Can Cafe Coffee Day Crack The Coworking Beans?

Something hot is brewing at Café Coffee Day, and it isn't a brand new Instagrammable latte!

Instead, the largest café chain of the country is whipping up a fresh new business model, and giving it a go in a handful of its 1752 outlets.

According to a Business Standard report, the OG Indian coffee shop major has recently partnered with myHQ, a co-working platform, hoping to have its outlets double as workspaces during specific time slots during the day.

The new spin on its traditional business model will be piloted in just 10 of its properties, and extended to other outlets if the response is warm enough. Both companies are confident that there'll be enough takers for them to steadily up the numbers. While many experts feel it isn't such a bad idea, particularly in light of young India's newfound fascination with co-working spaces, others are worried that just a viable workspace and uninterrupted internet may not be enough to get millennials hooked to this concept.

So, can CCD really crack the co-working beans & revive their fledgling financials? Opportunities are endless, but the threats are numerous as well!

Why Café Coffee Day Needed to Diversify

Ever since the café chain's much-loved founder committed suicide owing to financial troubles and tax woes, the spotlight has shone brightly on the money matters of the company itself. While Café Coffee Day did manage to arrest its massive losses from 2017, profits remained far too low to support such a massive operation. In 2019, the firm had to fall back on earnings from the sale of a subsidiary to clock up its profits to 60 crores. Even though it was raking decent revenues, gains remained low owing to a multitude of problems, and the millennial consumers' lack of brand loyalty really did not help.

CCD's financial troubles were not necessarily the result of poor governance. Instead, the rising rental prices, the rapidly increasing competition and the skyrocketing costs of operating in metro cities magnified their woes. India's nationwide preference for tea also spelled trouble for this ambitious enterprise. Indian consumers are nothing like their Western counterparts, especially Americans, who rush to their neighbourhood Starbucks (or a similar coffee shop) for a quick pick-me-up before they head to work, sufficiently caffeinated for the day ahead! Being ardent tea lovers as a country, we Indians are far more likely to visit these coffee shops as hangout spots, which are obviously more of a luxury than a daily necessity. Unfortunately, as a hangout spot, CCD faced immense competition from cafés mushrooming all around, as their millennial customers flitted from one café to another to find the trendiest check-ins and the most aesthetic photos for their social media accounts.

The rental costs only made matters worse, nearly doubling as they have over the course of the past few years. Often they are as high as 15-20% of their total revenue, and can even go up to 25% in prime locations of metro cities. It is incredibly hard to sustain an entire chain in such conditions and many similar brands have already fallen prey to these troubles. Barista has had to shut shop at many places, while Costa Coffee outlets have practically disappeared everywhere, except for a few airport locations. Even Starbucks, the global giant that entered India with the Tatas, is yet to be profitable in the country. Clearly, all is not well with the coffee shop sector at large, and it has made it imperative for Café Coffee Day to seek greener pastures alongside its traditional business.

Why India is Hot for Coworking Spaces

WeWork, the American real estate company that made co-working spaces all the rage back home, has been in the news for all the wrong reasons of late. But before this celebrated unicorn went bust, it made headways into the Indian market with their shared workspaces, and for good reason. Whether or not they should have, given their financials and governance, is a different issue; but there is no doubt that India represented a major market for the rising trend of cool co-working spaces and continues to do so.

NASSCOM

With India rapidly becoming the third largest startup hub in the world, the demand for such workspaces has only increased. Economic Times estimates that about 46% of India's current workforce comprises of millennials eager to work in these affordable and accessible spaces. Moreover, medium and large businesses have also been quite excited about the prospect of working in these well-equipped, infrastructurally sound and cost-effective spaces, heightening the demand for them. 

Responding to the buzz around this model, many co-working spaces have come up in some of the busiest startup hubs in the country, including Bangalore and Delhi. Co-working platforms allow new age employers to get workspaces at low rentals, with a lesser lock-in period and much greater flexibility. These areas allow for collaborations and networking rather easily, fuelling the entrepreneurial thirst of modern day techies and innovators. There is no doubt that there is a demand for such spaces, but it is equally important to note that many others have already moved in and populated the space.

One advantage that CCD does have over many others is that they already have storefronts at their disposal, and don't need to acquire locations separately. Moreover, coupling the co-working model with attractive offers on food and beverages can also push sales in their traditional domain, and influence revenues at large. However, the brand is far from being the first coffee shop to have tried its hand in diversifying business. Delhi cafés like Social Offline and Flyp@MTV have done the same before, even going to transform into bars during the later part of the day. Clearly, co-working spaces and multitasking locations are both really on-trend right now, and it may turn out to be a rather smart decision for CCD to try and break into the space.

Hurdles To Cross

While the opportunities seem rather enticing, CCD must also contend with some hurdles that will vex them on their ambitious path to co-working success.

A major thorn in their path will definitely be decoding the scalability of this business model. Since most cafés tend to operate in central and secondary business districts (CBDs and SBDs), they are unlikely to get hold of much more real estate in the same areas should they need to expand spatially to support the widening operations. Transforming into co-working spaces, especially when it is launched across the board, might require additional space in many locations, which may prove to be rather infeasible given the localities they operate anything. 

Since CBDs are usually the most sought after locations in the co-working space, this is not a problem CCD can turn away from, or work with alternative locations. They will have to make the model work in central business districts and scale it appropriately; and it will be rather difficult, to say the least. In terms of space, parking will also have to be expanded to account for the working people. While a typical café can usually do away with these, an office space absolutely can't!

The new workspaces will also need to be quite well-equipped in terms of tech tools, and merely having speedy internet is just not going to cut it. Millennial workers prefer working in smart, technologically-enabled workspaces and providing them with that will need significant increases in investment. Having great infrastructure doesn't come cheap, and could potentially detail CCD's grand plan for success.

In relation to having tech-enabled locations, the company must also figure out and implement a robust cyber security plan, as that will constitute the backbone of most work done in these spaces. It is a major strategic challenge that must be overcome, especially if it wants to lure in the numerous startups that deal in confidential data and proprietary technology. In addition, securing relevant permits for hosting office spaces and potentially expanding operations to scale, will also be a substantial headache for the café chain to figure out.

Will CCD savour the taste of successful business model anytime soon? Yes, but only if it smartly navigates the massive hurdles lined up along its way.