Last fortnight, Canadian Coffee Brand Tim Hortons said it would open in Mumbai, hot on the heels of Nestle citing India as one of the world's fastest-growing coffee markets.

The Awakening

India’s coffee story began in the 17th century.

Legend has it that Baba Budan, while on a pilgrimage to Mecca, discovered the wonders of coffee. He returned some coffee beans to his native land, Chikmagalur, in present-day Karnataka, India.

Enraptured by the aroma and refreshing taste as many of us today are, Baba Budan planted the coffee beans in the fertile hills of Chikmagalur, where the favourable climate, rich soil, and high altitude of the region proved to be ideal for coffee cultivation. The coffee plants thrived, and the hills of Chikmagalur were soon covered with lush coffee plantations. 

This region became the birthplace of coffee in India and earned the nickname "Coffee Land."

Word of this newfound treasure spread like wildfire, reaching the ears of the British East India Company, which saw untapped potential in these fertile lands. They gazed upon the rolling hills of the Nilgiris, Coorg, and Wayanad and saw a big opportunity, primarily to export. 

With their colonial might, they fostered the cultivation of coffee.

In the early 1900s, European settlers and officials played a crucial role in introducing the concept of cafes to the country. British-style tea and coffee houses began to pop up in major cities, catering primarily to the colonial elite. 

These cafes provided a space for the British expatriate community to socialize, relax, and engage in intellectual discussions.

Inevitably, cafes also significantly influenced India's independence movement by the mid 20th century. From then on, cafes naturally became inclusive spaces for creative expression and social interaction.

The 20th century saw the rise of iconic cafes such as the Indian Coffee House, which started in the mid-1900s and became synonymous with intellectual and political discussions. 

The sector faced challenges during the first half of the 20th century, including disease outbreaks and economic downturns. The spread of coffee leaf rust disease in the 1920s severely impacted coffee production, leading to a decline in output. 

However, concerted efforts by the government and the coffee industry helped combat the disease and revive coffee cultivation.

By 1942, The Coffee Board of India was established. 

As India gained independence, it played a crucial role in promoting the growth and development of the industry. In the 1960s, the board focused on improving cultivation practices, providing technical assistance to farmers, and a prime emphasis on marketing Indian coffee globally.

Tailwinds from the export momentum led to the rise of small coffee growers by the 1980s. 

These farmers, encouraged by government policies, started cultivating coffee on smaller plots of land, contributing to increased production. The focus gradually shifted from large estates to small-scale plantations, promoting inclusivity and empowering farmers across the coffee-growing regions.

A Lot Can Happen Over Coffee

By the 90s, there were only a few places where friends could sit down and grab a bite. 

There were hardly any clean, hygienic, air-conditioned places that offered a casual setting and a modern selection of food and beverages. 

The modern Indian cafe story as we know it started in earnest with the launch of Cafe Coffee Day, or CCD, in 1996. 

CCD was founded in 1996 by V.G. Siddhartha, a first-time entrepreneur from Karnataka, India. 

At the time of its inception, the coffee culture in India was predominantly limited to traditional filter coffee shops. Siddhartha recognised the potential for a contemporary coffee chain catering to the emerging urban middle class and young professionals.

In 1996, CCD opened its first outlet on Brigade Road in Bangalore, Karnataka. 

The cafe had a unique concept, combining a European-style cafe ambience with a range of coffee-based beverages. The blend of international coffee culture and local flavours uniquely resonated with the Indian consumer. 

The initial years were challenging for CCD, as they had to create awareness about their brand and convince customers to embrace a new coffee-drinking experience. To attract customers, CCD focused on offering high-quality coffee, freshly brewed in front of the customers, and a comfortable environment for socialising, studying, or conducting meetings. 

CCD used this to gain a loyal customer base and become a go-to destination for coffee enthusiasts.

To ensure a consistent customer experience across its outlets, CCD implemented standardised operating procedures and training programs for its staff. In addition to its physical presence, CCD introduced innovative marketing strategies to enhance its brand visibility. 

With its first outlet in Bangalore, CCD won over the city over time, seeing significant growth due to the IT Industry. After returning from foreign lands, IT employees demanded a semblance of the coffee cafes they had experienced in their stint abroad, and CCD was there to fulfil it.

By 2000, CCD had capitalised on this gap in the market and opened several stores across the country. 

