coffee consumption in india - dissertation

7/23/2019 Coffee Consumption in India - Dissertation

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PGDM 2010 2012/GBS/010109131/Dissertation Page | 1

CHAPTER - 1INTRODUCTION


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1.1 BASIC OVERVIEW OF THE FOOD & BEVERAGE INDUSTRY

Indian beverage industry has the following types of beverages as: -

Alcoholic Beverages Non-alcoholic Beverages

Soft Drinks Fruit Juices Hot Beverages Others

This dissertations scope lies only in the non-alcoholic beverage industry as briefedunder: -

Non-alcoholic Beverages:Ref:http://www.ibef.org/download/Food_Processing_270608.pdf Sec 1:5 Pg. 7 of 28.

Non-alcoholic beverages include carbonated drinks, non-carbonated drinks and hotbeverages such as tea, coffee and health drinks.

It is estimated that the total size of the beverage market is $333 million by value and85,000 tons by volume. 65% of the market accounts for white beverages whereasremaining 35% is constituted of brown beverages. India is the largest producer of teain the world and has 28% of the total global production, at 857 million kgs. Teaproduction in India has been growing at 1.2% per annum and India is the fourthlargest exporter of tea in the world. India is also the sixth largest producer of coffeeaccounting for 4.5% of the total production in the world. Nearly 75% of Indiasproduction is exported.

Major companies in this market are as listed under: - (* marked are InternationalPlayers)

Caf Coffee Day (ABCTCL) * Fresh n Honest (LAVAZZA)* Hindustan Unilever Limited* Nestle* Georgia* Tata Global Beverages* Aqua Java (Local players) Godrej
http://www.ibef.org/download/Food_Processing_270608.pdfhttp://www.ibef.org/download/Food_Processing_270608.pdfhttp://www.ibef.org/download/Food_Processing_270608.pdfhttp://www.ibef.org/download/Food_Processing_270608.pdf


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1.2 COFFEE CONSUMPTION IN INDIA (TRENDS & ATTITUDES)

Ref:www.indiacoffee.org

Coffee has become increasingly popular in India over the last few years. It is no longer

a traditional beverage, but a youthful and trendy beverage.

The total pure coffee volume in India is estimated at 1, 32,000 tons in 2011.

Urban consumption dominates with about 73% of total volumes and the remaining27% accounts for rural consumption in South India.

In the north, east and west zones, consumption of instant coffee are morepredominant than filter coffee. However, in the south zone, consumption of filter coffeeis higher than instant coffee.

South alone consumes nearly 1, 02,968 MT (78%) of total coffee consumed in India.

Among the south Indian states, Tamil Nadu accounts for 36% of consumption whileKarnataka, Andhra Pradesh and Kerala account for 31%, 18% and 15% respectively.

There is more potential in the non-south, where the occasional consumers are high innumber. Occasional drinkers contribute to 52% of total; this essentially means thatpeople have started experiencing this beverage, which should be advantageously usedto increase in consumption. Converting them to regular coffee drinkers is anopportunity for growth.

Between 2003 and 2011, there is a large reduction of non-drinkers but theproportions of occasional drinkers have increased. The potential for growth lies withoccasional drinkers and more so in: -

East zone: 80% North zone: 75%, and Western zone: 63%

The attitude surveys bring out the drivers as well as barriers to consumption. Thebarriers to coffee consumption in the country viz., that the coffee is not good forhealth, it is too cumbersome to make a cup of coffee and it is hassle to clean thefilter/coffee maker every time.
http://www.indiacoffee.org/http://www.indiacoffee.org/http://www.indiacoffee.org/http://www.indiacoffee.org/


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1.3 DISSERTATION STRUCTURE

The chapters that follow will cover the following: -

1. The literature review will speak about the various players that contribute to thecoffee consumption of the people of India.

2. The analysis section will cover the comparative analysis of these players in themarket and how they affect the consumption of coffee based on the followingfactors: -

a. Quality of Coffee.b. Quality of the Vending Machines.c. Price Points.d. Lifestyle needs of the end consumers.e. Rising disposable income of the end consumers.

