This brand is making India's coffee special

A quick question! What’s your go-to hot drink early in the morning after waking up, coffee or tea?

Another quick question! If it’s coffee, which brand do you prefer?

Well, while you answer that question, I will tell you what my favourite brand is and how it changed over a period of time. As a matter of fact, it changed not just for me but for million others like me.

I started my coffee drinking journey with Nescafe, then Bru, then I moved on to Tata coffee, then to Levista, continental and finally on my recent favourite, Blue Tokai, the coffee brand that’s disrupting the Indian coffee market and is becoming the favorite of Indian Coffee lovers.

Honestly, its better than any coffee brand I have consumed till now. So I am pretty sure it is going to remain my favourite for a long long time. And this is not only because of the taste but several other factors which I am going to talk about in this issue. We will see how two coffee lover’s passion for good coffee turned their passion into a brand worth more than $77 Million. We will see the story behind their origin, how they captured the Indian market, what’s the different approach and lastly, unique business lessons learnt from their approach. So, let’s start!

As usual, we will start with a little history…

It was the year 2013 when India was still largely dominated by instant coffee brands & chains like Cafe Coffee Day, which held significant market share. Starbucks also recently entered the Indian Market in 2012, introducing a premium coffee experience but without focusing on specialty coffee.

Matt Chitaranjan and his wife Namrata Asthana also shifted to India from USA in 2011 for work. And they were extremely disappointed with the quality of coffee available in India at that time. This was largely because of the coffee culture Matt was accustomed to in America. Indian coffee just didn’t seem to please his tastebuds. And being a big time coffee lover, he wanted to do something about it. And hence, built the “Blue Tokai Coffee Roasters”. The couple started by roasting coffee in their home kitchen in Delhi and slowly but steadily expanded, turning it into a brand we all know today.

Identifying the barriers to entry.

Well, India’s long-standing tradition of tea consumption and majority of India’s coffee production being outsourced were two major problems out of several others. To give you some context, India became the world’s eighth largest coffee grower during 2022-2023 exporting over 70% of its total coffee production. For the year 2023, exports from coffee were valued at around US $ 1.12 billion. That’s a huge huge number. India’s position as a coffee exporter was not much different when Blue Tokai started.

Some other challenges includes but not limited to:

• Competition form established brands like CCD which alone controlled roughly 50% of the cafe market and entry of Starbucks just the year before.

• Sourcing quality coffee beans: Farmers were very hesitant to sell their best beans to a local roaster, as they were more accustomed to exporting. Building their trust took a lot of time and efforts.

• Consumer behavior and accessibility: Many Indian consumers were intimidated by the idea of specialty coffee, often associating it with complex brewing methods requiring expensive equipment. Educating them about differences between specialty coffee and instant coffee was a major challenge too.

Conquering the roadblocks, creating a market disruption.

Entering a tea dominant market with a small share which was already conquered by other major brands was no child’s play. But the strategy that Blue Tokai adopted was so basic and simple that it helped them soar through the rough waters without much trouble. And that strategy is Stick to your roots. Matt started focusing on one problem at a time, starting with addressing the issue which literally motivated him to start Blue Tokai. The Quality.

• Building relationships with farmers: Matt established direct relationships with the farmers and convinced them to supply directly to Blue Tokai, ensuring high-quality beans while offering better prices and recognition for the farmers. If you would have noticed, each Blue Tokai packet features the name of the estate where the coffee was sourced. Apart from this, they have provided better incentives to traditional traders, creating a more sustainable supply chain that benefits both the parties.

• Premium positioning: Blue Tokai positioned itself as a premium coffee brand, appealing to a younger demographic that values quality and sustainability. Their branding goes beyond just coffee; it encompasses a lifestyle that resonates with coffee aficionados.

• Education and Transparency: The brand invests heavily into educating consumers about coffee varieties, brewing methods, and the origins of their beans. By providing detailed information on their website and engaging content on social media, they demystify specialty coffee for the average consumer.

• Diversified Revenue Streams: In addition to retail sales, Blue Tokai has tapped into the B2B market, supplying high-quality coffee to hotels and corporations. This diversification contributes significantly to their revenue and helps them reach a broader audience.

Business Model for Blue Tokai

Blue Tokai emphasizes heavily on the quality of the coffee. So all its business approaches revolve around that pillar. This has enabled them to adopt a unique business model that in turn enabled them to thrive in the competitive Indian market.

• Direct-to-Customer Approach: Blue Tokai roasts coffee only after an order is placed because the the coffee needs to be consumed within 4 weeks after roasting to ensure taste retention. This gives their customer the best coffee experience.

• Subscription Services: They offer subscription options for customers, allowing them to receive regular deliveries of their favorite coffee, which enhances customer loyalty and convenience.

• Demystifying common myths: Understanding that many Indian consumers may be intimidated by complex brewing methods, Blue Tokai popularized using simple household items like chai strainers for brewing coffee. This innovation made specialty coffee more accessible.

• Strategic expansion: Tokai has adopted a top-down penetration strategy, focusing on tier-one cities initially to maintain its premium image. This careful approach has allowed them to build brand loyalty before expanding further to tier-two cities.

• Prioritizing customer experience: Blue Tokai runs more than 100 cafes pan India. These cafes serves as both retail outlets and community hubs, allowing customers to experience the brand firsthand. Currently, these cafes amount for around 66% of their total revenue.

In summary, Blue Tokai's business model combines a direct-to-consumer approach with a strong emphasis on quality, transparency, and customer education.

Challenges and Future Prospects

• Increasing scale: While Blue Tokai has done a really good job until now, it will be interesting to see how it grows further. As it expands, maintaining quality and consistency of the coffee will be even more challenging. In my experience, companies usually mess up when it comes to handling explosive expansion.

• Competitive Landscape: With competition from other Indian and International brands is increasing, innovation is the only way for Blue Tokai to remain ahead of its competitors. But they must also not forget their aim and the reason behind Blue Tokai coming into existence i.e. providing premium quality coffee.

That was the story of Blue Tokai and its business strategies it used to disrupt a market once considered unbreakable. Now we come to the final section of this interesting story.

Business Lessons:

The Business lessons learned from this amazing brand. And here are some that I personally feel very essential and fundamental that every entrepreneur must follow.

• Community is loyalty: Building a community around your brand or doing it the other way round gives you a sure shot way of building a loyal customer base. This community will also be your early adopter and word-of-mouth agents, ultimately boosting your growth. Another simple and successful example of this is Zerodha. Read about it in my previous issue.

• Niche Specialization: This shouldn’t come as a surprise as the only way to build a brand in this super crowded market is by catering to a specific audience and then growing outwards.

• Connect with your stakeholders, not just your customers: Large businesses often ignore the people they work with, people who play a significant role in their businesses. Seeing these stakeholders as a their target audience too, works like a charm. Another successful example of this is Rapido’s driver centric approach. More on this really soon.

Well, that’s it for this issue of some refreshing coffee scented case study. Keep following me for such interesting cases studies and subscribe to my newsletter if you haven’t already done so.

Below are some of other recently added very interesting case studies:

 IKEA in India - A typical case study you should read
"If it ain't Boeing, I ain't going" - Says who now?

I hope you liked this issue. Keep tuned for more such interesting case studies.

Until then,

Keep Thinking!