Why India's Largest Coffee Chain Failed ? | Cafe Coffee Day Failure | Case Study | Aditya Saini

Summary

Cafe Coffee Day (CCD), India's first coffee chain, once dominated the market with a vast network of stores, surpassing competitors combined. However, poor financial management, debt, and the tragic suicide of founder VJ Siddhartha led to a significant reduction in outlets. The company's strategies, including value proposition transformation and the 3A's strategy (Affordability, Accessibility, and Acceptability), initially drove success but could not sustain it. The script explores the rise and fall of CCD, offering powerful business lessons on financial prudence and strategic growth.

Takeaways

• 🏢 Cafe Coffee Day (CCD) was the first coffee chain in its country, so dominant that the combined stores of its competitors couldn't compete.
• 📉 Despite its success, CCD faced a severe downturn, leading to a 73% reduction in the number of stores and the tragic suicide of its founder, VJ Siddhartha.
• 💡 The story of CCD offers critical business lessons, particularly in financial management and strategic expansion.
• 📚 Siddhartha started his career in finance, gaining valuable knowledge that he later applied to the coffee industry.
• ☕ Siddhartha identified a significant business opportunity in the coffee market, leveraging the price difference between coffee in India and abroad.
• 🌱 He invested heavily in coffee plantations, expanding from 1500 to 4000 acres and eventually becoming India's second-largest coffee exporter.
• 🚀 CCD's rapid expansion included various types of outlets tailored to different customer segments, from express stores to lounges and international outlets.
• 🔢 CCD's aggressive growth was funded by debt, which eventually led to a debt trap and severe cash flow issues.
• 📉 The Indian market's preference for tea over coffee and the entry of competitors eroded CCD's market share and profitability.
• 💼 Poor financial management and the pressure from private equity firms for share buyback contributed to the company's downfall.
• 🏛 After Siddhartha's death, his wife Malvika Hegde took over, closing unprofitable outlets and selling assets to reduce debt, improving the company's financial health.

Q & A

What was the initial business venture of VJ Siddhartha after studying Economics?

VJ Siddhartha started his career in trading and investing, joining as an intern at a Mumbai-based Financial Services group named JM Financial.

What was the significant opportunity that VJ Siddhartha identified in the coffee market?

He identified a significant business opportunity in the coffee market when he noticed that the price of 1 pound of coffee was 35 cents in India, but it could be sold for up to $1.2 in America, indicating a 3x profit margin if coffee was made and exported from India.

When and where did Cafe Coffee Day (CCD) open its first outlet?

CCD opened its first outlet on Brigade Road, Bangalore, on 11th July 1996.

What was the financial strategy that CCD used to expand its outlets rapidly?

CCD used an Initial Public Offering (IPO) of its parent company to raise 1150 crore rupees, which helped in expanding the total number of outlets to more than 2000.

What were the six types of outlets that CCD opened to cater to different customer segments?

The six types of outlets were Cafe Coffee Day Express Stores, CCD Lounge, The Square, CCD Capsule and Drizzle outlets, CCD Fresh 'N' Ground, and Coffee Day Beverages vending machines.

What is the 3A's strategy that CCD used to compete with other coffee chains?

The 3A's strategy stands for Affordability, Accessibility, and Acceptability. It aimed to ensure that CCD's products were affordable, accessible to all target customers, and socially accepted as a beverage that brings people together.

What was the financial crisis that led to the downfall of CCD?

The financial crisis was due to poor financial management and rapid expansion, which led to increasing debt. The investments made by the company were not generating enough cash flow to pay back the loans and interest, leading to a debt trap.

What tragic event occurred involving the founder of CCD, and what was the aftermath?

The founder of CCD, VJ Siddhartha, took his own life in July 2019. In his suicide note, he mentioned the inability to make a profitable business and the pressure from private equity firms to buy back shares. Following his death, CCD's shares dropped rapidly, and the company faced a significant financial and operational challenge.

What steps did Malvika Hegde, the new CEO after Siddhartha's death, take to manage the company's financial situation?

Malvika Hegde shut down 73% of the company's outlets, sold off loss-making assets such as a park in Bangalore and a stake in the tech firm Mindtree, which significantly reduced the company's debt and improved cash flow.

What is the current status of CCD's debt and the ongoing legal battle?

