sell products that have a longer shelf-life, they can enjoy higher margins when selling D2C. The average revenue of D2C companies in India that sell long-lasting products such as coffee powder, cookies etc. varies.
Innovative flavors and health and wellness
Some brands cater to specific dietary needs, such as organic and plant-based products, gluten-free options, or those that are free of chemicals. D2C brands are using bold and unique flavors and ingredients to distinguish their products and attract consumers' interest, said Ajinkya sawrikar. Also, there is innovation in the form of design and presentation that appeals globally.
Agarwal said, "After the initial success of some chains such as ThirdWave we see players not only innovate in taste profiles but actively educate end users on different nuances of consumption of coffee." Experts say that small coffee chains innovate not only on coffee, but also in the consumer experience.
Sustainability and eco-friendly packaging
Many brands are focusing on sustainable practices. This includes everything from using eco-friendly materials for packaging to sourcing ingredients in a responsible manner. Sawrikar said that sustainability and environmental responsibility are becoming important selling points.
D2C subscription models are becoming more popular. Brands could create a predictable revenue stream by allowing customers to subscribe for their favorite products. This is mainly applicable to D2C (direct-to-consumer) products from these chains.
FMCG giants compete for your business
In response to the changing preferences of consumers, FMCG giants have increasingly entered the restaurant and cafe space. Reliance Brands, for example, announced that EL&N Cafes in London has decided to work with their multi-billion-dollar revenue firm to meet the demand for Instagram worthy cafes and restaurants. Experts predict that many more FMCG companies will enter this market.
Sawrikar gives us a few options to follow:
Brand extension: Extending packaged food and beverage lines into the café and restaurant space through branded chains of cafes or collaboration with existing ones.