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Is the Indian market ready for chocolate cafes?

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What differentiates pure play chocolate cafés from the common garden variety types? Nitin Chordia, the only certified chocolate taster in India, outlines the strengths and weaknesses of different kinds of cafés and the way forward for each of them

Is the Indian market ripe for chocolate cafes?
A chocolate café only seizes the opportunity to cater to chocolate loving masses and intends to make money by operating each café and expanding the business rather than using it as a tool for future gains

To begin with, I shall classify chocolate cafés in India into three formats for the purpose of better understanding for chocolate brands looking to enter/ expand in the Indian marketplace. A‘pure play’ chocolate café, which is owned by a chocolate brand and offers mostly chocolate-centric items on the menu, a chocolate café, which is not owned by a chocolate brand and offers more than just a chocolate-centric menu, and lastly a regular café (also called as a coffee shop), which has a few chocolate related items on the menu but focuses mainly on short eats and coffee.

Chocolate cafés and regular cafés use industrial chocolates, which help them to keep costs low. A pure play chocolate café would use fine chocolates in its offering to its consumers, and hence tend to be on the pricier side in comparison. At a pure play chocolate café a consumer is usually seen spending more time engaging with the brand compared to the other two listed formats.

A pure play chocolate café focuses on promoting their own brand of chocolates in their menu and enables the chocolate brand to engage with their existing and potential customers. It gives an opportunity to showcase the best that can be done with their chocolates on an ongoing basis.

godivaThe at in London, Galler chocolate café in Abu Dhabi,  chocolate café in Karachi, Meiji’s 100 per cent chocolate café in Tokyo, chocolate bar café in Singapore, chocolate café in Australia and the in Milan are all standing examples of pure play chocolate cafés and of brands extending their products and services with an aim to keep the brand always “reminded” in consumers’ mind.

A pure play chocolate café offers items on the menu with delicate fl avours using cutting-edge recipes and fine chocolates to achieve the desired experience. Typical categories of items on the menu include patisserie, bakery, hot chocolate, ice creams, milk shakes, selection of their signature chocolates and a variety of specialised desserts.

Consumers globally visit a pure play chocolate café to experience and discover what the chocolate brand has been innovating with, immerse themselves in chocolate treats to take a break from the usual. While you would find regular cafés in every street corner, a pure play chocolate café would typically be harder to find and would occupy only prominent retail real estate in premium/ central locations. Higher rentals are usually justified because the average price of the menu items are higher and it serves as a destination for chocolate lovers unlike a usual café where the idea is to enjoy a cup of coffee before getting along with your business and work.

Moreover, a pure play chocolate café is treated as a marketing investment and an extension to the brand engagement activity in order to build consumer relationships directly.

In contrast, a chocolate café or even a traditional café really only seizes the opportunity to cater to the chocolate loving masses and intends to make money by operating each café and expanding the business rather than using it as a tool for future gains.

Looking at the current scenario in India, we already have a few pure play chocolate café businesses with multiple stores. Chokola, with multiple branches in NCR, , with multiple branches in Banglore, and in Chennai can be named as pure play chocolate cafés. The similarity among all the three is that they aim at improving their brand reach, ensure direct consumer engagement and promote usage of their chocolates via these cafés.

All of these above businesses do not sell their chocolates via any other physical retail channel. However, we must observe that each of these pure play chocolate cafés listed above do not make their chocolates from bean to bar, which is a missed opportunity.

Going bean to bar is the way to differentiate and keep costs low. Currently, they have very less leverage and a clearly defined / limited margin set unlike a chocolate café or a traditional café where only high margin items find their way into the menu since input costs are low. We must also note that their current cost / margin structure has not enabled them to venture out successfully outside already have a few pure play chocolate café businesses with multiple stores.

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Choko La, with multiple branches in NCR, Bliss, with multiple branches in Banglore, and Ecstacy in Chennai can be named as pure play chocolate cafés. The similarity among all the three is that they aim at improving their brand reach, ensure direct consumer engagement and promote usage of their chocolates via these cafés. All of these above businesses do not sell their chocolates via any
other physical retail channel. However, we must observe that each of these pure play chocolate cafés listed above do not make their chocolates from bean to bar, which is a missed opportunity.

Going bean to bar is the way to differentiate and keep costs low. Currently, they have very less leverage and a clearly defi ned/limited margin set unlike a chocolate café or a traditional café where only high margin items find their way into the menu since input costs are low.

