Better margins attract VCs to specialty coffee startups

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₹25 crore and revenue of a little over ₹1,000 crore in FY23. In 2014, Italian group Lavazza Spa sold Barista to New Delhi-based Carnation Hospitality for ₹100 crore after failing to turn the group around. Coffee Day slid into bankruptcy in 2023.

The recent breakthrough has been the entry of delivery, Bharadwaj said. “Almost 20–30% of business for these startups is coming from delivery. Economics of the business have improved because of that.

Earlier, if you had invested ₹10 lakh in a café, you would get ₹20 lakh, contribution margin was 60%. Now you would get ₹30 lakh with the same setup because of delivery," he added. Blue Tokai’s revenue surged 80% on year to ₹74 crore in FY22, while its loss widened to ₹12 crore from ₹7 crore.

At the same time, Third Wave Coffee revenue saw a near threefold jump from FY21 to ₹32.5 crore in FY22. Its loss stood at ₹14.5 crore during the same period. Investors are pouring money into speciality coffee cafe startups, while the investor sentiment isn’t particularly bullish on D2C coffee brands without any retail presence.

Many companies cropped up in the D2C coffee brands space in the past, as the thesis was that getting rid of retail costs would help the sustainability of the business. But things haven’t panned out as was imagined because of high customer-acquisition costs and stiff competition, according to Rahul Jain, cofounder of D2C coffee brand Beanly. “We have seen that people are looking for brands that have a holistic presence with multiple channels and not just D2C.