Café Coffee Day – “Retail management ”

Project Report

Submitted to: Prepared by:

Prof. T.K. Chaterjee Abhinav Arya (2011007)

Akshay Shukla (2011026)

Garima Shah (2011076)

Mohammed Ali Yasser (2011112)

Manoj Kishan Solleti (20111196)

Rishi Saluja (2011157)

CAFÉ COFFEE DAY

Corporate Profile

It was in the golden soil of Chikmagalur that a traditional family owned a few acres of coffee

estates, which yielded rich coffee beans. Soon Amalgamated Bean Coffee Trading Company

Limited, popularly known as Coffee Day was formed. With a rich coffee growing tradition since

1875 behind it coupled with the opportunity that arose with the deregulation of the coffee board

in the early nineties, Coffee Day began exporting coffee to the connoisseurs across USA, Europe

& Japan. In the calendar year 2000, Coffee Day exported more than 27000 tones of coffee valued

at US$ 60 m to these countries and, for the second time in its short career of 7 years retained the

position as the largest coffee exporter of India.

Coffee Day has a wide and professional network in the major coffee growing areas of the

country comprising over 48 agents and 50 collecting depots. Coffee Day's two curing works at

Chikmagalur and Hassan cure over 70,000 tonnes of coffee per annum, the largest in the country.

Coffee Day has a well-equipped roasting unit catering to the specific requirement of the

consumers. The process is carried out under the control of experienced personnel to meet highest

quality standards. The most modern technology available is used to maintain consistency and

roast the coffee beans to the demanding specifications of the discerning coffee consumers.

Coffee Day Comprises of the following Sub Brands

Coffee Day - Fresh & Ground

Café Coffee Day

Coffee Day – Vending

Coffee Day - Xpress

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Coffee Day – Exports

Coffee Day - Perfect

Café Coffee Day currently owns and operates over 1200 cafes in all major cities in India. It is a

part of India's largest coffee conglomerate named Coffee Day, ISO 9002 certified company.

Coffee Day's most unique aspect is that it grows the coffee it serves.

Key Features

• Pioneers of the Café Concept in India with the its first Café at Brigade Road, Bangalore in

1996. This Café was opened as a Cyber Café (first of its kind) but later, with the burst of cyber

cafes it reverted to its core competency Coffee.

• Essentially a youth oriented brand with majority of its customers falling in the 15-29 year age

bracket.

• Each café, depending upon its size attracts between 400 and 800 customers daily.

• It is a place where customers come to rejuvenate themselves and be themselves.

• USP of the Brand:

Affordable Price

Quality Coffee – Winner of Platinum, Gold, Silver and Bronze medals at the India Barista

Championship 2002.

Product Sources:

Coffee Day's most unique aspect is that it grows the coffee it serves in its cafes. CoffeeDay has a

well-equipped roasting unit catering to the specific requirement of the consumers. The process is

carried out under the control of experienced personnel to meet highest quality standards. The

most modern technology available is used to maintain consistency and roast the coffee beans to

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the demanding specifications of the discerning coffee consumers. The coffee beans are supplied

to all the cafés from Chikmagalur.

The eatables at Café Coffee Day, Nagpur are catered by different vendors: example: ice creams

are catered by Treat, Milk by Dinshaw and Bakeries by Redz. Café Coffee Day also sells

merchandise through its stores. 5 per cent of the revenue comes from sale of merchandise.

Quality standards:

Café Coffee Day has a check on quality all the time and in several aspects. The operational in-

charge will go around checking business, record keeping service and check the feedback forms.

The food in-charge will look at the way food is being stored, coffee is being made, what is the

time take to extract the coffee and so on. Marketing person will go about checking displays, how

the merchandise are displayed

Merchandising:

At Café Coffee Day merchandise started more as a sentimental thing than as a revenue

stream. They wanted to reward coffee lovers and they started selling mugs. People wanted to

wear something that reminded them of the cafe so they designed T-shirts and sold thousands of

those. But soon it has become a serious business. 5 per cent of their revenue comes from the

merchandising.

Distribution Chain

Café Coffee Day products can be classified into two categories namely coffee-based and non-

coffee based. Since the distribution chain of the two products is different we will talk about

them as different products. Apart from this broad classification, another category offered by

Café Coffee Day is merchandise available in its stores. 5 per cent of the revenue comes from

sale of merchandise.