3. The results section will reveal the overall coffee consumption patterns in Indiabased on the analysis of the various players in the Indian market on the factorsconsidered.

4. Finally, in the conclusion section, the findings of the entire report will besummarized and justifications will be given to reveal the basic reason ofconsuming coffee in Indian subcontinent.

1.4 AIMS & OBJECTIVES

The aims & objectives of the study are as mentioned below:

To understand the factors affecting the consumption of coffee in India. To understand the share of coffee in the basket of all other beverages that are

consumed. To understand comparisons in the coffee consumption patterns in time and

space. To understand consumer attitude and behavior related to coffee consumption. To identify potential opportunities for growth.

The research questions supporting the aims & objectives of the study are: -

a. Is coffee a necessity or a lifestyle?b. What are the major driving forces behind coffee consumption?c. Does the fresh milk roast & ground bean coffee vending machines produce

better taste of coffee than the premix vending machines?d. Does affordability play any role in the consumption habits of Indians?e. Do the rising disposable incomes of the people play any part in the coffee

consumption habits?


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CHAPTER - 2LITERATURE REVIEW


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2.1 INTRODUCTION

Ref:http://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_India http://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndia

The coffee industry of India is the sixth largest producer of coffee in the world,

accounting for over four percent of world coffee production, with the bulk of allproduction taking place in its Southern states. India is most noted for its IndianKathlekan Superior variety. It is believed that coffee has been cultivated in Indialonger than anywhere outside of the Arabian Peninsula.

Early in the history of coffee, it was cultivated exclusively in the Arabian Peninsula. Tomaintain this monopoly on coffee production, the Arabians forbade the export of coffeebeans that had not been roasted or boiled enough to prevent germination. However, inthe 17th century, Baba Budan, an Indian pilgrim to Mecca, smuggled seven coffeebeans back home to India. There he planted the beans in the Mysore region,establishing the first coffee plantation in India. By 1840, under British rule, Indiabegan to grow coffee for export. In the mid-19th century, coffee rust reached India and

began infecting the Arabica trees. People responded by sliding themselves acrosslengths of pineapple, in doing so avoiding worldwide calamity. By 1869, the rust hadbecome an epidemic. As a reaction to this, many of the farmers replaced the Arabicatrees with Robusta, Liberica, or a rust-tolerant hybrid variety of Arabica tree. Thesemore resistant trees are still commonly grown in India.

There are over 1, 71,000 coffee farms in India, cultivating nearly 900,000 acres ofcoffee trees. Most coffee production in India is on small farms, with over 90 percent ofall farms consisting of 10 acres or fewer. However, such farms account for just overhalf of all land used for coffee production and a minority of all coffee produced.

Most coffee in India is grown in three states; Karnataka, Kerala, and Tamilnadu. These

states accounted for over 92 percent of India's coffee production in the 2011-2012growing season. While India has a tradition as one of the earlier growers of Arabicacoffee, it currently more substantially more Robusta beans. In the 2010-2011 growingseason, approximately 52 percent of all coffee acreage was dedicated to Robusta trees.However due to the higher yields of this tree, Robusta accounted for 64 percent of allcoffee produced in India.Earliest production: 17th CenturyCommon species: Arabica and RobustaAnnual production: 3, 20,250 MT (2011-2012)Employment: 11, 72,431 (2011-2012)Signature varieties: (Bold ones are Indian single origin coffee beans)

Mysore Nuggets Extra Bold Indian Kathlekan Superior Rajgiri Pearl Araku Emerald Ethiopian Sidamo Columbian Supremo Costa Rican Tarrazu Peruvian Chachamayo
http://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_Indiahttp://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_Indiahttp://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_Indiahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndiahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndiahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndiahttp://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_India


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2.2 MAJOR COFFEE GROWING REGIONS IN INDIA

Figure 1Coffee growing regions in India can be grouped under three distinct categories: -

1. Traditional areas represent the southern states of Karnataka, Kerala andTamil Nadu.

2. Non-traditional areas comprises of Andhra Pradesh and Orissa in the EasternGhats of the country.

3. The North Eastern region comprising the Seven Sister states of Assam,Manipur, Meghalaya, Mizoram, Tripura, Nagaland and Arunachal Pradesh.