By the turn of the century, India's coffee revolution had been sparked

Bean There, Done That

The influx of American entertainment post-liberalisation ramped up coffee consumption in India. 

For the generation that came of age in the 2000s, many private TV channels were replacing the staid and old-fashioned Doordarshan. Friends, released in India in 1999, had the “Central Perk” coffee shop where the show's cast hangs out as a pivotal plot point. 

Further, there was a boom in travel between India and the USA, driven by IT-based outsourcing. 

Initially, global airlines such as Swissair and British Airways began outsourcing their back office work to India; IT companies such as Texas Instruments, American Express, and GE followed. 

Then ITeS services such as Infosys, TCS and Satyam also took the increasingly lucrative Y2K business. This also led many more Indians than before to travel “on-site” to the West. 

This increasing travel and cultural exposure led more Indians to discover the coffee culture and, eventually, the artisanal coffee movement. 

One of the travellers was Ravi Deol, a former marketing executive at Coca-Cola, whose travels in Italy introduced him to modern cafe culture. 

Despite CCD’s existence, he soon realised that making coffee a thing in India would be an uphill struggle. Indians seemed broadly indifferent towards coffee for an audience that lived in one of the primary producers of the commodity.

In 2000, the average Indian drank only about 55 grams of coffee, about 6 cups per person a year or one-tenth of tea consumption.

Due to a lack of knowledge about coffee and coffee consumption domestically being discouraged by the Coffee Board, Deol’s insight was not to sell coffee as a drink but as a lifestyle. 

Barista pioneered a modern, clean layout, with magazines, board games and guitars encouraging consumers to spend more time there. 

It was the first “specialty coffee” cafe in India. 

Deol set up a coffee boot camp for the staff, where he trained them eight hours a day for three weeks on every aspect of brewing coffee. This included the method of packing grounds for espresso, frothing milk for cappuccinos and how to operate the expensive Italian coffee machines he had imported.

Deol also customised the menu and offerings to suit the Indian palate, ​​with some Barista branches being a pure vegetarian, serving cakes and even quiche made without eggs. 

Barista grew enormously, opening 55 outlets in its first year. In 2007, when it was acquired by the Italian coffee giant Lavazza, it had about 200 stores all over the country. 

Even sleeping with one eye open wouldn’t suffice for the storm that was to come

Brewing Success

Despite being a small consumer, India was the world's sixth-largest coffee producer.

South India is both a huge producer and consumer of coffee. Karnataka accounts for 71% of coffee production in India, followed by Kerala at 21% and Tamil Nadu at 5%. 

Coffee consumption was greater in South India and the love for coffee has been spreading to North India where tea is the preferred beverage. 

2010 India’s coffee market was 1,000 Cr ($160M), compared to Tea’s 5,000 Cr. However, coffee grew rapidly, with the expectation of 10x in 10 years. 

While coffee consumption in the country grew at an average rate of 2 per cent per annum in the 50 years leading up to 2000, it has since picked up and has been growing at about 8-9 per cent per annum since 2000. 

While coffee culture has strong roots in certain states of South India, it was less widely prevalent in other parts of the country. 

In 2011, India exported 70 per cent of its coffee output abroad. This was due to the combination of low domestic demand and the challenges farmers face in obtaining fair prices for their coffee in India.

Most of the coffee produced in India found its way to international markets rather than being consumed domestically.

However, a noticeable shift in the coffee culture in India started to change coffee farmers' perceptions. Increasing disposable income and a growing tendency to dine out provided the tailwinds for the growing coffee market. 

Unlike in the past, where domestic buyers couldn't match export prices, the present scenario showcases how modern urban India possesses both the appetite and the income to embrace lifestyle products like coffee.

The evolving coffee culture and the increasing market demand created positive momentum for the coffee industry in India. 

The biggest booster was going to arrive. 

In 2012, Tata, in a joint venture with Starbucks, launched the iconic American coffee chain in Mumbai, indicating that coffee culture in India had finally come of age. 

Starbucks’ entry would catalyse the industry to start a new revolution.

Not Everyone’s Cup Of Tea

As Starbucks opened, Matt Chitharanjan and Namrata Asthana embarked on a coffee expedition across India. 

Inspired by the rich diversity and untapped potential of Indian coffee, they set out to discover hidden coffee estates and forge direct relationships with local farmers.