As of March 2023, Coffee Day Enterprises had a total debt of 1707.68 crores. The company is also involved in a legal battle with IndusInd bank over a defaulted payment of 98 crores, with the case still ongoing in court.

What lessons can be learned from the case study of CCD for other businesses?

Businesses can learn the importance of prudent financial management, the risks of rapid expansion without sustainable cash flow, and the need for strategic diversification and adaptation to market changes from the case study of CCD.

Outlines

00:00

📈 The Rise and Fall of Cafe Coffee Day

The script begins by discussing the meteoric rise of Cafe Coffee Day (CCD), India's first coffee chain, which initially outpaced its competitors with an extensive number of stores. However, the company faced a tragic turn of events, leading to the founder's suicide and a significant reduction in the number of stores. The narrative questions the reasons behind CCD's downfall and suggests that powerful business lessons can be learned from this case. The story of CCD's founder, VJ Siddhartha, is recounted, from his early career in economics and stock trading to his venture into the coffee business, which eventually led to the establishment of CCD and its rapid expansion.

05:01

💡 CCD's Business Strategies and Expansion

This paragraph delves into the strategies that CCD employed to achieve success, such as transforming their value proposition to cater to a wider audience by diversifying their food and beverage offerings and tailoring their store designs to appeal to the youth. The company opened various types of outlets to target different customer segments, including express stores for quick service, lounges for a family experience, and international outlets to attract foreign customers. CCD also implemented the 3A's strategy focusing on Affordability, Accessibility, and Acceptability to ensure their products were within reach for a broad demographic and to promote coffee as a social drink. Additionally, the company differentiated itself through unique marketing tactics and maintained customer engagement through events and social media.

10:04

📉 Financial Mismanagement and CCD's Downturn

The script highlights the financial mismanagement that led to CCD's decline. Despite rapid expansion and a significant number of outlets, CCD's debt began to spiral due to the high costs of maintaining such a large operation. The company's aggressive growth strategy backfired as the Indian market, traditionally a tea-drinking nation, saw a saturation of coffee options with the entry of competitors. This led to a division of the customer base and a reduction in CCD's profit margins. The financial strain resulted in cash flow problems, culminating in the tragic suicide of the founder, VJ Siddhartha, who was under immense pressure from private equity firms to buy back shares.

15:05

🏛 Post-Crisis Management and the Future of CCD

Following the founder's death, the script discusses the efforts of Siddhartha's wife, Malvika Hegde, who took over as CEO and implemented drastic measures to save the company. She closed a significant number of outlets, sold off non-performing assets, and reduced the company's debt substantially. Despite these efforts, the company still faces legal challenges and financial struggles, with the future of CCD uncertain. The script concludes by inviting viewers to share their experiences and thoughts on CCD's outlets and to follow the channel for more insightful content.

Keywords

💡Cafe Coffee Day (CCD)

Cafe Coffee Day, commonly known as CCD, is the first coffee chain in India and the primary subject of the video. It is integral to the video's theme as it discusses the rise, challenges, and lessons from CCD's business journey. The script mentions how CCD had a significant number of stores, surpassing its competitors, and later faced a drastic reduction due to financial mismanagement.

💡Competitors

Competitors in this context refer to other coffee chains or businesses that offer similar products or services. The script highlights how CCD's numerous stores initially overshadowed its competitors, but later faced challenges as these competitors expanded their presence, impacting CCD's market share.

💡Financial Management

Financial management is the process of organizing and utilizing financial resources effectively and efficiently. The video underscores poor financial management as a key factor in CCD's decline, where rapid expansion and debt accumulation without adequate cash flow led to severe financial distress.

💡Expansion

Expansion in the video refers to the rapid growth of CCD's store count and business operations. It is a central theme as the script describes how CCD aggressively opened new outlets, both nationally and internationally, which initially contributed to its success but later became a liability due to unsustainable debt.

💡Debt Trap

A debt trap is a situation where an individual or company is unable to repay accumulated debts, often resorting to taking on more debt to service existing obligations. The script illustrates how CCD's aggressive expansion and investment in various ventures led to a debt trap, culminating in the tragic suicide of its founder.

💡Founder

The founder of a company is the person who establishes it. In the video, VJ Siddhartha is mentioned as the founder of CCD, whose vision and investment strategies initially led to the company's success. However, his decisions also contributed to the company's downfall, as detailed in the script.

