Coffee Day takes on competition with strong branding, pricing

The IPO-bound Coffee Day Enterprises Ltd (CDEL), the owner of the Café Coffee Day chain, promoted by VG Siddhartha, is competing not just against coffee chains but an array of quick service restaurants, vending business as well as players in the hospitality industry.

In its Draft Red Herring Prospectus, filed in June, CDEL said, "We operate in a competitive retail landscape and face competition, especially from other retailers of coffee products and café operators in India. Our primary competitors are other café chains such as Starbucks, Costa Coffee, Barista and many other local cafés. We also compete with other quick service restaurants operators such as Westlife Developments (McDonald's), Jubilant Foodworks (Dominos and Dunkin Donuts) and Yum! Brands (KFC, Pizza Hut and PHD).

In food and grocery (F&G) business, its competes primarily with Nestle and Hindustan Unilever (HUL). "In the vending business, we have limited competition from the organized sector from Lavazza in the fresh milk segment, but we indirectly compete in the overall vending space with Nestle and HUL."

The company said it carefully monitors the prices offered by its competitors and continuously adjust its pricing and promotions to maintain competitiveness.

"We believe that the principal factors affecting competition in the coffee retail sector include pricing, product and service quality, brand perception and taste and product variety. We believe that we distinguish ourselves from our competitors on the basis of strong branding and ownership of the same, high levels of customer service, good café locations, trendy café format, competitive pricing and a wide range of products," the DRHP reads.

CDEL's wholly owned subsidiary Coffee Day Hotels and Resorts (CDHRPL) own three luxury resorts in South India under the branding of 'The Serai' resorts located in Chikkamagaluru, Bandipur and Kabini. In addition, it also holds a minority interest in a luxury resort located in Andaman and Nicobar Islands.

Its holding company Coffee Day Enterprises (CDEL) has filed draft documents with market regulator Securities and Exchange Board of India (Sebi) for an initial public offering (IPO) to raise around Rs 1,150 crore.

Coffee Day is eyeing a valuation of as much as Rs 6,750 crore based on the issue price of its IPO next week that will be the biggest in the local market in nearly three years.

Coffee Day will dilute as much as 17.55% on a post-issue basis to raise up to Rs 1,151 crore, according to a presentation made at a company news conference on Wednesday.

The company will sell 3.4 billion rupees worth of shares to cornerstone investors ahead of the IPO. It is selling shares in a price range of Rs 316 to Rs 328 in the issue that will open on Oct. 14 and close on Oct. 16.

Coffee Day Enterprises, which counts private equity KKR and New Silk Route among its investors, runs the Cafe Coffee Day cafes with more than 1,500 stores in India and 14 overseas.