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Coffee-based products: Amalgamated Bean Coffee Trading Company Limited (Café Coffee

Day) is a fully integrated coffee company, involved in every activity from growing coffee beans

on its 5,000 acres of plantations through harvesting, roasting, blending, exporting and retailing.

The value chain for coffee based products has four parts:

Non-coffee based products: These products include eatables like sandwiches & pastries and drinks like milk shakes. These products are usually procured from the local supplier which is a company-owned kitchen in case of metro cities and outside vendor in case of other cities.

For non-coffee based products in cities where the number of stores is greater than 20, company

opens its own kitchen which acts as the only supplier to all the outlets. For cities where the

number of stores is less than 20, the work is outsourced to a local vendor on a six months

contract. The company monitors and controls the quality of products supplied by these

vendors.

Mapping of Supply chain

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Coffee plantations

Coffee Cultivation & Harvesting

Coffee processing

Processing, selection, blending & roasting

Regional Distribution Centres

Receive coffee from headquarters & sends to different cafes

Cafe

Storage & Grinding

Local company-owned kitchen or outside vendor

Preparation & Packaging

Cafe-coffee day store

Storage

Chikmagalur

Bangalore (South India Head Distributor) New Delhi (North India Head Distributor)

Local warehouse Local warehouse

Outlet Outlet Outlet Outlet Outlet Outlet

Demand Forecast

Coffee- based products: Usually it takes a month before the order reaches the store from

the date it is ordered. The regional distribution centre collects demand forecast from the stores

in the region and then sends the order to the company headquarters in Chickmagalur. Demand

forecast for the upcoming month are based on the sales in the previous month. Other factors

like festive season and setting of stalls in colleges are taken into account. Usually the formula is:

Quantity Ordered = Sales in previous month*1.5 – Present Inventory

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To take into account other factors a different methodology is used.

Festive Season: To take care of increased demand due to festivals like Navratras and Diwali,

data for last three years is analysed. Suppose the festival is in October and quantity ordered is

based on sales in August then for the last three years percentage increase in sales in October as

compared to August is calculated and mean is taken. This percentage increase is then multiplied

with sales of august to calculate the order quantity.

Quantity Ordered = Sales in previous month*(1.5+Percentage increase) – Present Inventory

College Festivals: For college festivals last years sales figure is directly added to the quantity

ordered.

Pooling of demand

In cities where there are a few outlets demand is pooled to reduce uncertainty in the

forecasted demand figures. Even in cities with a large number of outlets, 10-15 outlets in the

same geography pool their demand to the same effect. Pooling of demand reduces the risk

associated with stock outs at a single outlet and thus Café Coffee Day is now using a factor 1.35

in place of 1.5 in places where demand pool is of more than 10 outlets.

Non-coffee based products: The demand forecast method is different for cities that have

company owned kitchen and for cities where these are supplied by an outside vendor.

For Cities with company owned kitchen: Orders are placed on a daily basis. Each store is

directly connected with the headquarters, other stores in the region and company owned

kitchen through an integrated SAP system. Each store places its order through the online

system before 8:00 PM. Demand forecast is based on the average of last three days sales figure

of the item. For weekends (Friday, Saturday & Sunday) figures for last weekend are taken into

consideration for calculating the average.

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For Cities without company owned kitchen: For such cities company selects a local vendor to

supply non-coffee based products. Employees of the selected vendor are trained for two weeks

to familiarize them with processes to be followed, ingredients and quality control procedures.

Café Coffee Day usually enters into a six month contract with the vendor and maximum

quantity of all the items is fixed on the first of each month. There is no minimum quantity limit

in the contract. Orders are placed by phone before 6:00 PM each day.

Maximum quantity for each Item: Maximum Consumption on any day in previous

month*1.25

All the vendors usually provide a credit of one month and the payments are made at the end of

each month. If there is any dispute between the quantity supplied by the vendor and the

quantity received by the store that the company pays for whichever is less.

Vendors are responsible for the quality of preparation as well as the quality during transport. It

is the responsibility of the vendor to arrange for proper transport till the items are delivered to

the store.

Inventory management

Coffee- based products: Raw material for these products is coffee beans which are ground

in a special grinder once an order is placed by a customer. Since coffee beans are non-

perishables and inventory carrying cost is very small, there is not much of a system for

inventory management of coffee beans. While placing new orders present inventory of coffee

beans is taken into account, other than this there is no inventory management for coffee beans.

