Stock at Stake: CCD's Coffee Losing its Steam and Flavour

In the news

Coffee Day Enterprises, known for its Cafe Coffee Day outlets is in the news for negative news. It was reported that in 5 years the company’s stores have reduced drastically. Let’s have a look at the company to asses its viability

Industry Outlook

QSR and Coffee industry is growing rapidly in the country. With favorable demographic trends and rapid westernization companies in QSR and Coffee Segment are poised to grow. Research and Markets report states that by 20227-28 coffee market is expected to become more than Rs 34,400 crore, implying more than 18% CAGR between 2022-28. 

Company Profile

Once upon a time, Coffee Day Enterprises was the leading company in the coffee chain business but now it is losing its steam, flavor and dominance. After the demise of its founder VG Siddhartha in 2019. It has been on a downward trajectory. The company may have spread the trend of hanging out at coffee joints but now company is far off from its previous glory. It seems that since then management is not able to sail through the changing market dynamics and intense competition. Although the company is in various businesses its major revenue comes from the coffee segment.

1) Coffee Business: 85% Share

2) Hospitality business: 6% Share

3) Rest: 9% Share

Shareholding Pattern (As on 31st March)

Growth Drivers

1) Growing coffee sector

2) Preference for youth to hang out at coffee joints

3) Developing aspirations of tier-2, tier-3 cities youth

Competitive Advantage

1) Diverse board to provide a broad holistic perspective on the industry and the company’s direction.

2) Core competency in growing, brewing and serving coffee. However, the company feels challenges like changing customer preferences compelled it to diversify offerings according to different customer segments based on geography and demography. Additional challenges like seasonality, lower shelf life pose concerns about the sustainability of competitive advantage

3) Company has strong brand value but it is fading.

Risks

1) In coffee parlance either you brew a hot coffee or you make a cold coffee however if you just give mild hot coffee then no one will like it. The company has a similar situation. CCD is stuck somewhere in between, neither it can provide high premium quality coffee, nor it is a cost leader. 

2) Intense competition in the sector from global as well as domestic players

3) Strong distribution network was one of the company’s strengths but gradually they are reducing stores which is reducing this strength

4) CCD used to enjoy strong brand preference but now it is losing brand value to its competitors like Star Bucks, Barista and Tim Hortons

5) No doubt, the coffee chain industry is growing but CCD is reducing its store so how can it gain market share

6) In corporate life cycle terms, the company is in a declining stage and needs restructuring in its whole business to remain relevant. Its store outlets fell from 1,725 in FY19 to 469 in FY23. Kiosks declined to 250 from 537 in FY19.

7) Company’s annual report itself revealed that cash flows seem inadequate to meet financial obligations.

Financial

Valuation 

Share Performance

Source: Google Finance