Coca-Cola is in exclusive talks to pick up a significant stake in Café Coffee Day (CCD) as the soft drinks giant looks to gain a foothold in the rapidly growing space and hedge risks associated with its core carbonated drinks business, said executives with knowledge of the matter.
Talks are in the early stages and may not lead to a deal, they said. “The potential stake acquisition is being driven by Coca-Cola’s headquarters in Atlanta and officials from the beverage maker’s global team are engaged in active talks with the Coffee Day management,” said one of the persons. “It would give Coca-Cola significant scale in the fast-growing café business, compared to aerated soft drinks, which have been slowing down.”
A Coca-Cola spokesperson said, “This news is absolutely speculative in nature. As a matter of company policy, we do not have any comments to offer at this point.” Coffee Day Enterprises didn’t respond to queries.
Promoted by VG Siddhartha, the country’s largest coffee chain is owned by Coffee Day Global, a subsidiary of Coffee Day Enterprises. With a footprint of 1,752 cafés as of March 2019, CCD is market leader in the organised café space. It competes with Starbucks and smaller chains such as Barista and Costa Coffee. In India, Starbucks operates through a venture with the Tatas and has 146 stores.
CCD’s expansion plans have slowed over the past two years on the back of rising debt.
Café Coffee Day is also facing fresh competition from tea shop chains such as Chaayos and Chai Point and boutique coffee shops. It shut 90 small format stores in FY18.
Coffee Day Enterprises reported standalone net sales of Rs 76.9 crore for the March quarter, up 43.64% from the year earlier. Losses widened to Rs 22.28 crore from Rs 16.52 crore. It has been reporting same-store sales growth of 10-11% over the past three quarters.
While Coca-Cola had announced the global acquisition of British coffee chain Costa Coffee in August 2018 from parent company Whitbread Plc for $5.1 billion, the deal had little significance for India. Costa Coffee, which is operated by RJ Corp-promoted Devyani International in India, has less than 50 stores. Globally, however, Costa Coffee has close to 4,000 stores and another 8,000-plus Costa Express vending machines.
Siddhartha had sold a 20.32% stake held by him and two CCD affiliate firms (Coffee Day Enterprises and Coffee Day Trading) in software services company MindtreeNSE -0.63 % to Larsen & Toubro in March for Rs 3,200 crore, which was largely seen as a move to pare debts and focus on his consumer-facing café business.
The listed Coffee Day Enterprises, with a market cap of Rs 4,732 crore, closed 3.87% up on the BSE on Wednesday.
Chikkamagaluru-based Coffee Day Enterprises is Asia’s largest producer of Arabica coffee beans.
It grows coffee on 20,000 acres of self-owned estates and set up the first Café Coffee Day in 1996 in Bengaluru. Internationally, CCD has a presence in Vienna, the Czech Republic, Malaysia, Nepal and Egypt.
The café chain business is an attractive channel for traditional beverages and foods makers. In the middle of last year, Swiss food giant Nestlé struck a $7.1-billion deal with Starbucks to license and sell its packaged coffees and teas across global markets.
