British coffee chain Costa Coffee may end its ‘exclusive’ franchisee arrangement with Devyani International after the Indian partner refused to commit more investments in a slowing economy to a business that has not yet turned in net profits stated a report in Economic Times.
Costa Coffee, which entered India in 2005 through an exclusive deal with the Ravi Jaipuria Group firm, is likely to appoint other franchisees as well to grow the business rapidly, two people aware of the move stated.
An official close to the firm also said Santhosh Unni, CEO at Costa Coffee India, has put in his papers, but the resignation has not yet been accepted.
RP Gandhi, President and Group CFO, RJ Corp, which owns Devyani International (DIL), said the two partners will meet soon to decide whether DIL will remain Costa Coffee’s exclusive franchisee. “Costa Coffee UK wants to discuss the same, for which a meeting has been fixed,” he said.
Andy Marshall, Managing Director for international franchise, Costa Coffee, is flying into India in April to discuss the matter with DIL officials, said an official close to the company.
An official familiar with RJ Corp’s thinking said, “Let them (Costa Coffee) explore other opportunities (franchisees). When they are not investing in their home country due to slowdown, how can they expect RJ Corp to do the same here?”
The person added that Costa Coffee was given an option to pick up equity in the business three years ago, but it backed out after first committing to invest. The Indian cafe market is estimated at USD 230 million, or about Rs 1,400 crore, and is expected to grow at 13-14 per cent a year over the next five years.
Costa Coffee operates over 100 stores in the country and has around Rs 100 crore in revenues with positive EBITDA levels in the year ended December 2013.
Source: [via]
