Summary:
Third Wave Coffee has raised ₹408 crore from WestBridge Capital and existing investor Creaegis to fund its expansion. The company plans to add more cafés, strengthen technology, improve store economics and expand its product portfolio. The funding comes as India’s organised café market grows on rising disposable incomes, urbanisation and demand for specialty coffee. However, increasing competition and high operating costs remain key challenges for café chains.
India’s organised café market is set to see exponential growth fuelled by a shift in consumer preference, and an increase in disposable income. Bengaluru based café chain Third Wave Coffee has raised ₹408 crore in a funding round led by WestBridge Capital with participation from existing investor Creaegis. The firm plans to use the funds to scale up its café footprint.
Coffee consumption in India is projected to witness a shift from traditional formats to specialty coffee, café culture, and premiumisation. The domestic coffee market in India is set to grow at a healthy CAGR during the forecast period, aided by the urbanisation of society and growing inclination toward café culture amongst the youth.
India’s Café Culture Premiumisation
India’s café market is witnessing a shift towards premiumisation. Consumers are now demanding not only more from their coffee but better ambience and more personalised services. Specialty coffee chains have been quick to recognise the shift and target this demographic willing to pay a premium for a coffee shop experience.
Founded in 2016, Third Wave Coffee has been one of the early adopters focusing on specialty and has been able to scale up significantly in the past few years with an emphasis on food, coffee, and technology. As the café market witnesses heightened competition, with domestic as well as international players witnessing the potential of the market, the focus is now on store development, coffee variants, and other packaged products in addition to leveraging technology.
How Third Wave Coffee Will Use ₹408 Crore Funding
With the latest funding, announced earlier this week, it is expected that the ₹408 crore will be used to fund the firm’s growth plans, including tech development and enhancement of café economics. The company has been looking to scale up its footprint across key markets as it targets more customers.
With the aggressive expansion plans, the firm will also be looking to improve the economics of its existing cafés. The coffee chain had in the past raised funds to support its expansion plans. With the latest fundraising, investor confidence in India’s café market remains intact even as the competition intensifies.
The firm also stated that it will leverage the funding to improve its product portfolio and build the brand’s overall consumer value. In addition to building more cafés, the company will also explore other formats such as packaged coffee and other ancillary products to diversify its sales avenues.
India’s Café Market Facing Intensifying Competition
India’s café market is becoming intensely competitive with global and domestic specialty coffee chains targeting greater market share. As more players enter the fray, the competition is set to sharpen, with players vying for greater visibility and focus on store formats and pricing.
While the entry barriers remain low for café chains, there is a need for substantial investment in rent, manpower, and raw materials to make the business model viable. Café players will have to navigate these headwinds while also balancing between aggressive expansion and maintaining healthy unit economics.
Third Wave Coffee’s management has been forthright about its expansion plans while also being cautious about the need to balance its unit economics. However, as the company grows, its focus will turn to maximising revenue while maintaining healthy profit margins. This will require a recalibration of its growth strategy, which will see the firm focus on both aggressive expansion and improved revenue per outlet.
