Among the fastest growing and much loved coffee chains in India, Third Wave Coffee has been creating waves for the last few years in India. During the third wave of the Covid-19 pandemic in the summer of 2022, the brand got most popular through social media platforms. It was almost a meme festival of sorts for users, and this unintended surrogate marketing only helped the brand’s popularity.
For FY 2023, the 100-store chain has achieved a total revenue of INR 144.40 Cr (USD 17 mn), according to a report filed by the company on the website of the Indian Government’s Ministry of Corporate Affairs (MCA).
The revenue per store roughly translates to INR 1.40 Cr pa, or INR 11 lakhs pm per store.
Given the estimated size of an average cafe is 800 sft paying an estimated rent of INR 1 lakh pm, the cafe efficiency looks way too low, compared to rivals Starbucks, Costa Coffee, etc.
An average outlet of Starbucks in India operates at INR 2.50 Cr – 3 Cr pa, while Costa, Barista and several standalone cafes achieve an efficiency of INR 1.5 – 2 Cr pa.
India’s first national coffee chain, Cafe Coffee Day, which operated over 1,000 cafes in the country during 2010 – 2014 had an annual efficiency of INR 1 Cr pa. Given the lower operating costs, the chain achieved store-level profitability at 70% of its cafes, though the interest on CapEx and Corporate costs took a beating.
CoGS – Cost of Goods Sold, rather the Cost of food (and beverage) for cafe chains is usually capped under 25% of revenues. Essentially, if the revenue earned from the consumer is INR 100, then there should be a gross profit of INR 75. And this gets distributed across various overheads. In reality, however this is not the case.
According to its filing, ThirdWave Coffee spent INR 43 Cr on rent, INR 57.6 Cr on employee costs and INR 43.3 Cr on procurement costs. There was no specific mention of Marketing & Promotion costs, however the balance of the INR 201 Cr is total expenditure could be attributed to it.
To spend 1.3 times the earning doesn’t seem to be a bad metric in the investor fulled startup economy, given the hyper-competitive space that cafes operate within.
The 7 year old start-up was founded by Sushant Goel, Anirudh Sharma and Ayush Bathwal and had raised INR 290 Cr (USD 35 Mn) in funding in Sep. ‘23 (of the total INR 520 Cr – USD 62 Mn it has raised till date).
Westbridge Capital is among the top investors alongside Ayyapan Rajagopal, Nikhil Kamath and Sujeet Kumar, Co-Founder of Udaan.
There are an estimated 2,500 cafes in India, including international and domestic chains, as well as entrepreneur led standalone ones. For a growing young population in the country, the estimated market size of 2x of the current offering. 23
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