💡Value Proposition

A value proposition is a promise of value to be delivered through a product or service. The script explains how CCD enhanced its value proposition by diversifying its food and beverage offerings and tailoring its store design and locations to appeal to its target demographic, particularly the youth.

💡3A's Strategy

The 3A's strategy, as mentioned in the script, stands for Affordability, Accessibility, and Acceptability. It was a key marketing approach used by CCD to ensure its products were reasonably priced, conveniently located, and socially accepted as a beverage for social gatherings, thereby broadening its customer base.

💡Marketing

Marketing in the context of the video refers to the strategies and tactics used by CCD to promote its brand and engage with customers. The script describes various marketing initiatives, such as the Latte Art Festival and social media engagement, aimed at maintaining a connection with customers and enhancing the brand's image.

💡Credit Score

A credit score is a numerical representation of an individual's creditworthiness, used by banks and lenders to assess the risk of lending. The script briefly touches on the importance of a good credit score for obtaining loans at favorable interest rates, using it as an analogy to emphasize the importance of good financial health.

💡One Score App

The One Score App, as mentioned in the script, is a financial tool that allows users to monitor and improve their credit score. It is used as an example in the video to illustrate the broader point about the importance of managing personal finances effectively, which parallels the financial missteps made by CCD.

Highlights

Cafe Coffee Day (CCD) was the first coffee chain in the country, with a massive number of stores that intimidated competitors.

The company's founder, VJ Siddhartha, started his career in trading and investing after studying Economics at Maglore University.

Siddhartha saw a huge business opportunity in the coffee market, noticing the significant price difference between India and America.

CCD started with Amalgamated Bean Coffee Trading Company in 1993, becoming India's second-largest coffee exporter within two years.

Inspired by a German coffee brand, Siddhartha launched CCD's first outlet in Bangalore in 1996, aiming to popularize coffee in India.

CCD expanded rapidly, opening over 2000 outlets by 2000 and launching its first international outlet in Vienna, Austria.

CCD's aggressive expansion was funded through an IPO, raising 1150 crore rupees and establishing it as a favorite coffee spot in India.

Poor financial management led to CCD's downfall, with the founder's suicide highlighting the severity of the company's financial crisis.

CCD's financial troubles were exacerbated by a debt trap, with loans taken to fund expansion leading to cash flow problems.

The company diversified into various businesses including hospitality, tech parks, logistics, and financial services, all funded by loans.

After Siddhartha's death, his wife Malvika Hegde took over as CEO, shutting down 73% of outlets and selling assets to reduce debt.

CCD's strategies included transforming the value proposition by adding variety in food and beverages and targeting the youth.

CCD implemented the 3A's strategy focusing on Affordability, Accessibility, and Accessibility to attract a wide range of customers.

The company differentiated itself through unique marketing strategies like coffee concerts and engaging with customers on social media.

CCD opened various types of outlets to cater to different customer segments, including Express Stores, Lounges, Square, Capsule, Drizzle, Fresh 'N' Ground, and Beverages.

Despite initial success, CCD faced challenges as competition increased and the Indian market's preference for tea over coffee remained strong.

The company's debt crisis led to legal battles, with IndusInd bank taking Coffee Day Global Limited to court over unpaid loans.

Transcripts

The first coffee chain of country

Cafe Coffee Day

that has so many stores

that every competitor was scared of that.

Infact if we add all the number of stores of its competitors

still they were nothing in front of Cafe Coffee Day.

But then something happens

that forget about going to CCD

one doesn't even want to look toward their store.

Something so bad happened with the company

that its founder had to do suicide.

And in the last 5 years, if you see

the no. of stores of the company has reduced to 73%.

But the question is

how did all this happen?

What mistakes did CCD do?

And most importantly

what are those powerful business lessons

that we can learn from this case study

and can implement in our business?

So this story starts in 1983

when by studying Economics in Maglore University

a person named VJ Siddhartha

starts his career in trading and investing.

In his starting days

he joins as an intern in a Mumbai based

Financial Services group named JM Financial.

And works for 2 years there.

And in these 2 years

he took the whole knowledge of investment, trading and stock market.

After which in the year 1984

he comes to Bangalore from Mumbai

and starts his own proprietary stock broking firm!

