8 Trends That Helped New-age Coffee Chains Thrive This Year Today, many investors are ready to bet on new-age coffee chains run by startups

We recently did a story on the resurgence of new-age coffee shops post the pandemic and how these businesses seem to have an edge over MNCs and legacy players in terms of a better understanding of the Indian market.

And, that is why many investors are today ready to bet on new-age coffee chains run by startups. For instance, specialty coffee brand Blue Tokai Coffee Roasters raised $30 million in its latest funding round and Third Wave Coffee raised $35 million in Series C round. We also have many others like The Flying Squirrel, Indian Bean, SLAY Coffee and Sleepy Owl who are offering organic freshly roasted coffee powders through their D2C websites and marketplaces and giving tough competition to legacy players. Some of these players are also slowly opening their cafes.

We also spoke to experts to understand the new trends in the space. Here are 8 key trends in the sector that have helped startups thrive.

Increased corporate consumption

A channel of demand that is being unlocked by startups through aggregators is that of corporates. "Predictably servicing corporate consumption in this space is a massive opportunity in the near future," said Nitya Agarwal, vice president, 3one4 Capital. The location strategy used by most of these players is also to capture the corporates. Along with that, some of them are also venturing into the business-to-business (B2B) model by giving vending machines to corporates.

Demand from beyond metros

The pandemic has democratized many things including consumption patterns and employability. With many employees going back to their towns during the pandemic to work from home, WFH became a norm. This has today led to job opportunities in small towns. And, many in Tier II, III today prefer to work out of coffee shops. " We are witnessing bespoke chains being built beyond tier I in India with healthy margin profiles and footfall," she added.

The rise of D2C

The coffee chains also capitalize on the uptick seen in the demand for direct-to-consumer (D2C) brands. Moreover, since coffee chains offer products with longer shelf life, it becomes easy for them to have better margins in D2C. However, the average revenue of D2C brands in India selling long-shelf-life products like coffee powder, cookies, etc., varies.

Health and wellness and innovative flavors

"Given the increased focus on health and wellness, some brands offer products catering to specific dietary requirements, such as gluten-free, organic, and plant-based options. D2C brands are experimenting with unique and bold flavors and ingredients to differentiate their products and capture consumer interest," said Ajinkya Sawrikar, investment professional at BlackSoil. There is also innovation in terms of presentation and design, that appeals to global audience.

Product Innovation

"After the success of some initial chains like ThirdWave, we are seeing players not only innovate on taste profiles but also actively educate end users about different nuances of coffee consumption," said Agarwal. Further, experts say that smaller coffee chains are not only innovating in coffee but also the overall consumer experience.

Sustainability and Eco-Friendly Packaging

Many brands focus on sustainable practices, from sourcing ingredients responsibly to using eco-friendly packaging materials. Sustainability and environmental responsibility were becoming significant selling points, said Sawrikar.

Subscription Models

Subscription-based D2C models are gaining popularity. Customers could subscribe to receive their favorite products regularly, creating a predictable revenue stream for brands. This is mostly applicable to the D2C products of these chains.

Competition from FMCG giants

FMCG giants are increasingly entering the cafe and restaurant space in response to changing consumer preferences. For instance, Reliance Brands has announced that London-based firm EL&N Cafes has decided to collaborate with their multi-billion dollar revenue firm to cater to the demand for Instagram-worthy cafes and restaurants in India. Experts see many more FMCG giants entering this space.

Sawrikar leaves us with a couple of routes they will take to do so:

• Acquisitions: Purchasing existing cafe and restaurant chains to quickly establish a presence and expand product offerings.
• Partnerships and Collaborations: Joining forces with established brands, as seen in the Reliance-EL&N Cafes partnership, to access culinary expertise and trendy concepts while utilizing their distribution networks.
• Franchise Models: Offering franchise opportunities to expand their cafe and restaurant presence through entrepreneurs and businesses.
• In-House Chains: Developing in-house cafe and restaurant chains to showcase and sell products and create experiential spaces for consumers.
• Brand Extension: Extending package food and beverage product lines into the cafe and restaurant space by creating branded cafe chains or collaborating with existing ones.