Non-Coffee based products: Most of the non-coffee based products are perishable

products therefore inventory management is required. Each store follows FIFO (First in First

Out) system for all perishable products. For inventory that is about to expire in two days the

SAP system generates an alarm. For better inventory management usually stores in a locality

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follow a pooling system. In this system the store in which alarm is generated can send this item

to other stores where daily sales are comparatively higher or where there is a shortage of the

item. This prevents loss due to decay.

Implementing Technology:Retail automation system was first deployed in retail outlets at Chennai. It is being introduced

in all outlets in a phased manner. Stewards at CCD outlets are provided with Lipman NURIT

8010 Wi-Fi-enabled handheld devices. These come with an in-built microprocessor, thermal

printer and smart card reader. Each outlet is provided with two to eight portable devices

depending on the size and requirement of the outlet. The automation system has three

modules:

1) Sales automation: Using the handheld device, a steward is able to connect to the

kitchen over the Wireless LAN. He takes orders electronically, and prints out the bill on

the spot. The order is fired to the kitchen, which starts preparing the coffee and snacks.

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Store-1

Store-2

Store-3

Store-4

Pool for Unsold Non-Coffee Based products

Time taken from order placement to delivery has reduced to only 10 minutes now.

Mismatched orders are reduced to almost zero as the bill is handed over to the

customer immediately. This handheld device is also used for billing and can accept

Credit/ Debit cards. Stewards can mark their attendance using a smart card, and the

system keeps track of the number of transactions a steward handles in a day, thereby

keeping track of his productivity.

2) Inventory management: The system also helps in supply chain management as it lists

the raw materials required by each outlet. These details can be entered into the system

which tracks raw material automatically and notifies when it needs to be replenished at

a particular outlet. Also, it is wirelessly connected to a central computer system and can

communicate with similar devices anywhere in the world in real time. Therefore, sitting

in New York, one may find out with exact precision the “happenings over a cup of

coffee” at CCD outlets located in Bangalore, Dubai or any other location. Hence

Inventory management at outlets has become quite efficient.

3) Loyalty management: CCD has launched an effective Café citizen loyalty program

wherein a smart card provided to the customer stores all-important customer-related

information such as his/her profile, likes and dislikes, previous visit to any of the CCD

outlet, and so on. When this card is swiped on any of these NURIT 8010 devices

anywhere in the world, all vital information is displayed on the screen to enable the

front-end café staff to serve him to the best of his satisfaction. For every purchase the

customer accumulates points on the card and he may use these points and redeem the

same on his subsequent purchases. Also, customers may register their

complaints/queries at the outlets, which is communicated instantly to the “Customer

Care” staff that instantly gets going to provide solution to the queries

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Use of IT to manage Supply Chain

The supply chain scope is entirely made up of information, and the breadth of this information

determines whether the scope is global or local. To make its scope global and to manage its

complex and geographically dispersed business, CCD needed a packaged solution to handle

production and supply chain management, so Café Coffee Day looked for an integrated solution

that could support its continuing rapid growth. After following a review of ERP solutions from

major global vendors, Café Coffee Day selected the SAP ERP application as the best fit for its

requirements. As the new ERP environment would be critical to the smooth running of its

business, Café Coffee Day placed great emphasis on selecting the platform to run its SAP

software—and in backing it with a comprehensive support package. Since SAP software is based

on Java, and it runs particularly well on UNIX-like operating systems therefore Café Coffee Day

opted to run its SAP ERP application on SUSE Linux Enterprise Server, based on the operating

system’s price-performance, reliability and scalability. Since CCD cannot tolerate any downtime

for the SAP environment therefore using SUSE Linux Enterprise Server Priority Support for SAP

Applications, gives CCD full reassurance that this business-critical environment will be up and

running 24 x 7.

Also Selecting SUSE Linux Enterprise Server as operating system for SAP ERP provided the

required performance, reliability and scalability with low cost of ownership. To ensure effective

support for the entire ERP solution stack, Café Coffee Day selected SUSE Linux Enterprise Server

Priority Support for SAP Applications, provided by Wipro Infotech. This joint support offering

gave Café Coffee Day a single support entry point, reducing complexity, accelerating problem

resolution and cutting the total cost of ownership. The solution also provides seamless

integration with SAP Solution Manager into the SAP Global Support backbone. SAP ERP plays a

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crucial role in helping CCD to manage internal operations and to maintain control over an

extended supply chain.