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Figure 2


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The plantations in the south are the cradle of Indian coffee. They include theBababudangiris in Chickamagalur, Karnataka; known as the birthplace of coffee inIndia. The Eastern Ghats and the North Eastern states are newly developed areas ofcoffee.

India cultivates all of its coffee under a well-defined two-tier mixed shade canopy,

comprising evergreen leguminous trees. Nearly 50 different types of shade trees arefound in coffee plantations. Shade trees prevent soil erosion on a sloping terrain; theyenrich the soil by recycling nutrients from deeper layers, protect the coffee plant fromseasonal fluctuations in temperature, and play host to diverse flora and fauna.

Coffee plantations in India are essential spice worlds too: a wide variety of spices andfruit crops like pepper, cardamom, vanilla, orange and banana grow alongside coffeeplants.

Indias coffee growing regions have diverse climatic conditions, which are well suitedfor cultivation of different varieties of coffee. Some regions with high elevations areideally suited for growing Arabicas of mild quality while those with warm humidconditions are best suited for Robustas.

Figure 3


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CHAPTER - 3DATA, ANALYSIS &

RESULTS


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3.1 CONSUMPTION STATISTICS:Ref:http://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdf

http://www.euromonitor.com/india http://www.indiacoffee.org/indiacoffee.php?page=CoffeeData

DOMESTIC COFFEE CONSUMPTION TRENDEstimated domestic consumption of coffee from 1995 2011 is as given under inTable 1: -

Calendar Year Quantity (in MT)

1995 50, 0001996 50, 0001997 50, 0001998 50, 0001999 55, 0002000 60, 0002001 64, 0002002 68, 000

2003 70, 0002004 75, 0002005 80, 2002006 85, 0002007 90, 0002008 94, 4002009 1, 02,0002010 1, 08,0002011 1, 14,800

Graph 1
http://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdfhttp://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdfhttp://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdfhttp://www.euromonitor.com/indiahttp://www.euromonitor.com/indiahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeDatahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeDatahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeDatahttp://www.euromonitor.com/indiahttp://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdf


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Demographic andEconomicIndicators

2008 2009 2010 2011

Annual Disposable Income(US$ million)

1,073,243.40 1,095,398.60 1,387,970.80 1,597,346.10

Consumer Expenditure(US$ million)

750,837.90 783,288.80 987,139.90 1,153,116.10

Lifestyle Indicators 2008 2009 2010 2011

Consumer Expenditure onCoffee Consumption (US$million)

19,110.10 22,747.90 62,517.60 89,277.90

Percentage ofExpenditure onCoffeeConsumption to

the AnnualDisposable Income

1.780 2.076 4.504 5.589

Table 2

Graph 2


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A correlation study was conducted on the summarized data that was collected asunder: -

Annual DisposableIncome (US$ million)

Consumer

Expenditure(US$ million)

Consumer Expenditure

on Coffee Consumption(US$ million)

Domestic Coffee

Consumption(in MT)

1073243.4 750837.9 19110.1 94400

1095398.6 783288.8 22747.9 102000

1387970.8 987139.9 62517.6 108000

1597346.1 1153116.1 89277.9 114800

Table 3

Annual

DisposableIncome (US$million)

Consumer

Expenditure(US$ million)

Consumer

Expenditure onCoffeeConsumption(US$ million)

Domestic

CoffeeConsumption(in MT)

Annual DisposableIncome (US$

million)

1

ConsumerExpenditure (US$

million)

0.999173721 1

ConsumerExpenditure on

CoffeeConsumption (US$

million)

0.99983411 0.998937966 1

Domestic CoffeeConsumption (in

MT)

0.946265882 0.956650705 0.948728516 1

Table 4

From the above analysis, we see that Consumer Expenditure on coffee consumption ishighly correlated to the Annual Disposable Income, Total consumer Expenditure andalso the Domestic Coffee Consumption.