Now when he was running his company

he gets a good chance to explore the coffee market

where he saw

the price of 1 pound coffee is 35 cents

but if we see the same in America

the price goes upto $1.2.

Means that if someone makes coffee in India and exports outside,

then he will make 3x profit.

And this was the place

where Siddhartha notices a huge business opportunity

after which, all the money he made in stock market

he invested the whole money to buy a land!

He buys 1500 acre land

and expands it upto 4000 acres in 1992.

And in the next year

in 1993

Siddhartha, in order to trade coffee

started Amalgamated Bean Coffee Trading Company!

With the help of this company

Siddhartha was trading 20,000 tons of coffee every year.

And in the next two years

he became India's 2nd largest coffee exporter,

and some time later

he changes the name of his company

to Coffee Day Global!

During this, he gets a chance to visit Tchilo, a leading coffee brand of Germany!

And there, a German businessman tells him

that a few years ago

he started from a 10-feet shop in Hamsburg

and today, they are popular in whole country!

Any by listening this

he gets an idea

of starting a coffee house in India.

So that they can get popularity in whole India.

And this was the place

from where CCD starts.

On 11th July 1996

CCD opens its first outlet on Brigade Road, Bangalore.

Now, it was the time to expand.

And in a few years

CCD started opening its new outlets!

And you know,

by the year 2000

CCD opened more than 2000 outlets.

Then in the year 2000

CCD opened its first international outlet in Vienna, Austria.

At that time, they had more than 500 outlets in India.

Infact, in order to expand it faster

they come up IPO of the parent company of CCD

through which they raised 1150 crore rupees

and after doing this

total number of outlets were more than 2000.

CCD had expanded in the whole country!

And in no time,

it became the favorite coffee spot of our country!

But wait a minute

if everything was going so well

then where did the mistake happen?

What did CCD did

that got in such a big problem?

Well, the answer is

poor financial management.

And if you want to understand in detail

then what is the reason of the success of CCD

first, we will have to understand all those factors in detail,

but before that

have you ever thought

that how well-managed your finances are?

Because if it is not that

that you can get into a big financial problem!

Like, if I talk about just credit score

then do you know,

how much money you can save by checking the credit score properly?

Let me show you!

I have opened One Score here.

Here, you can see

I can see the score of CIBIL and Experian Credit Bureau

that is going good.

Here, I can see all my things.

That what my credit limit is,

what percent of my credit limit have I used?

How much timely payments have I done?

And how many credit accounts are operational?

Now see, how it's useful.

For suppose, I have to buy a car or get a house in coming time.

For which I need a bank loan!

Now what happens

the bank will give me loan

when my credit score is good,

and suppose, my credit score is not good,

then either the bank won't give me loan

or if I get the loan

then I will get a high rate of interest.

So, if you want loan on low interest rates

then it's very important to have a good civil score!

Here, many of you would be thinking

that if we have to improve our credit score

then what can we do?

Well, this is very easy!

Here, click on the improved score

after that, it will ask, how much credit score to improve?

And I told that I have to improve my credit score by 20 points.

Now it will ask the time frame?

Now suppose, I selected that I want to improve within 3 months.

After that

it will give me suggestions

that what can I do

in order to improve my credit score?

So that I will get loan on low interest rate

and bank will give me loan confidently

I will get loan easily!

And the best part is,

that suppose, I face a loan fraud

that I can go to that particular respective bureau

and lodge a complaint.

Infact there are many such features

that you can explore.

I will give the link of One Score app in the description and comment box,

you can go and download it,

and can improve your finances to a great extent.

It will be very useful!

So see,

CCD knew

that if they want to make huge profits

then they will have to cater as much customers as possible.

For that, it is very important for them to increase the target customers.

For that, what they did

they transformed the value proposition!

Let me explain!

In order to improve the value proposition

CCD added a lot of variety of food items

added different kinds of beverages

and set the design and location of their stores

according to their target customers, that is youth!

In which CCD, in order to acquire every type of customer

they opened these six types of outlets.

In which the first type is Cafe Coffee Day Express Stores.

For youth and middle class customers

in February 2003

CCD opens its express stores

where they can serve their customers at good price and convenience.

These stores were made to provide easy services.

That's why they were given the tag of easiest.

