The UK-based international coffee chain, Costa Coffee, which entered India in September 2005 through an exclusive master franchisee tie-up with Devyani International, is brewing a major expansion strategy for the country.

Costa Coffee managing director John Derkach, overseeing the coffee chain’s 856 outlets worldwide, was recently in India. Edited excerpts:

Q: What are Costa Coffee’s expansion plans in India?

A: Currently, we have 36 stores in the country and are looking at doubling the number by end of 2008. Our expansion focus will be high street locations, IT Parks and malls. These are all areas of high footfalls. We are also looking at expanding at metro and railway stations and airports. In fact the process for bidding for railway stations is at present going on.

Q: How important is the Indian market for Costa Coffee Worldwide?

A: In next five years, India will be our third biggest market, in terms of number of stores, after China and the UK.

Q: But hasn’t Costa’s expansion in India been a little slow as compared to other players?

A: Yes. We first wanted to test waters in this market. We wanted to wait and watch if we can survive in such an aggressive pricing environment. To give you an idea how aggressive the pricing in Indian market is, sample this: In the UK, we sell a cup of coffee for £2, whereas in India market we sell that for just half a pound (Rs 49). In the Middle East, we sell it for around Rs 145, in China for Rs 150 and even in Pakistan for Rs 100. So a cup of Costa’s coffee is cheapest in India. We have realised that even such low prices are economically sustainable, provided we get the volumes. So the idea is to expand in areas with high footfalls so that traffic can be generated. Now, we will be expanding rapidly.

Q: How do you see competition from home-grown players such as Cafe Coffee Day and Barista?

A: It is always good to have competition. It gives more choice to the consumer. Coffee market in India is growing really well. Coffee shops here are now acceptable and accessible. More competition means expansion of the market.

Q: Many of these (Indian competitors) are expanding in pilgrimage centres...

A: We don’t want to focus on certain cities. But yes, as I said we are expanding in areas with high footfalls, going by that logic we will be looking at pilgrim centres, too, since they have high footfalls.

Q: Are you changing the look of your stores in India?

A: First of all, we will be having new decor package at our outlets. The furniture will be much more relaxed and comfortable. Also there will be more variety in food offering. We will focus on seasonal and promotional products suited for Indian taste. But we will make sure they complement coffee. You see Indian samosas don’t go with a cup of coffee, right!

Also, we will start roasting coffee beans in India in April. Our Italian super roaster will be coming to India to do that. We will be getting licence to roast at an existing roastery in south India.

Q: How are you building the Costa Coffee brand in India?

A: I think in order to build a brand, it is important to give good experience to consumers. Good quality food and ambience matters. At the same time, we offer value for money. For instance, while at Cafe Coffee Day you get a 7 ounce cup of coffee for Rs 40, at Costa it is 12 ounce offered at Rs 49.

Also in any market, the challenge really is to make the ‘word of mouth’ work for your brand. About two-thirds of people who have visited Costa Coffee say they will recommend it to their friends.

It is heartening to see that the foreigners can instantly connect with the brand when they visit India. I have many a times received pictures from foreigners with Costa cup in their hand and Taj Mahal in the backdrop.

Q: Starbucks foray in India market has been delayed. Isn’t that good for you?

A: (Laughs) As I said competition is always good. In other words, no, their entry in India market doesn’t bother us. In the UK, we face competition from them; in the Middle East too we are almost their size. So we are used to facing competition from Starbucks.