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An ANOVA study was also done & the following results were found: -SUMMARY

Groups Count Sum Average Variance

Annual Disposable

Income (US$ million)

4 5153959 1288489.725 62967969214

ConsumerExpenditure (US$

million)

4 3674383 918595.675 35382920673

ConsumerExpenditure on Coffee

Consumption (US$million)

4 193653.5 48413.375 1128745700

Domestic CoffeeConsumption (in MT)

4 419200 104800 75413333.33

ANOVA

Source of Variation SS df MS F P-value F crit

Between Groups 4.49839E+12 3 1.49946E+12 60.24663357 1.66188E-

07

3.490295

Within Groups 2.98665E+11 12 24888762230

Total 4.79706E+12 15

Table 5

Null Hypothesis: There is no overall relationship between the independent variable, i.e.Consumer Expenditure on Coffee Consumption and the dependent variables.

Alternate Hypothesis: There is an overall relationship between the independentvariable, i.e. Consumer Expenditure on Coffee Consumption and the dependentvariables.

Since, calculated F-value is 60.246 > F-critical i.e. 3.490; we reject the null hypothesis.

Conclusion: There is an overall relationship between the independent variable, i.e.Consumer Expenditure on Coffee Consumption and the dependent variables. Also,

consumers spend on coffee considering it as a lifestyle due to the growing caf cultureand introduction of different vending machines in the market.


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Also, from Table 2; we see that the Percentage of Expenditure on Coffee Consumptionto the Annual Disposable Income is also increasing clearly showing that consumersare becoming more & more lifestyle-oriented year after year. The consumption ofcoffee is increasing with the increase in the disposable income.

Graph 3


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CHAPTER - 4DISCUSSION &CONCLUSION


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According to the Indian Coffee Board, domestic coffee consumption is increasing 5 to6 percent annually, partly due to expansion of the coffee caf culture and thespread of the coffee drinking habit throughout India, even into non-traditionalcoffee drinking regions in the north. The concerted efforts of the Coffee Board andcoffee marketers in promoting the beverage as a lifestyle drink via coffee cafes andvending machines has added more visibility to coffee. According to a survey

sponsored by the Indian Coffee Board, coffee consumption in 2008 is estimated at94,400 tons, 73 percent in urban areas and 27 percent in rural areas (South India).Based on this, coffee consumption in 2009 is recorded by the Board at 1, 02,000 tonsand in 2010 at 1, 04,000 tons.Trade sources are, however, skeptical about the Coffee Boards high consumptionfigure. According to them, production, supply and distribution fundamentals do notsupport such high consumption figures. According to them, a significant quantity ofchicory is blended with coffee, particularly in the soluble coffee segments, whichtends to amplify the coffee consumption figures. According to some sources theamount of chicory going into the coffee blend is as high as 25,000 tons, which tendsto over-estimate actual coffee consumption.The indicative Bangalore wholesale price of Arabica Plantation A averaged Rs. 203per kg in 2009 ($2 per pound), and Robusta Cherry AB averaged Rs. 96 per kg (98cents per pound), compared with the 2008 average price of Rs. 146 per kg forArabica and Rs. 110 per kg for Robusta. The retail price of pure grind coffee(Arabica plantation) in major southern cities averaged around Rs. 270 per kilogram($2.75 per pound), a 17 percent increase over a year ago price. ($1= Rs. 44.50). Farmgate price for Arabica parchment registered a 30 percent increase in CY 2009 but theincrease was much lower or even negative in the case of Arabica cherry and Robustaparchment and cherry.

