Coffee Industry in India: Growth, Challenges, and the Future

With this piece, we take a look at the Coffee Industry in India. We take a look at the history, market, the innovations in the space and finally the future.

What comes in your mind when you hear the word coffee? Your daily mornings? Or your hopeless dates? Or Starbucks barista calling your name? I know the list of options can go on and on and there will be some of your options still not covered!

That’s how the coffee market is. Apart from the aroma that you must be feeling right now while reading, there are a plethora of variations in the entire value chain. Be it the variety of beans or the way its dried, brewed, the method used to make it or the entire menu you get in your nearest cafe. The options are immense and with every individual with their likings and preferences, you can imagine the list.

A swift history of coffee in India

India was first introduced to Coffee way back in the 16th century in the southern part of our country. And this part today dominates the production of coffee, 53% of the coffee comes from Karnataka, 28% from Kerela, and 11% Tamil Nadu off the total production of 8200 MT (megatonnes). You would be surprised to know that 80% of the coffee is exported to different parts of the world.

The production is done across various types of beans – depending on the weather and suitability. And to be honest, most of us don’t even understand the kinds of beans used in our coffee. I mean, all we care about is our hot cup of cappuccino, yeah?

Where there are a lot of variations, there primarily are 2 types of Beans you need to know about. Arabica (most produced in the world) and Robusta. Where Arabica is the finest quality coffee which is a bit sweet and a complete pleasure to our palates, Robusta is a bit more bitter and stronger to the palates.

Now that we know the geography, history and the types of beans, let’s take a look at the Coffee Industry

Coffee Industry in India

According to the reports of Statista, the coffee segment amounts to $808m and is expected to grow annually by 8.9% CAGR in 2020-2025. The graph shows the revenue in US dollars from 2012 to 2025 (expected) and is differentiated in roast coffee and instant coffee. Globally highest revenue is generated by the United States (US$67,663m in 2020). In India, the average per capita consumption and revenue stood at 0.03 kg and $0.6 in 2020.

While our consumption is low because of “Tea” obvious reasons, we’re the 3rd largest coffee makers in Asia and 6th largest in the World.

Related: Take a look at the chocolate industry in India

The Shift we have seen

We’ve always been a Tea-Loving desh. We have always preferred a morning chai over a coffee. This may not be true for southern India where coffee has been a daily ritual for centuries. According to Euromonitor International Statistics, on an annual per capita basis, Indians drank 15.6 cups of coffee in 2014 and 16.6 cups so far. Urban consumption is 73% of the total and 27% is rural which is dominated by southern India and they are more inclined towards filtered coffee.

But over the last two decades, we have seen an unprecedented increase in the number of coffee lovers. There are multiple reasons involved. The first and the most important one being the increase in disposable income (coffee is considered expensive than tea). While the others being more global exposure, digital and media penetrations, urbanizing, lifestyle changes, etc., these changes have led to what we call coffee culture.

Initially, it was an Out-of-home thing which then ignited a Café culture in our country giving birth to branded services outlets like CCD, Starbucks, etc. The affections towards coffee encouraged major players in the country and internationally to launch various exotic ranges. A greater number of retail outlets started stocking more variants of coffee.

The retail market which consists of traditional and modern trade accounts for a major chunk of sales and is dominated by two giants. One is HUL’s Bru and the second is Nestle’s Nescafe. The audience of these two brands, however, has been quite different. Nescafe generally communicates to the youth of the country while Bru has taken a family-oriented brand.

But now, as consumers understand their needs and wants better, they start looking for more from a product. Some of them want coffee as their energizer while, some as their morning freshener. This opens a whole new market of opportunity for the new players. In fact, it was because of this that the existing players had to innovate their products and communication to keep up with the changing consumer.

Innovations: The Ready to Drink Coffee Market

Given we are slowly progressing towards a coffee-loving country, innovations are taking place in the space to capture the market. Where Bru and Nescafe have launched a variety of premium options and variants for consumers, ITC has launched Coffee Paste that you can consume on the go. In fact, the Ready-to-drink market is growing well in India, and brands like Nescafé Cappuccino packs, and by café chains like Starbucks are retailing their labels.

What you may not know, is that there are also some brands that are now moving towards “artisanal” style coffee. That is, aiming to provide very clear to your functional/emotional needs. And honestly, space is skyrocketing. Either these brands are now satisfying emotional benefits like Energy, Pleasure, etc. and/or combining them with functional benefits like Filtered coffee, Roaster coffee and even Organic coffee.

Related: Take a look at the Organic Skincare Industry in India

Anyway, what we’re trying to say is that the industry is maturing with obvious gaps being discovered. Brands have gone to a great extent in innovating and coming up with product offerings for their target groups.

The future?

While most of the growth today is led by out of home consumption, the category has the potential to see a rise in consumption at home. But penetration appears to be a big hurdle, the geographical penetration of coffee is largely limited to the urban population in Metros, Tier I, and Tier II cities, keeping southern India aside. It is not far from the truth that the whopping 70% of our population lives in the rural belt, and coffee being an acquired taste, the industry has a long way to go. Brands offering packaged goods are trying to penetrate with smaller CPGs like sachets help to make a mark in these markets.

The other major and an obvious challenge is that we are traditionally a tea-drinking country and there is yet to generate an appeal for the coffee in the common household. Habit changing is the need. While patterns are evolving, brands need to look beyond product innovation and build a connection with the consumers to create a habit out of it. There is a need for brand resonance for a larger consumer segment.

Rural India is slowly evolving in every aspect. They’re not shying away from trying new things, be it online shopping or digital banking. If brands are able to create a connection with rural India, then we would see exponential growth in the overall consumption of coffee in our country. It’s a long walk for the industry and will take time, but the brands will crack the rural code for sure.

What strategies come to your mind when you think of making a mark in the rural market? Tell us here.

Author

The Author of this piece is Bhawana Dwivedi. Hope we were able to add value to you. Share this piece with your best friend who loves coffee on WhatsApp.

Join the community of 5000+ folks by subscribing to our newsletter.