Around the world, coffee shops have become meeting points for “urban tribes,” creative types, freelancers, and pour-over junkies. In India, though, running a coffee business is still a tricky pursuit, riddled with challenges.
Blue Tokai, which I reported on last year in Delhi, was trying to bring that global coffee culture to India by freshly roasting beans, sourcing from single estate farms, offering organic varieties, and educating north Indians on Aeropress, Chemex, and French Press brewing techniques-- a new language for a region that lives on chai and instant coffee.
Since their mail order business took off, Blue Tokai founders, Matt Chitharanjan and Namrata Asthana, opened a cafe in South Delhi last year. The approach to the coffee shop is a bit tricky, especially for non-locals: down a few alleyways, off the main road, Blue Tokai sits in a village within the city.
“If I go across the street, which might be slightly better, the real estate is twice as much. And in Bombay, where we’ve just opened a cafe as well, it’s four times as much for less space,” says Chitharanjan.
Running a sustainably-sourced coffee business, with a brick-and-mortar cafe-cum-roaster, is an appealing business for the hipster at heart. But the realities of it, Chitharanjan says, have been far from glamorous. In fact, the last three years have been nothing but learning lessons across the board-- from sourcing, to financing, to marketing, to negotiating real estate.
“People think we’re spending our days, testing out coffees and traveling to coffee farms. The reality is that we’re dealing with paperwork, managing people, dealing with customers, and negotiating with suppliers. It’s not all that pretty,” he jokes, while sipping on one of his pour overs, sourced from a farm in Karnataka (where most of India’s coffee grows).
There are some specific challenges of replicating the ethically-sourced coffee model in India. The first, Chitharanjan says, starts with organic certification for the coffee farmers. The agency responsible for auditing farmers in India has a rather “odd” policy, he explains. Auditors inform farmers months in advance of the date they’ll arrive, and what plot they’d like to test.
“One farmer,” he recalls, “ even suggested that the inspector show up randomly, to make it more authentic, and he was told, ‘No, this is how it’s done.’”
That creates a dilemma: while some farmers may genuinely be abiding by organic practices, others Chitharanjan worries are “getting around it.” Also, the entire certification burden, he says, is disproportionately on the grower, not the vendor.
“If I were mixing non-organic beans with organic beans -- I’m not but imagine if I were-- there’s no inspection on my end. It’s really unfair to push it into the grower.”
With coffee culture on the rise, Chitharanjan says, that he’s seen companies who tout to be single estate and then fail to illustrate their supply chain. “That’s a bit frustrating. Because one grower goes through the process of getting the certification and doing it by the books, and someone else just makes the claim in marketing, without the papers.” Yet both exist side by side in the same marketplace.
Blue Tokai still stands out in the market because it brings a roaster to the cafe where customers can watch the process. “As far as we know, no one else is doing this in India.”
Yet, when Chitharanjan went to attach a scrubber to his roaster, to avoid polluting the Delhi skies, which are infamously clogged and smoggy, he was asked, “why bother?”
“Not everyone seems to understand the values of doing a business like this. If I live in Delhi, I’m not going to be responsible for adding to the air pollution, and spewing out black smoke.”
Creating a sustainable business, be it from waste to sourcing, is a noble pursuit. That is, if one can finance it. The duo bootstrapped the venture till 2015. Last year, they sought out investors in a seed round, bringing on board Bold Ventures and Snow Leopard Ventures, two Indian investment firms. The investment enabled them to hire 20 employees, open the roastery, and consider new locations beyond Delhi, such as Bombay. Sales for 2016 are expected to hit $500,000, double of last year. Even with the influx of cash, there’s still one problem. The biggest headache, Chitharanjan says, has been financing his most important purchase: coffee beans.
Every year, he spends half the previous year’s revenue in buying beans. And he has to do so in lump sum, which eats up a massive portion of the company’s working capital. As a result, he’s turned to loans. But in India, he says, interest rates are exorbitantly high. Even after showing profitability, Chitharanjan says that his first loan had an interest rate of 30%; the second year, that went down to 26%.
To find an alternative, Chitharanjan turned to his father who lives in the US for help. While the interest rates may have been lower stateside, the exchange rate for the Indian Rupee ($1 equals 65 Rupees) was crushing.
“It’s just a pain all around. And this is a capital intensive business. But there are few options for financing in India for this kind of thing.”
On top of these nuanced difficulties of running a business, Chitharanjan says that changing a culture takes time. Delhites, and more broadly, north Indians have not been coffee drinkers. In the past three years, he’s heard many of them, even the wannabe coffee connoisseurs throw out names like illy and Lavazza as their go-to brands for ground coffee.
“But do they realize that we grow coffee here in India? Italians don’t grow coffee. It’s just a brand,” he says laughing.
To get locals more aware, Blue Tokai has started organizing tastings at the cafe, and regular events to draw in crowds: from local farmers who’ve addresses sustainability and urban gardens to musical artists.
“This is all going to take time. But someone once told me that Starbucks only enters a market when it’s about to take off. And Starbucks is here in India,” he notes.