Café Capitalists

It was sometime in 2012, not long after Matt Chitharanjan and his wife Namrata Asthana had moved from Chennai to Delhi, that the two began to long for some freshly roasted coffee. Chitharanjan, an American citizen, was living in San Francisco when the so-called third-wave coffee (or specialty coffee) movement scene exploded, turning him from a drinker of coffee from regular chains like Starbucks to someone who looked more closely at where his beans came from and how they were roasted. He even began to roast his own beans at home as a hobby. He moved to Chennai a few years later with a job, where he also met Asthana. And while the coffee scene in Chennai wasn’t nearly as vibrant as what he had experienced in the US, it was still a lot better than what he and Asthana witnessed when they moved to Delhi.

“There was this one [coffee] chain we used to go to in Delhi, and when I would ask, they wouldn’t even be able to tell where their coffee came from,” Asthana says. One day followed another, one bad cup of coffee after another, and one morn­ing, Asthana recalls waking up exasperat­ed and voicing her frustration out aloud. “I just sort of told Matt, ‘Man, I really want a good cup of coffee. I want to know it is fresh and I want to know where it is from’. It was just a kind of ideal wish I was voicing out,” Asthana says. “And Matt just turned around and said, ‘You know what, this isn’t such a bad idea’.”

Yearning to get their hands on bet­ter quality coffee for themselves and suspecting there might be a few others who might like to try out what they produced, the two began to reach out to coffee farms to sell some of their beans to them, and then setting up a small coffee-roaster in a spare bedroom in the house where Asthana’s parents lived. The couple began to roast and grind beans and sell their product under the brand name Blue Tokai Coffee Roasters. “It was just that—a table-top roaster, a small grinder. It was very much a mom-and-pop type of operation,” Chitharanjan says. “There was no put­ting together a business plan, or identify­ing some gap in the market, or anything like that. It was just us trying to get coffee that we wanted for ourselves, and imagining that there might be others like us who could make this [venture] sustainable.”

A little more than a decade since, Blue Tokai is a much more familiar name. It now consists of 90 cafés spread across 10 cities, much of which came up only this year; and four large coffee roasteries to support this expansion, including its first international roastery in Tokyo. It is witnessing rapid growth, according to the founders, in online sales and in their B2B (business-to-business) segment where they sell their products to restaurants and corporate offices. The startup has also raised over $32 million in funding from investors in the last two years, apart from an undisclosed investment recently from the actress Deepika Padukone, and is now, according to reports, valued at about ` 650 crore. Its rapid expansion is most visible in the number of cafés that have begun mushrooming in the metro cities in the last few months. “We opened about 60 cafés this year. By March next year, we plan to have about 120 to 125 cafés,” says Shivam Shahi, who joined Blue Tokai as a co-founder in 2015. “Right now, our focus has been on the big metros. But from next year onwards, you will start seeing us exploring some of the smaller cities.”

Although a few more coffee brands that specialise in specialty coffee have emerged in recent times, Blue Tokai is seen as among the first of its kind, and one of a few that is pioneering a new type of coffee culture among the young and affluent in urban India. “When we started in 2012, coffee was just commod­ity coffee. It was produced in very large batches, roasted in large facilities, and sat in retail for a significant amount of time. Coffee is actually a perishable product. It should be consumed maximum within two months of roasting to get the best flavour,” says Chitharanjan. “So, when we began, right from the initial stages, we started gaining a lot of traction.”

In India, where tea is the primary beverage of choice, the coffee market has traditionally been a small one. Before the economy was liberalised in the 1990s, all the coffee grown in India had to be sold to the government-controlled Coffee Board of India, which then auctioned off the produce. Once the economy opened up, India’s coffee growers, unencumbered by past rules, began to explore the much larger coffee market abroad. The business began to increase rapidly. According to one BBC article, India exported 2.1 million bags, each one containing 60kg of coffee in 1993. By 2010, the number had jumped to 4.6 million 60kg bags.

The domestic market changed slightly in the mid-1990s, when India’s first chain of cafés, Café Coffee Day, began to mushroom across cities, giving young Indians their first taste of cappuccinos and a new type of lifestyle. A few other brands of coffee shops followed. The emphasis in these new cafés however was never on the coffee itself. You went to a café, not necessarily to drink coffee, but to hang out with your friends, read a book, or work on some project. Nobody asked for the origin of the coffee in their cup, and even if someone did, no answer would be available. The coffee itself was often a bit too bitter, probably because the beans were being heavily roasted, and whatever flavour remained, was often overwhelmed by sugar and milk.

This sort of coffee culture, pioneered by café chains, has been dubbed by cof­fee enthusiasts abroad as representing the second wave of coffee (the first wave is claimed to be the period of instant and diner coffees where the primary focus was on low price and consistent taste). The specialty coffee trend was seen as a response to the second wave. The focus was now not on the ambience but on the coffee in the cup. Not unlike the way a sommelier may speak of the best wines, the specialty coffee drinker wanted to know where the coffee bean was grown and in what condition, how the ‘flavour profile’ differed from one farm to another. “In this specialty seg­ment, we are really looking for flavour complexity,” Chitharanjan says. “There are different varietals and where those plants are grown within an estate, how much rainfall that area gets, the altitude and soil condition, and the surround­ing fauna, all of that contributes to the flavour you ultimately get.”

Chitharanjan and Asthana were trying to introduce this aspect of coffee consumption, believing there might be a small market for something like this in India, when they first came up with the idea of Blue Tokai. They had never imag­ined, the two say, that the demand would pick up so quickly. “If you look at global trends, specialty coffee is becoming close to the majority [of the coffee market], if not the majority in most markets. Because of how much traction we were getting, we felt that it was only a matter of time India would follow the same trajec­tory,” Chitharanjan says.

Although they now source their cof­fee from around 50 farms—a majority of them in the south, but also from places like Nagaland in the Northeast—the first big challenge the founders faced was convincing the farms to sell to them. Most of India’s high-quality coffee beans, the founders learnt, are exported abroad. “There was this big resistance [from the estates to our idea] because India is seen as a price-sensitive market. Many of them had never even considered selling domestically because they thought not enough people would be willing to pay more for coffee,” Chitharanjan says. The couple also put the name of the estate and the way it was prepared on the cof­fee’s packaging, something many estates weren’t agreeable to. This was crucial, the two say, to maintain transparency and to educate consumers. “Our coffee can only be as good as the green unroasted coffee we get from farms. So, for us, it was important they get the credit too,” Chitharanjan says. They were able to convince about five or six estates and began operations this way.

Although their cafés now contribute about 70 per cent of their revenue stream, the founders don’t see theirs as a café com­pany. “The cafés are important to reach out to consumers. But the goal isn’t to be a café company, but a coffee company,” Chitharanjan says.

Their café in Delhi tends to get a lot of patronage from Japanese expatriates working in the national capital, which was one reason, the founders say, why they expanded their operations to Japan. “They were very surprised at the quality of the coffee. They had no idea India pro­duced coffee, let alone this level of coffee,” Chitharanjan says. “This is a common perception. Whereas what we are roast­ing, it can really sit in any specialty café anywhere in the world.”

Blue TokaiCafé Capitalistscoffee waveMatt ChitharanjanNamrata AsthanaShivam ShahiWealth Issue 2023