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    Specialty coffee startup Blue Tokai raises $30 million in funding led by A91 Partners

    Synopsis

    Blue Tokai’s latest capital raise comes on the back of other new age specialty coffee firms also drawing increased consumer and investor interest.

    Blue Tokai fundingETtech
    Blue Tokai cofounders (from left) Shivam Shahi, Namrata Asthana, Matt Chitharanjan
    Specialty coffee brand Blue Tokai Coffee Roasters has raised $30 million (Rs 245 crore) in its latest funding round, led by Mumbai-based investment firm A91 Partners. White Whale Ventures, and existing investors including Grand Anicut Fund and 8i Ventures, also participated in the funding round, which also saw some angel investors sell shares.

    The coffee brand is expected to have been valued at Rs 650 crore, post the investment round, according to people close to the deal.

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    The Gurugram-based company’s latest capital raise comes on the back of other new age specialty coffee firms also drawing increased consumer and investor interest.

    Data sourced from research platform Tracxn showed that specialty coffee startups raised $41.1 million in 2022, up from $11.4 million in 2021.

    The specialty coffee space includes companies such as Third Wave Coffee Roasters, which last year raised $20-25 million from WestBridge Capital; Slay Coffee, backed by Fireside Ventures, Alteria Capital and Rebel Foods; Sleepy Owl Coffee, Hatti Kaapi, and Rage Coffee.

    These startups compete with established chains such as Starbucks, Cafe Coffee Day and Barista.

    Funds raised by specialty coffee brandsETtech

    Blue Tokai plans to add 200 new stores over the next three years to add its current footprint of 60 stores, Blue Tokai’s co-founder and CEO Matt Chitharanjan told ET.

    Blue Tokai did not disclose its valuation, but Chitharanjan said it had seen a three-fold increase in valuation over its last fundraising round. He also said that less than 10% of the amount raised, or nearly $3 million, is secondary component, while the remaining is fresh capital.

    “We started off as an online and B2B business. It was only after two years that we launched our first cafe. Having a physical outlet was important in terms of engaging with customers. As we expanded our cafe presence, we realised that having people to try out different products and guide them into finding out what coffee they like, has been very beneficial for us in building the brand,” he said.

    Co-founder and chief operating officer Shivam Shahi said Blue Tokai was present in nine cities and planned to expand to four more cities in the next 3-4 years. Shahi joined the company in 2016.
    Blue Tokai’s cafes account for nearly two-thirds of its revenue.

    Abhay Pandey, general partner at A91 Partners, told ET that with increasing availability, coffee is emerging as an alternative beverage choice in India.

    “People are consuming more coffee, even in other countries like China, where there is a strong tea culture. We believe that this is bound to happen in India over the next 10 years and we will see high growth rates in this period,” Pandey said. “We are getting into that virtuous cycle of demand and supply reinforcing each other in India”.

    The company reported Rs 74 crore in revenue for the year ended March 31, 2022, and is clocking a revenue run rate of Rs 150 crore for the ongoing fiscal year, its CEO said, adding that Blue Tokai plans to become profitable by next year.

    Launched in 2013 by Chitharanjan and Namrata Asthana as a roastery, the company has three roasteries in Delhi, Mumbai and Bengaluru, and services its pan-India operations from there.

    Blue Tokai operates through three main verticals – physical cafe stores, e-commerce and marketplace channels and B2B, through which it leases out coffee machines to corporate offices and sells coffee products to hotels, restaurants and cafes.

    “In addition to the cafes, we’ll be investing in more sophisticated technologies for our B2B leasing business because that has been doing well for us in the last year or so. We’re also planning on having more products in our portfolio to push e-commerce and marketplace business,” Shahi said.

    New age coffee boom

    Chitharanjan said that Blue Tokai operates in a space that is neither in the super-premium nor in the mass market category.

    “Our price points are 20-30% lower than Starbucks but higher than Cafe Coffee Day. Our focus is on providing quality coffee to the customers because we have seen that once a customer develops a taste for specialised coffee, they don’t go back to commodity coffee products,” he said. Chitharanjan pointed out that coffee-growing countries have traditionally not been rich but in India the income levels have crossed a threshold where people are beginning to explore specialised varieties of coffee.

    However, as interest rates across the globe rise and discretionary spending is put on the backburner, coffee chains could be forced to rationalise customer acquisition costs.

    “Given the current environment, the focus should be on expanding reach and distribution with efficient spends on customer acquisition,” A91 Partners’ Pandey said.

    “In specialty coffee, opening more stores will be important to get consumers to experience the product. As consumers increasingly try the product offline, they are more likely to build the coffee habit and start consuming it at home by ordering online through brand websites or marketplaces,” he added.

    Pandey said eventually “there will be 2-4 companies that will succeed with scale”.

    “In coffee, one of them most likely will be Starbucks and the other 1-3 positions are up for grabs. In addition, there will be room for small and specialised coffee brands, which are viable businesses,” he said.

    (Graphics and illustrations by Rahul Awasthi)
    The Economic Times

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