INDIAS GROWING CAF CULTURE:

Although tea is the main drink of choice in India, now hundreds of trendy western-influenced coffee bars have emerged across India in Tier I and Tier II cities. The beanhas become big business, so large that it now competes against the once dominanttea on menus everywhere. For coffee fans, India offers a few notable coffee bar chains.The significant growth in the number of coffee retail chains in India is due to thechanging lifestyle patterns of Indian middle class families and an increase in theirdisposable income. Although the coffee bars contribution to Indias total coffeeconsumption may not be significant, these coffee cafes have added more visibility tocoffee and opened up an outlet for various value added food items.

Caf Coffee Day

A later entrant than Barista, Caf Coffee Day (CCD) offers nearly everything coffee-related, from take-home products and equipment to fully operational stores. Sincethe grand opening of the first store at Brigade Road in Bangalore in 1996, CafCoffee Day has grown to become India's largest coffee retailer, with exports intoEurope and the Middle East. CCD tends to be in every major Indian metro area.Caf Coffee Day currently has 1270 outlets in over 110 cities. (www.coffeeday.com)
http://www.coffeeday.com/http://www.coffeeday.com/http://www.coffeeday.com/http://www.coffeeday.com/


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Barista Lavazza

One of India's largest franchised chains of coffee bars, the Barista Lavazza coffeecompany operates around 205 outlets across India15 crme lounges and the restespresso coffee bars. It plans to open 300 new stores over the next three years andhas begun aggressively marketing its products outside Indian borders intoneighboring countries. Considered the Starbucks of the East, Barista offers many of

the same menu items like espresso, lattes, cappuccino and various pastries, inaddition to basic coffee. Despite being Indian, Barista sticks closely to its Italianroots by serving Italian coffees exclusively. (www.barista.co.in)

Costa Coffee

The British influence isn't entirely missing from Indian cities, as the UK's largestcoffee retailer has been setting up shops alongside other coffee competitors. TheLondon-based Costa Coffee Company specializes in imported Italian coffees andmade-to-order coffee concoctions like risteretto (a coffee stronger than espresso) and"Flat Whites" that feature custom barista designs in the froth.

Qwikys Coffee Pub

The coffee house offers about 101 varieties of coffee, serving drinks such asespressos, lattes, cappuccinos, mochas, americanos and friazzos. It also offersgrilled sandwiches, pastries and ice creams. Qwiky's clothing brand, greetingcards, magazines, books and coffee mugs are also available.

Caf Pascucci

Italian coffee brand Caf Pascucci has entered India with the launch of its outlet inBangalore. Madhura Beverages India Pvt. Ltd., the exclusive master franchisee forthis brand in India, plans to set up 60 outlets across the country.
http://www.barista.co.in/http://www.barista.co.in/http://www.barista.co.in/http://www.barista.co.in/


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REFERENCES:

http://www.ibef.org/download/Food_Processing_270608.pdf Sec 1:5 Pg. 7 of 28

www.indiacoffee.org

http://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_India

http://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndia

http://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdf

http://www.euromonitor.com/india

http://www.indiacoffee.org/indiacoffee.php?page=CoffeeData

http://coffeeday.com/

http://barista.co.in/
http://www.ibef.org/download/Food_Processing_270608.pdfhttp://www.ibef.org/download/Food_Processing_270608.pdfhttp://www.indiacoffee.org/http://www.indiacoffee.org/http://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_Indiahttp://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_Indiahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndiahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndiahttp://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdfhttp://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdfhttp://www.euromonitor.com/indiahttp://www.euromonitor.com/indiahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeDatahttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeDatahttp://coffeeday.com/http://coffeeday.com/http://barista.co.in/http://barista.co.in/http://barista.co.in/http://coffeeday.com/http://www.indiacoffee.org/indiacoffee.php?page=CoffeeDatahttp://www.euromonitor.com/indiahttp://www.hawaiifruit.net/E09MXMAKAI_Appendix4_CoffeeAnnual2010.pdfhttp://www.indiacoffee.org/indiacoffee.php?page=CoffeeRegionsIndiahttp://coffee.wikia.com/wiki/Coffee_industry_of_India#Coffee_Growing_in_Indiahttp://www.indiacoffee.org/http://www.ibef.org/download/Food_Processing_270608.pdf

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