The rollout of SAP ERP has helped Café Coffee Day to improve control over its business

operations, enabling the company to maximize supply chain efficiency and cut costs while

simultaneously improving the quality of service to its clients. The SAP software also provides

detailed financial and management information for reporting purposes, supporting more

effective long-term strategic planning and enabling targeted growth. SUSE Linux Enterprise

Server provides an economical, reliable and scalable platform for SAP ERP. As Café Coffee Day

continues on its rapid growth path, this scalability will help CCD to expand the business without

disruption and without incurring significant additional costs for the IT environment.

Supply Chain Strength/ Weakness Again the supply chain of Café Coffee Day can be analyzed in two different parts, one which

extends from coffee plantations to stores and the other which forms the link between the

stores and the customers. While in the last two years or so Café Coffee Day has concentrated a

lot on improving the supply chain from stores to customers by use of technologies like Wi-Fi but

the same cannot be said for the supply chain from plantations to stores. Method of demand

forecasting is very rudimentary with the only emphasis being on no stock outs totally ignoring

inventory management. Moreover although all the stores are connected to each other and to

the headquarters through a Tata Indicom network yet a store manager still has to order coffee

products every month and non-coffee products every day based on forecasting.

Risk Management Issues

Three major risks that are involved in the supply chain of Café Coffee day are:

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1. Forecast risk: There is a huge seasonality involved in consumption of coffee. Demand

variation is large on a month by month basis. Moreover enormous lead times of nearly

one month between the time order is placed and the order is fulfilled are involved. The

method Café Coffee Day is using to mitigate this risk is to multiply the demand forecast

of individual store by 1.5 while ordering. This creates a lot of inventory in the system

mainly at the stores. Thus pooling of demand can be a viable option for reduction of

inventory.

2. Disruptions: This is another risk involved. Disruption in supply chain due to labour

disputes or natural disasters is a source of worry.

3. Capacity risk: Cost of capacity in roasting is very high. Moreover limited availability of

capacity outside the company in India is also a major risk as all other competitors like

Barista use foreign vendors for roasting the coffee beans.

Demand Pooling

Let us assume that the average demand (normally distributed) for a store in a specified locality

is 28,568 grams with a standard deviation of 653 grams. Also let us assume that the required

service level is 99.99%. In this case the required inventory is:

Inventory = 28,568 + 653*3.08 = 30,579.24 grams

For 10 such stores the inventory will amount to 305,792.4 grams

Assume further that there are 10 stores in the same locality with similar mean and variances in

demand. If we pool the demand of these 10 stores then

New mean = 28,568*10 = 285,680

New SD = (10*6532)1/2 = 2,064.97

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Now the required inventory would be (for the same service level)

New inventory = 285,680 + 2,064.97*3.08 = 292,040.1

Difference between the two inventories = 305,792.4 – 292,040.1 = 13,752.3

Thus to maintain the same service level we need an inventory which is lesser by 13752 grams if

we pool the demands of a few stores in the same geography.

STORE LOCATION

1) Store location is usually decided based on research, or intuitive feeling about the expected footfall

2) CCD partners with multiplexes to open up its branches inside or just near them

3) CCD Lounges are special branches located in upmarket areas where residents have high

disposable income

PRICING

1) Pricing is done strategically based on location and type of customer footfall

2) Separate pricing for branches around colleges and corporate firms

3) Variations in price among branches even within the city as well as between different cities

PROMOTIONS

1) CCD does not promote itself much in the media

2) Occasionally publishes print ads and is about to come up with a TV ad soon

3) Relies more on word-of-mouth and strategic store location for sales

4) Emphasizes on good customer service to boost word-of-mouth

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Conclusion

It seems Café Coffee Day is using its infrastructure in a sub-optimal manner. Café Coffee Day

has all the required technological capabilities that can further improve its demand forecast and

inventory management. Decisions like ordering coffee products and non-coffee products can be

done by the system itself with the store manager providing necessary supervisory inputs like

setting of stalls in college festivals. Moreover pooling of demand can reduce the inventory at

stores substantially thus increasing inventory turnover.

Resources:

Café Coffee Day, Head Office Bangalore

Café Coffee Day Outlet, Poonam Chambers Nagpur

Café Coffee day official Website

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