Dubai-based Landmark Group may snap its seven-year-old franchisee agreement with Australia’s Gloria Jean’s Coffee amid heavy losses due to high rentals and stiff competition from rivals, a person familiar with the development said.
Landmark’s hospitality unit, Citymax, operates around 30 Gloria Jean’s outlets in India with an annual revenue of about Rs 15 crore from the venture that is still bleeding after seven years of operations, the person said on condition of anonymity. The company has no intention to continue with the loss and is seeking to relinquish the master franchisee for India.
Gloria Jean’s external public relation firm declined comment.
“Landmark Group enjoys a long standing relationship with the Gloria Jeans team. We have no new information or figures to share on this partnership currently and will keep you informed should we have any new developments,” a Landmark spokesperson said in an e-mailed reply.
Landmark’s proposed plea comes close on the heels of another such case where global rival U.K.’s Costa Coffee is planning to end its exclusive franchise agreement with New Delhi-based Devyani International. The Indian firm is not ready to cough up more capital into a business that is yet to turn profitable even after nine years of operations.
Gloria Jeans and Costa Coffee illustrate signs of challenges for coffee chains’ inability to build a profitable business in India. The arrival of Starbucks Coffee, Dunkin Donuts and Krispy Kreme has intensified competition in the market. It has also resulted in increased staff salaries, industry officials said. For example, the salary of a store staff has gone up between Rs 20,000 and Rs 25,000 compared to about Rs 17,000 more than a year ago.
Lavazza Spa has been looking for a buyer for Barista, the country’s oldest coffee chain that the Italian group acquired in 2007.
Coffee through bars in India is a sit-in concept where consumers generally spend hours in these outlets compared to the global phenomenon of grabbing coffee on the run from generally tiny outlets and kiosks. Coffee chains in India must maintain elaborate and plush outlets – and not kiosks – to give the Indian consumers what they are looking from a coffee chain even if the proposition turns out to be very expensive, industry officials said. That is making it difficult for many companies to stay in the business and hard to scale up.
Starbucks, that entered India in October 2012 with an equal joint venture partner, has so far opened 42 stores in various cities and is in the process of scaling up its business in India. Experts say cafe is an economy-of-scale business where making money is difficult unless you reach a certain threshold in the country’s $300 million cafe chains market that is growing annually by 20%.
Landmark’s Citymax also runs franchisee stores of U.S.-based donuts and coffee company Krispy Kreme in south and western India. In 2012, Landmark Group, that operates Lifestyle department store chain, France’s Auchan-branded supermarkets and Home Centre home furnishing and accessories stores in India, had said it wanted to open 80 Krispy Kreme stores in southern and western regions in five years time.
Source: India Times