They were so simple,

that go,

order on the store, it would be a small order

you picked the coffee from there

and then you can go!

Then come these type of outlets,

that is CCD Lounge.

These outlets were made for families and upper middle-class families.

Their basic motive was

to sell the restaurant type quality

along with coffee

with an expensive experience.

And you see

CCD lounges

are their biggest outlets

where there is so much space

that you come

you buy coffee and other tons of things

and you can enjoy a family experience there

then come these third type of outlets

that are CCD Square.

In the year 2009

in order to acquire wealthy and international customers

CCD launched outlets named The Square,

where they can serve foreign customers a good experience.

So what they did here

they brought the same concept of foreign outlets in India

so that the foreigners can get the experience of their own country in India.

Then the fourth type of outlet is

CCD Capsule and Drizzle outlets.

Here, what CCD did

they opened several mini stores for single service customers and travelers

which they call CCD Capsule and Drizzle outlets

where people can come quickly

get their coffee and get out.

So here, all the people who travel on daily basis

it used to become a very good option for them

that go, get a coffee

and then go!

Then let's talk about fifth type of outlet,

that are called CCD Fresh 'N' Ground.

These outlets were kept in Finest category

because they were made for families

that the families can go here

and enjoy!

Infact, if you look at their design

then that was made by keeping family atmosphere in mind.

And then come to the sixth and last outlet,

that was Coffee Day Beverages.

Have you ever seen CCD vending machine in school or colleges?

Yes!

It was the same thing.

They get these machines installed at different places at right price

where you can enjoy freshly brewed coffee of CCD.

The biggest advantage of this was

that because all these machines were kept at such a location

where there are lots of kids and youths!

So that the youth can get used to CCD products in a very early stage.

So, there are very high chances

that the kid will drink the CCD coffee only!

This is the first strategy!

Now let's understand the second strategy of CCD,

which is called the 3A's strategy!

See

in order to beat the competition

CCD used a retail strategy named 3A.

In which the first A

if for Affordability!

CCD ensured

that their price fall under affordable segment.

So that school or college-going students

and even big families and working professionals,

all of them can afford CCD product!

And here affordability means

that the customer who can afford sub-premium category product

for him, the coffee should be offered at right price point.

Then comes the second A

that is Accessibility!

The main focus of CCD

was that all their outlets should be located around their target customers!

Basically, the company believed

that no matter what the location is in the whole country

our customers should find a CCD outlet there.

So that they can consume our coffee.

Then comes this 3rd A

that is accessibility!

Today, coffee has become a social drink more than a beverage,

that helps people in bringing together.

And this was the reason

that CCD, in order to encourage this thinking

used marketing slogans like 'Let's catch up at CCD'.

So that the population of our country that take tea

can shift towards coffee as soon as possible.

After doing all this,

CCD used its third strategy!

And that is called Difference in Concoction!

Means CCD, in order to differentiate itself from its competition

did multiple things time to time.

Like first of all, they promoted cashless transactions on their outlets,

for which they partnered with Freecharge

so that the customers can do the payment in 10 seconds and leave with coffee.

After that, in the year 2016

CCD did coffee concerts in cities like Delhi, Mumbai, Pune and Bengaluru.

They were the cafe concerts done in CCD outlets

where CCD used to invite a band or a singer

and a culture was promoted there.

By seeing this,

a lot of youngsters used to visit CCD outlets

and when they used to visit the outlet

they used to buy the stuff

and when they liked the taste

they used to go there regularly.

Then, let's understand the fourth strategy of CCD

and that is marketing.

It sounds very simple

but here, the main target of CCD

was to maintain a regular engagement with the CCD customers,

for which, if you see

CCD organize a festival every year

which is called Latte Art Festival.

Where the customers are served by making the different arts of latte on the coffee.

Even if you see

they are very active on social media

so that they can maintain a regular engagement with their customers

and a regular connection with them.

And with these strategies

CCD gets so successful

that they open their outlets in 6 more countries apart from India.

But this success of CCD

didn’t last long.

Because in very short span of time,

the bad phase of CCD starts.

Now see

the fast expansion that the company was doing

due to this, their debt started increasing at a fast pace.

By the year 2019

CCD was the biggest coffee chain of this country!

They had more than 2664 outlets.

But if you look at Starbucks

who has been in India for so long

even after so many years, they have 326 stores.