During their travels, Matt and Namrata encountered remarkable coffee beans grown in different regions of India, each with its unique flavour profiles and characteristics. The experience ignited a desire to bring these extraordinary coffees to a broader audience and create a platform celebrating the country's coffee heritage.

In 2013, Blue Tokai Coffee was founded in New Delhi with the vision of sourcing, roasting, and serving some of the finest single-origin coffees from across India. 

Blue Tokai Coffee set itself apart by adopting a farm-to-cup approach. Matt and Namrata established direct relationships with coffee growers, working closely with them to ensure fair trade practices, sustainable farming methods, and the highest quality standards.

This approach supported local coffee communities and allowed Blue Tokai to source unique and traceable coffees.

The company's focus on quality extended to the roasting process.

Blue Tokai invested in state-of-the-art roasting equipment and hired skilled roasters who meticulously roasted each batch of coffee to unlock its full potential. The result was a range of coffees that showcased the nuanced flavours, aromas, and complexities of Indian coffee.

Blue Tokai Coffee quickly gained recognition for its commitment to excellence and the craft of coffee. It opened its first café in Mumbai in 2014, providing customers with a curated coffee experience.

As Starbucks and Cafe Coffee Day scaled, India started to experience a new movement.

Consumer preferences in India were shifting towards brewed, ground, and flavoured coffee culture. This movement, often called the "third wave of coffee," brought a heightened focus on the quality and craftsmanship of Indian brews. 

Blue Tokai recognised consumers were willing to pay a premium for a unique, high-quality coffee experience.

India’s new coffee revolution was beginning to scale. 

A Cup Above the Rest

In 2016, Blue Tokai was followed by the founding of Third Wave Coffee Roasters.

Driven by enthusiasts of coffee who wanted specialty coffee roasted in smaller batches with custom flavours, the supply began to increase. 

“Specialty coffee” was the common term for this highest-grade coffee. 

The widely accepted definition of specialty is coffee scoring 80 points or above on the 100-point scale used on the Specialty Coffee Association Cupping form. The quest for the highest grade impacted the entire supply chain, including the sourcing locations. 

Typically, specialty coffee needs coffee grown at a single origin or single estate. 

The usage of the word specialty coffee indicates the best flavor of coffee which are produced in special micro-climates. 

The specialty coffee supply chain includes the farmer/estate perfecting the coffee grown on their land for generations. This is followed by the coffee buyer, the roaster and finally the barista who brews your perfect coffee. 

Each supply chain member must maintain the standards of handling specialty coffee as certified by the SCAA.

The process would create defensibility for new chains beginning to scale by 2017. 

Sleepy Owl became one of the first brands to introduce cold brew coffee in India, with ready-to-drink cold brew coffees, brew boxes, brew packs and brew bags. They followed a different distribution strategy, relying on Swiggy/Zomato’s scale. 

By 2018, the growth of specialty coffee was heavily skewed toward big cities. 

In 5 years, Specialty coffeehouses were expected to account for more than half of all café sales in major cities like Bangalore and Chennai. In contrast, they accounted for ~10% overall café sales, indicating their stronger presence in urban areas.

A trifecta of millennials was supercharging the third wave of coffee, quick delivery and economic growth

Taking The Espressoway

QSR astonishingly doubled in the 5 years leading to 2020.

The market was expected to reach nearly 83 thousand crore rupees in size by FY 2025. Coffee was becoming both the main act as well as an accompaniment. 

In February 2020, Lavazza India revealed 69 percent of Indian millennials use coffee as a food companion. Nearly 50 percent opted for coffee as the day's first meal instead of tea. 

By early 2020, the overall market was worth 10,000 Cr, with retail chains forming a 2,000 Cr market. 

Driven by India’s rapidly shifting coffee preference, specialty Araku Coffee opened its first store in India before the pandemic. 

Manoj Kumar founded Araku, started in the Araku Valley in Andhra Pradesh, as a livelihood project for local tribal populations. Like most coffee players in India, they began with exports. Araku focussed on B2B marketing in Japan, South Korea, and France at very high prices. 

By 2020, it found India lucrative enough to begin. 

Araku noted that the Covid-19 outbreak was “a blessing in disguise” as it led to a spike in coffee consumption, and artisanal brands witnessed a manifold increase in sales. 

Since most Indians were working from home and attending from school at home, they needed to buy coffee and brewing equipment at home. They usually might order this when they go out. 

