In this newsletter, we are are going to talk about Coffee!
Hugh Jackman (The Wolverine),once famously stated, “To me, the smell of fresh-made coffee is one of the greatest inventions.” This sentiment is likely shared by many avid coffee enthusiasts who rely on that aromatic brew to energize their mornings. In India, Nestlé has effectively captured this essence through their Nescafé ad campaigns, evoking a sense of warmth and energy. Although tea remains the dominant beverage across much of India and other Southeast Asian nations, South India stands out as a bastion of coffee culture. With Karnataka, Kerala, and Tamil Nadu leading as the largest coffee producers in the country, the region’s affinity for coffee is deeply rooted. However, the tide is turning nationwide. The proliferation of cafes and coffee chains, along with Western lifestyle influences, is driving a significant increase in coffee consumption across India. Today, we explore this burgeoning trend and examine how companies are capitalizing on India’s growing passion for coffee.
History of Coffee in India
In the late 17th century, coffee made its way to India thanks to Baba Budan, an adventurous Indian pilgrim. During his travels in Yemen, he secretly brought back seven coffee beans to India in 1670, planting them in the lush Chandragiri hills of Karnataka. This marked the beginning of coffee cultivation in India. The Dutch helped spread coffee farming, but it was during the British Raj in the mid-19th century that commercial coffee farming truly took off. In 1907, the India Coffee Board was established to improve the quality and reach of Indian coffee through research and education.
Fast forward to 1957, the Indian Coffee House was born as part of a cooperative movement, supporting workers affected by the closure of government-run coffee houses. It quickly grew into a nationwide chain. Then, in 1963, Nestlé introduced instant coffee to India with Nescafé, revolutionizing the way Indians perceived coffee by offering a quick and convenient option. Before Nescafé, coffee in India was traditionally seen as a beverage that required careful preparation. Following Nescafé’s success, Hindustan Unilever launched Bru in 1968, and Tata Coffee entered the instant coffee scene in the 1980s, further enriching India’s coffee landscape.
Indian Coffee Market
Today, India’s coffee market is booming, growing by 10-15% each year. This surge is fueled by a rising interest in gourmet coffee and unique coffee experiences. Millennials and Gen Z are at the forefront of this trend, driving innovation with their love for different brewing styles and flavors. As a result, there’s now a diverse range of coffee drinks available, catering to changing tastes and demographics. This shift highlights how coffee culture in India is evolving, with more people exploring and enjoying the rich variety of coffee options.
Before we move ahead, let’s understand the basics of coffee and its manufacturing.
Coffee Production Process
1. Plantation
Coffee originates from the coffee plant, specifically from the coffee berry, or coffee cherry, found on coffee trees. Inside each cherry are seeds known as green coffee beans, which are used to create different coffee products. The two main types of coffee beans are Arabica and Robusta. Each has its own unique qualities—Arabica is known for its smooth flavor but is more expensive, while Robusta is stronger and has more caffeine but can taste more bitter. These differences offer coffee lovers a variety of choices based on their preferences for taste, cost, and caffeine kick.
Difference between Arabica and Robusta coffee beans are:
The global production of green coffee is mainly made up of Arabica beans, which account for 60%, and Robusta beans, which make up the remaining 40%. Brazil, Colombia, and Ethiopia are the top producers of Arabica coffee, while Vietnam, Brazil, and Indonesia lead in producing Robusta coffee. As a globally traded commodity, green coffee has transparent pricing similar to other commodities. Its price is influenced by various factors such as weather conditions, trade restrictions, demand, and broader economic conditions.
(Source: World Population Review, Bastion Research)
2. Roasting Coffee beans
Once coffee beans are harvested and processed, they undergo roasting to bring out their flavor, aroma, and color. This involves heating them to temperatures between 180°C and 250°C (356°F to 482°F) for 7 to 20 minutes. The level of roasting greatly influences the coffee’s taste. Light roasts are light brown, keeping most of the original flavors and having higher acidity. Medium roasts are medium brown, offering a balanced flavor with moderate acidity. Dark roasts range from dark brown to black, delivering a strong, full-bodied flavor with lower acidity. Each roast level offers unique flavors and aromas, catering to different taste preferences.
3. Grinding
After roasting, coffee beans are ground to the right size for different brewing methods or turned into instant coffee. Grinding is a key step in making Roast and Ground (R&G) coffee for popular methods like espresso, pour-over, French press, and cold brew, often used in cafes and requiring specific skills and equipment. The grinding process breaks the beans into smaller pieces, increasing the surface area for better flavor extraction. The grind size depends on the brewing method: extra fine for Turkish coffee, fine for espresso, and coarse for French press. These traditional methods use roasted and ground coffee to create rich and flavorful drinks.
4. Instant Coffee process
Instant coffee is made by brewing ground coffee and then processing it into a soluble powder. This convenient form of coffee makes it easy for people to prepare a quick cup at home. There are two main methods to make instant coffee: freeze-drying and spray-drying.
Shifting Tides in Favor of Coffee
Traditionally a tea-loving nation, India is witnessing a shift as coffee consumption rises, especially among the younger generation in urban areas. This growth is driven by the popularity of specialty coffee, the spread of branded cafes like Café Coffee Day and Starbucks, and the influence of Western lifestyles. Consumers now prefer products that are easy to buy, prepare, and enjoy. While fresh coffee still dominates, instant coffee is gaining popularity due to its convenience, affordability, long shelf life, and appeal to the younger generation who favor ready-to-drink options.
A notable trend is the increasing demand for specialty coffee, which offers unique and high-quality experiences such as instant formats, pour-over styles, cold brews, and flavored coffees. People are eager to explore diverse flavors and appreciate the craftsmanship involved in creating these coffee experiences.
Currently, India’s instant coffee market is thriving, valued at ₹2,500 Crore, with 70% of this market centered in South India. The market is projected to grow by about 10% annually.
Investment Opportunity – Riding the Trend
Now that we’ve explored the history, production process, types, and growing trend of instant coffee in India, it’s natural to consider the potential investment opportunities in this sector
The Indian coffee industry presents exciting investment opportunities, especially with the growing demand for instant coffee. While private startups like Blue Tokai, Sleepy Owl, and Rage Coffee are gaining popularity, they often require sophisticated investors. On the public front, major brands such as Nescafé by Nestlé, Bru by Hindustan Unilever, and Tata Coffee are part of larger conglomerates. However, CCL Products (India) Ltd stands out as a prominent listed company focused on instant coffee. As India’s largest manufacturer and exporter of instant coffee, and the world’s largest private label instant coffee producer, CCL offers a compelling option for investors eager to tap into the expanding coffee market.
So, these are the Indian listed companies that you should look out for if you want to play this trend.
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