Business Case Study: Café Coffee Day and the story of Malvika Hegde and V.G.Siddhartha
A lot can happen over coffee, he said, and yes a lot did happen, after his demise, over coffee.
V.G.Siddhartha Hegde was the first entrepreneur to start a coffee cafe in Karnataka and the founder of Café Coffee Day popularly known as CCD.
Sivan Securities Company was commenced by him with the capital given by his father which is now known as Way2Wealth Securities Ltd.
The coffee trading company ABC with Rs 6 Crore turnover was founded by him.
Weekly, CCD entices, approximately 50,000 visitors.
Global Technology Ventures Ltd. which was valued at $100 million was established by V.G.Siddhartha. GTV invests and guides Indian Tech companies. It also has an incubator park in Bangalore.
In 2017, the tax raid was operated at Siddhartha's locations, and In 2019, he told the driver to halt near the Nethravati River in Mangalore. The driver informed the police when Siddhartha didn't show up. The search was conducted and his body was found at the Hoige Bazaar Beach by three local fishermen. The conclusion of the investigation was he committed suicide and also wrote a letter that describes the harassment and pressure he faced from the previous Director General of Income Tax.
Although the suicide and letter which he wrote are not the main part of this case study and story. The only prominent component is who was he to understand the case study of CCD.
The Story of Malvika Hegde-
Malvika Hegde is V.G.Siddhartha's wife. She took over the responsibility of the company after his death.
The initiative, faith, and the will to win are the three ingredients to succeed, this is from Think and Grow Rich by Napoleon Hill. Malvika's initiative to step into the shoes of the former CEO, her faith and dedication towards CCD, and her will to prevail resulted in the survival and growth of CCD.
Malvika Hegde broke all skepticism and took a commitment to CCD.
She is the daughter of the former chief minister of Karnataka.
She was born in 1969 and went to a regional school in Karnataka. She did her engineering from Bangalore University.
After marriage, she was on the CCD's board but was a non-executive member.
She owns a 4% stake in CCD
Even during the pandemic because of COVID 19 when many companies were shutting down, CCD didn't step back from expanding its businesses and this shows the leadership qualities Malvika has.
Malvika wanted CCD to be debt free. In 2019, the company owed Rs. 7000 Crore in debt, and in 2021, the company owed Rs. 1731 Crore. Just astonishing. This way which led to the survival of CCD is noteworthy.
Although the company owed in debt Malvika never allowed raising the prices of coffee. Instead, she started shutting down the loss-making outlets.
The "We Win, Or We Perish" attitude of Malvika resulted in the development of CCD. Before becoming the CEO, she sent a message to the employees of the company, stated as below-
Here in this letter to employees, she convinced them that she is dedicated to the company's future and showed that she has a vision and mission for the growth of the company. She made the employees believe in her ability to save CCD from the loss after Siddhartha's demise.
She sent this letter after there was chaos when it was revealed that the private entity owned by Siddhartha owed Rs. 2693 Crore to CDEL( Coffee Day Enterprises Limited).
Here comes the story of CCD-
CCD Global Limited Company, a Chikkamagluru-based company, produces and exports Arabica beans and is the largest producer of Arabica beans in Asia. The first outlet was set up in 1996. Focusing on expansion, in 2011, CCD had 1000+ cafes in India.
CCD is India's well-known purlieu for coffee and became the largest organized retail cafe chain in the country.
The mission of CCD: To be the best cafe chain by offering a world-class coffee experience at affordable prices.
The vision of CCD: Showing the world where coffee can take us.
Range of Outlets-
1. Coffee Day Hotel & Resorts
2. The Lounge
3. Coffee Day Exports
4. Value Express
5. The Square
CCD, one where coffee was more than just a beverage, has outlets in 200+ cities. The portfolio of CCD includes Technology, Parks & SEZ, Logistics, Investments, Financial Services, and Hospitality. CCD was formed as a partnership firm in 2008 which was then converted into Coffee Day Holdings Company Private Limited which is now Coffee Day Enterprises Limited.
