In Bangalore, coffee “experience center” conducts a cupping.
India’s growth in coffee drinking is outpacing growth in tea, driven by premiumization, rising affluence, and savvy roasters.
Tea-loving India hasn’t yet fallen for coffee in a huge way, but consumption has been on the rise during the past 10 years. And the past three years have seen the emergence of a coffee culture with increasing sophistication. A diversification and premiumization of products and services is positioning the category for growth, especially among Gen Z, millennial, and high-income consumers.
New roasters and coffee shops are proliferating in first- and second-tier cities. International chains are on the rise. Starbucks is expanding, and so are recent entrants like the U.K.’s Pret-a-Porter and Canada’s Tim Hortons. Investments by venture capital funds and corporates like Tata have been growing. New and better RTD coffees have been launched, including cold brews. Export-focused farms are now collaborating with domestic roasters. Home-grown cafes are cultivating customers through coffee education and events.
Fitch Solutions, the credit ratings group, forecasts that retail spending on coffee will grow at 7.6% per year during the 2021–2025 period to reach $51 million (Rs 4.3 trillion), outpacing the 7% growth rate expected for tea. Supporting the trend is a 23% total rise in per-capita disposable income during that period, to $2,123 by 2025. Statista market research forecasts that India’s coffee industry will have total revenues of $920 million in 2023. The specialty market represents about 5% of the formal coffee market according to the 2021–22 annual report of Tata Consumer Products.
One sign of the times came in January, when the nation’s most popular home-grown roastery, Blue Tokai, won $30 million in Series B funding, the biggest-ever investment in Indian specialty coffee. Founded 10 years ago, Blue Tokai says it will expand its cafe count from its present 60, adding 200 across the country over the next three years. Another vencap-backed domestic chain is Third Wave Coffee, launched in Bengaluru in 2017, with more than 50 locations. Starbucks already has 271 venues, in a joint venture with Tata.
To be sure, India has long been big in coffee. But mostly in production and export. It is the world’s six-largest producer, and the third largest in Asia, after Vietnam and Indonesia, at more than 6 million 60-kg bags. About 70% of the crop is robusta. Some 4.1 million bags of all varieties were exported, along with 2 million bags of soluble, making India the 6th or 7th leading exporter, with Europe as the top market. Ninety-five percent of the crop is farmed in the southern states of Karnataka, Andhra Pradesh, and Kerala. Plantations employ 700,000 workers nationwide, according to the U.S. Department of Agriculture. The broader industry has employment of 1.7 million.
India’s domestic market for coffee has long been concentrated in a few states in the south, with Bengaluru as the hub for specialty roasters. Blue Tokai helped change that by taking Indian coffee to north India. Its founders, Matt Chittaranjan and Namrata Asthana decided to promote the more flavorful arabica coffee and experiment with roasts, grinds, and brewing styles.
Blue Tokai first opened in Delhi in 2012 and started to show customers what fine coffee is all about. The chain was slow to arrive in the south, but when it did, in late 2018, it gave rise to a new wave of coffee drinking focused on specialty brew — the kinds of premium coffees that score at 80 and above on the 100-point scale of the Specialty Coffee Association of America.
Better beans
What’s remarkable is that more and more India-grown coffees are scoring in the elite range of 90 and above, says Abhinav Mathur, who runs Kaapi Machines, which supplies roasting gear and other coffee equipment to the food service sector. “The distance between crop and cup is reducing,” Mathur says, noting that even small cities now have quality roasters.
Indian roasters are going direct to coffee farmers, paying the prices that producers ask. Long used to selling for export, now farmers are gaining new markets at home. India’s roasters are serving as the bridge between farmers and coffee lovers, backed by continual efforts to improve and diversify their roasts and serving styles.
This has helped change perceptions about coffee. In south India, the beverage is usually taken as instant or filter coffee, often blended with chicory and served with milk and sugar. Coffee has long been promoted as an energy boost. Like tea, it has been treated as a commodity.
Roasters have showcased coffee at its best, by offering better-quality beans, promoting single-estate and single-origin coffee, and making it about flavor, not caffeine.
Roasters keep proliferating, especially in cities like Bangalore, which is close to the coffee districts-growing districts of Coorg and Chikmagalur in Karnataka state. The Covid-19 pandemic actually gave the coffee scene a lift. Says Mathur, at Kaapi Machines, “Roasting became a mega-trend during this time. Until then only big companies were buying roasters to cater to the filter coffee market. But more than 40 B2C brands came up in 1.5 years. Some launched physical roasteries or cafe chains.”
One new brand is Grey Soul Coffee Roasters, opened in Pune in 2021. Chirag Oswal, one of the founders, says the roasters are trying to market India’s own specialty coffee because it’s “truly a great cup.” Home-grown beans are often better value than imported ones, which are inflated by tariffs.
Farmer to cup
The relationship between the farmer and roaster is changing. “We meet producers and exchange ideas,” says Chirag. “We are now also involved in coffee processing. Farming and roasting knowledge is being shared. We are cupping coffee together, and we sample roasts together.”
Ratings agency Fitch notes that arabica growers are diverting more and more of their crop away from foreign sales to serve the domestic market. Balanoor Plantations, for example, has reduced its exports from 80% of production to 60% in order to supply Indian cafes and restaurants. Robusta growers are going upmarket, upgrading their production to serve the domestic premium niche.
Roasters educate consumers about coffee via their websites and in-person workshops on tasting and coffee cupping. In Pondicherry, Marc’s Coffees, one of the first specialty coffee brands in India, offers a five-day master class on “The Foundations of Specialty Coffee.” Nearly all roasters offer brewing equipment and detailed guides on preparation.
In Bangalore, Kaapi Machines extended their Something’s Brewing online shop with an “experience center” where customers can walk in, browse coffee gear and beans, and learn, explore, try, and buy. They aim to serve as a coffee know-how hub, to build the specialty market.
Wallet growth
One reason that venture capitalists are targeting India’s coffee businesses is growth of the affluent segment.
Households in the middle- and upper-income bracket — those having more than $10,000 in disposable income per year — will grow at a 19.7% compound annual rate over 2021–2025, putting a total of 47.4 million families into this category by 2025, according to Fitch.
But the Indian market is price-conscious overall. Starbucks India got trolled for an advertisement touting coffee at Rs 290 a cup, about 20 times the cost at street vendors.
This may be why in cities other than Bangalore, specialty coffee is expanding modestly, not booming, despite the many new venues. Says Chirag, of Pune’s Grey Soul Coffee, “We don’t need more roasters, we need consumers.” He notes that on a trip to Dubai, he saw cafes selling 100 cups an hour, about the same number as he sells in a day in Pune.
India’s burgeoning youth could generate a boom. Gen Z consumers are drawn to the coolness of coffee. That’s one reason that Mathur opened his company’s hands-on showroom: “There is a lot of drama around roasting. It’s very visual, and coffee is able to do that. It’s closer to cooking. I remember when Flying Squirrel opened in Bangalore, and people were queuing to go in.”
Coffee offers as much variety as tea, and consumers in India are only beginning to discover it. Luckily for them, there are many domestic producers, brands, and retail venues ready to help them embark on their journey of exploration.
Chirag Oswal, founder of Pune’s Grey Soul Coffee Roasters, champions India’s growers.