As more Indians moved up the value chain, they also moved from commodity to speciality coffee. Drinkers started to explore how people are beginning to understand how coffee is grown, processed, and sourced.

More brands proliferated. The Flying Squirrel, Indian Bean, Halli Berri, Estate Craft, Riverine and Bynemara began to pick up. 

Many of these brands source the beans from the Western Ghats, an excellent coffee-growing region. Notably Wayanad, Chikmagalur and Kodagu.

Unlike Starbucks and Barista, who sourced coffee from other manufacturers, many of these companies have estates. They could be called bean-to-cup operators — where the growers are also the retailers.

The revenue had begin to flow. 

Smelling Money

In late 2022, Third Wave would enter discussions to raise a $25M round.

The brand had reached close to 100 Cr of revenue, especially since Starbucks was closing in on 1,000 Cr. Blue Tokai, which was the original brand, would raise $30M. 

It, too would cross 100 Cr, and the specialty coffee space had raised ~1,000 Cr. Blue Tokai was worth almost 1,000 Cr.  

As the tech ecosystem in Bangalore proliferated, the enablers of the tech ecosystem were getting rapidly funded too 

By 2023, coffee beans' exports dropped from 80% to 60% as supply shifted to cafes locally growing in the market. The "Third Wave Coffee" in terms of the premium artisanal coffee chain was begin experienced by almost everyone in metros. 

The specialty coffee brands had demonstrated demand in metros and Tier 1s. There was a huge market for the taking. 

Specialty coffee makers were deeply interested in penetrating Tier 2 and Tier 3 cities. Tier 1 cities tend to be leaders, with other cities following. 

Due to this, the love for specialty coffee was rising nationally, ensuring that consumers in Bhopal are brewing as easily and as regularly as their counterparts in the metros.    

Plantation owners also interact directly and play on coffee's production efforts and emotional marketing aspect, which makes a cup splendid for a consumer.

Steaming Ahead

As the specialty coffee market gained momentum, existing players began responding.

Tata Consumer Group launched their direct-to-consumer (D2C) brand, Sonnets by Tata Coffee, offering high-quality single-origin Arabica coffee with options for roast and grind levels. 

Brands like Tata Coffee Grand, Bru, and Nescafe, which dominated the instant coffee segment, began introducing new products to meet evolving consumer preferences. 

D2C channels provide customised experiences, allowing brands to cater directly to coffee connoisseurs and tap into the growing market.

International players like Tim Hortons and Pret A Manger are also drawn to the thriving coffee market in India. With the country's overall coffee market projected to reach over $4.2 billion by 2025, and the Indian coffee retail chain market expected to hit the $850 million mark by the same year, the potential for growth and success is evident. 

Tim Hortons, known for its premium brand and balanced pricing approach, aims to cater to the passionate on-the-go Gen-Z and millennial crowd. At the same time, Pret A Manger brings its renowned coffee and sandwich offerings to the Indian market.

These international brands recognise the opportunities and wanted to part of India's evolving coffee culture. The juggernaut of coffee culture growth in India shows no signs of stopping, delivering remarkable results for companies in the industry. 

It is seen no better than in Starbucks, which achieved a significant milestone in the financial year 2023.

Net sales crossed Rs 1,000 crore, representing a remarkable 71% growth compared to the previous year. The company added 71 new stores and entered 15 new cities, including tier 2 cities, to capture the immense untapped potential in these regions.

Even today, on a bustling lane in Indiranagar, one will find many start-up founders & their team members operating from cafes, forcing one to think how, over time, cafes have evolved from hang-out spots to places that foster collaboration, where people come to seek inspiration and build communities. 

Noticing the evolving consumer profiles, cafes are upgrading their infrastructure to a WeWork equivalent, providing power sockets, good internet connectivity, small conference rooms, and delicious coffee. 

With each new player brewing its speciality coffee line, the Indian coffee enthusiast’s palate evolves, creating a positive feedback loop and a unique flywheel for speciality coffee. 

While challenges still exist, such as infrastructure limitations, quality control, and market education, the overall trajectory of the specialty coffee industry in India points towards a bright future. 

India is at the cusp of a coffee revolution, and the future is aromatic.

Writing: Anisha, Ajeet, Bhoomika, Chandra, Mitali, Nilesh and Aviral Design: Omkar