The Rise and Fall of CCD

The Rise and Fall of CCD

The quirky tagline, “A lot can happen over coffee “that made coffee popular in the nation of tea lovers. V G Siddhartha created India’s first coffee chain Cafe Coffee Day (CCD) and also it was the first Indian café with high-speed internet for its customer. Its journey started from Bengaluru’s Brigade Road in 1996.As of 2018, the company had 1,722 café outlets in over 200 cities of India.

Today you can sip coffee from Jammu to the streets of south or in the corners of seven sisters. CCD was successful in making its presence everywhere. The success resulted in encouraging global brands like Starbucks etc. to compete in the Indian market. Facing a neck to neck competition in the market CCD somehow ended up in competing with self. Like in Connaught place, Delhi the chain was having 18 outlets and due to sale pressure the competition spurred among the outlets. We don’t appreciate this business philosophy which divides your own sales, divides the footfall and increase your overheads. 

The mystery behind the founder going missing has left many questions unanswered. Not only this, the letter that was presented to the board in which he pointed out the pressure for early exit from the private equity firms. The enterprise has a total debt of Rs 6,550 crores as on March 2019 to settle some debts he gave his Buy-ins of 20.41 per cent stake in Mindtree to Larsen & Toubro (L&T), making close to₹2,858 crores profit. That deal helped him repay his debt of about ₹2,900 crores.

The desperateness of Siddhartha to reduce the company’s debt, which was taking a toll on the working capital need of the firm due to high-interest outgo.Recently, news reports also suggested that the Coffee Day Group was in talks with global beverage maker Coca-Cola for selling a slice of its equity at an enterprise valuation of around Rs 10,000 crore.

The emergence of repaying the debt was mentioned in the letter, there was a lot of harassment from the previous DG of the Income Tax Department in the form of attaching “our shares on two separate occasions to block our Mindtree deal and then taking position of our Coffee Day shares” resulted in liquidity crunch.

The authenticity of the note circulating on the social media cannot be vouched for as Siddhartha’s signature “does not tally” with what is available with the department in the form of annual reports of the company. They said Siddhartha fetched ₹3,200 crores from the sale of Mindtree shares, but has paid only ₹46 crore out of the total₹300 crore minimum alternate tax (MAT) payable on the deal. Also messages from his mobile phone that indicated his “active involvement in cross-border hawala transactions.”

“Company is professionally managed and led by a competent leadership team, which will ensure continuity of business,” the CCD Enterprise said in a regulatory filing.

An individual whose dream was not destined to become an entrepreneur, has successfully rise the culture of coffee but with increasing competition from new retail chains and capital intensive nature of some of his businesses, Siddhartha was under pressure resulted in the fall of CCD.

CCD  was a purely indigenous brand but gained global acclaims due to its vast expansion. CCD also opened outlets outside India, first being in Vienna which is considered to have a old and strong coffee culture. A lot of work was done in developing a sustainable buying model where the prime focus was a cup of coffee for everyone. But as we say a “coffee doesn’t sell on its own “, it need a snack or a bite to bring a feeling of contentment. CCD. did a good job in designing a snack product portfolio feeding into the requirement of its customer.

Rapid expansion & poor business strategy planning made the CCD a option or alternative. It could never become a destination. Many outlets in small radius of population added to the operational cost and fixed overheads, whereas the sales revenue was distributed amongst their own stores. A brand should grow by virtue of its immaculate planning and well planned strategy. Exponential growth without proper execution can often lead to distress. 

Any company should also follow certain basic principles as the core ideology of the business and should prefer to stick to the ideology in the growth curve to be able to make it recognised.  

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