Whereas Dunkin, who is the world's second largest coffee company

runs only 21 outlets in India.

And apart from international brands,

if we talk about domestic brands,

then Barista had only 380 outlets.

Now you can see

at what level, CCD had expanded itself.

And this is where, the actual problem of CCD starts!

Because see

India is the country

where people love taking tea.

Here, coffee is considered as a luxury thing.

Infact even today, you will see families

having coffee in tier-1 and metro cities only!

In starting days, there was no issue.

But as time passed

in tier-1 and urban cities

the competitor brands started opening their outlets,

due to which, there was a time

when the whole crowd used to go to CCD for coffee

now that crowd got divided in multiple competitors

due to which the margins of CCD

got reduced

and in some time,

because CCD had taken the loan to expand itself,

so they started having cash-flow problem

infact let me show you something.

Coffee Day Enterprises

the parent company of CCD

does multiple businesses apart from CCD Coffee store.

Like hospitality

Tech parks

Logistics

Financial services

and even multiple investments.

Infact, in CCD

apart from coffee outlets

coffee plantation

making furniture for outlets

and coffee vending machine

all these businesses are included.

And the harsh reality is

VG Siddhartha, the owner of Coffee Enterprises

they made the whole empire with loans

and this is not a current thing.

All this had started in 1987

when he expanded his 1500 acre land upto 4000 acres.

And you know what

the land that was 4000 acre in 1992

it got increased to 20k acres in 2019 with loans.

Here, the problem was

Siddhartha had invested so much money by taking loans

but the things in which he invested the money

those investments weren't able to produce so much cash-flow

that they are able to pay the interest and basic loan amount.

And this was the reason

he had to take another loan to pay the first one

and had to take another loan to pay the earlier one.

This is how the whole company got into debt trap!

If we talk about march 2019

total debt on the company was 6,547 crores

after which the news come in July 2019

that the company founder Mr VJ Siddhartha took his life.

And while going, he wrote a note

in which he said

I did a mistake that I wasn't able to make a profitable business.

And now I am taking my life.

He even wrote in his note

that the private equity firms from where I have taken money

all of them are pressurizing Siddhartha

to buy back his shares!

Those who don't know

let me tell them

share buy back means

that you go to a private equity firm to raise money

and you give them your shares.

So when you give them your shares

you raise money from there!

Here, the company had taken money as loan from private equity firms

in return of which they put their shares!

And now they wanted

Siddhartha to buy back these shares

and return their money!

Any private equity firm does this because

because when they start feeling

that the person with which we have invested money

if they get into loss

then we will face loss.

Before they get into loss

let us sell the stake and take exit.

As soon as the news come into market,

CCD shared started dropping at a fast pace!

Then in the year 2019

after the death of Siddhartha

his wife, Malvika Hegde becomes the CEO of CCD.

And since then, she has been managing this company!

And the good part is

ever since he took over the company

she has shut down 73% outlets of the company

and the cashflow position has improved a lot!

That's why, if you see today

the outlets that were more than 2664 at one time

are just 469 today!

Infact, in order to reduce the debt of CCD

Malvika Hegde has sold all the loss-making assets of the company!

Like, their park in Bangaluru

they have sold that to a private firm named Blackstone in 2700 crores.

Infact CCD had a good stake in a tech-firm named Mindtree

which they have sold to L&T

for 1800 crores.

Due to which the debt of the company has decreased a lot.

Let me show you some data.

According to March 2023

Coffee Day Enterprises, the parent company of CCD

their total debt was 1707.68 crores

and if you look very carefully

they had to return 98 crores to IndusInd bank

which CCD has defaulted.

And this is the reason

that in September 2022

Coffee Day Global Limited, CDGL

the parent company of CCD

IndusInd bank took it to the court!

CDGL is the subsidiary company of CDEL

that contributes more than 90% revenue of CDEL!

And this is the reason

when the news of Siddhartha and court case came out

the shares of CDEL fell down rapidly!

And if you see today

the matter is going on in the court!

Let's see, what happens with CCD in coming time.

And whoever has gone to CCD

what did you like the most in CCD outlets

comment down and tell.

And if you have seen a bad thing in their business

then let us know in the comment section!

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then like this video and subscribe the channel

so that you never miss such powerful videos.