We must also note that their current cost/margin structure has not enabled them to venture out successfully outside their home city yet. The reasons for not being able to venture out of their city are many. High cost of retail real estate, lack of availability of qualified manpower, lack of appropriate and feasible locations, high input costs, etc, can be attributed to the lack of expansion. But the most important reason is the lack of basic consumer education about fine chocolates.

and are examples of chocolate café chains in India (which work on the franchise model) and operate in multiple cities. They will always have to rely on
low/competing prices to differentiate and sustain against the regular cafés since their offering is standardised and their business model is not flexible towards change. The huge amount of effort
it takes to change a single recipe or equation at the central kitchen and with all franchises when processes are in place, is well known.

One cannot expect to experience innovation and indulge in a new chocolate experience on each subsequent visit to a non-chocolate brand owned chocolate café. Menu fatigue hits the Indian consumer more easily than western consumers and hence this model has a long-term disadvantage. Neither are they able to take advantage of scale (like traditional cafés) nor their operating profits justify additional investments (chocolate ingredients amount to high input costs).

Further, chocolate cafés run a constant risk of being seen as an equivalent to traditional cafés since there is very little differentiation and they find themselves always playing in a grey area where a true chocolate lover does not see a reason to repeat his visit and a café goer does not find this a convenient location for a pick-and-go opportunity and/or a business meet.

While a traditional café business offers handsome operating margins/profits due to low input costs, a central kitchen often becomes essential to sustain the expansion that is required. Most items in the menu of a traditional café have very low input costs and serve the needs of an average pick-and-go consumer.

In case of a pure play chocolate café owned by a chocolate brand and making chocolate from bean to bar,  the margins would enable them to offer constant innovation and keep the engagement /excitement alive sustainably. In case of regular cafés, the purpose or intention of visiting varies from business meeting points to spending time working and with friends just “hanging out”.

In the case of a pure play chocolate café, the overall experience at the café is the driver.

While a chocolate café seems to be deprived of all the benefi ts of the other two formats, they are constantly in the run to compete with the cafés but position themselves as pure play chocolate cafés; a battle that will victimise this format sooner rather than later.

A few things need to be kept in mind for a chocolate brand entering the Indian market and evaluating investing in a chocolate café. As part of their entry / establishment strategy to showcase the brand and demonstrate the possibilities of innovation using their chocolates, they need to remember a few home truths:

• Retail real estate is among the most expensive in the world.
• Chocolate consumption naturally reduces during hotter seasons. Being a tropical country, most of India is hot during most of the year.
• Indian cocoa beans have not yet proven themselves worthy of being used in fi ne flavour chocolates and hence a chocolate café would
have to rely on using imported cocoa powder, cocoa butter and coverture for their fine flavour offering, or importing it themselves (driving their
input costs northward).
• Import duties for cocoa and chocolates are among the highest in the world in India.
• Indian consumers are underexposed to fine chocolates and not yet able to appreciate the fine
flavours in chocolates.
• Indian consumers are increasingly becoming health/calorie conscious and most of the items on the menu with chocolates are going to
reflect a high calorie intake, which is a cause of concern.
• Constant innovation with the menu to reduce menu fatigue is an important consideration and investment that should be accounted for.

For a chocolate brand looking to enter the exciting and fast growing Indian market and stay on to reap the benefi ts in the long term, the primary goal would be to first establish a reputation for
the brand. A bean to bar chocolatier investing in a pure play chocolate café with a live kitchen at prime retail locations in the main metro cities like NCR, Mumbai, Bangalore, Pune and Ahmadabad, to start with, would have an opportunity to engage and establish/build relationships directly with consumers and to educate consumers.

The menu offering should meticulously focus on using chocolates innovatively and be priced aggressively, targeting the upwardly mobile consumer, to encourage engagement. The live kitchen would enable innovation and ensure that the consumer has a reason to come back every week for new chocolate treats! This image and reputation building would compliment their larger marketing efforts in India and help in reaching the brand via other sales channels to consumers. The café by itself with these basics, would promise reasonable profitability and a very attractive ROI to justify this investment as a complement to their larger marketing effort.

If a pure play chocolate café does not make chocolates from bean to bar, they run the risk of running against a wall due to lack of margins and dependence on imports/imported coverture
chocolates. Securing a low-cost source of supply is the key to making this format work.

The question is: Will chocolate companies globally use these above inputs or take a cue and adopt a ‘Make in India’ strategy for their India entry.