The approach of minimizing the cost has proven to be profitable for CCD. The vertically integrated company has taken every possible step to cut down the cost of the coffee machines and minimized the cost of growing the coffee.
1993- Formerly Amalgamated Bean Coffee Trading Company Limited was incorporated as Coffee Day Global Limited.
1995- Coffee Day Global launches Coffee Day to provide fresh coffee beans and powder.
2000- Launched Way2Wealth by taking over Sivan Securities Limited and also invested in Mindtree.
2005- Launched the first international cafe.
2006- Launched SEZ tech park in Bengaluru.
2010- Kohlberg Kravis Roberts and Company invested in CCD.
2018- CCD has been ranked second in Food Services, above Starbucks and McDonald's.
Porters Five Forces Analysis
We use Porter's five forces to analyze the competitive environment of a company. It explains why some companies can nurture even after facing a crisis and sustain profitability. Porter's five forces analysis was named after Harvard Business Professor, Michael E. Porter. It was suggested that the firm should keep a close watch on its rivals. The stronger the competitive forces are in the industry, the less profitable it becomes. Porter's five forces are-
1. Competition in the Industry
2. Potential of new entrants into the industry
3. Power of Suppliers
4. Power of Customers
5. Threat of Substitute products
An industry is said to be attractive and can generate high profits when
-High barriers to enter
-Weak Supplier's bargaining power
-Weak Buyer's bargaining power
- Few substitute products or services
- Low competition
And the industry is unattractive when the above conditions are vice versa.
Explained in detail -
1. Threat of new entrants: This determines the ease of new entrants entering a particular industry. The threat of new entrants is moderate in this industry as the barriers to entry are not high enough. The threat of new entrants is high when there is low customer loyalty, smaller capital is required to make an entry, customer switching costs are low, and economies of scale can be effortlessly acquired.
2. Bargaining power of buyers: The customers of a company play a significant role in changing the prices of the products or services. The bargaining power of the buyers depends on the number of buyers and buyers' switching costs. The bargaining power of the buyer is strong when buyers buy in high volumes, there are few buyers in the market, switching costs to competitors is low, there are many close substitutes, and buyers are also price sensitive. The bargaining power of buyers is moderate/low. There are many different buyers in this industry.
3. Bargaining power of suppliers: The suppliers of a company also drives the prices of product and services low/high. If the company has fewer suppliers then the company would depend more on suppliers. Suppliers exert strong bargaining power when the cost of switching suppliers is high, there are fewer suppliers, not many substitutes for raw materials, and suppliers hold scarce resources. The bargaining power of suppliers is low/medium. The main input into the value chain of CCD is Arabica beans which makes the cost of switching between substitute suppliers low.
4. Threat of Substitutes: This force is a threat when there are many substitutes product with attractive prices. Companies that do not have any close substitutes are more probable to raise the prices of the products. The threat of substitutes is high for this industry. There are many coffee substitutes. Tea is mostly preferred especially in India over coffee. There are no switching costs for buyers still companies like CCD are trying to face this threat.
5. Competition in the industry: This last force is the number and strength of competitors in the industry. It refers to the comparison between the product and services of the companies. Companies try to cut their prices and engage in high-impact marketing campaigns. It is high when there are several companies, high exit barriers, growth of the industry is slow, buyers are not loyal, and products can be effortlessly substituted. The intensity of rivalry is high/medium for this industry. The industry has monopolistic competition but its relative opponents have a significant market share too, like Starbucks and others.
An investigation that was conducted when Siddhartha committed suicide revealed that Rs. 3535 Crore was misappropriated by the Mysore Amalgamated Coffee Estates Limited(MACEL). In 2019, the company appointed Ernst and Young to examine their books. In 2020, Coffee Day Enterprises Limited agreed to sell Global Village Technology Park to pay back the debt.
CCD is the company that refused to die despite of incurring losses and facing so many complications.
Very nice explanation 👌
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