Year after founder’s death, Cafe Coffee Day set to get new investors, rebuild brand

CCD founder V.G. Siddhartha died of apparent suicide last year, and the brand has suffered another hit due to the Covid-19 pandemic and the lockdown.

A Cafe Coffee Day outlet | Flickr

Bengaluru: Cafe Coffee Day (CCD), the made-in-India café chain, could soon get a new lease of life as the company’s board of directors is in talks with some well-known investors to infuse cash and rebuild the brand, ThePrint has learnt.

CCD’s overall business took a hit after the death of its founder V.G. Siddhartha, apparently by suicide, in July last year. Since then, there have been investigations into Siddhartha allegedly siphoning off funds from the company, while 280 CCD outlets have been shut down, indicating that the health of the company has been hit.

However, CCD officials had kept up a brave face, claiming those outlets were not profitable, and even Siddhartha had planned to shut them down, and that the Covid-19 pandemic sped up the process.

Now, sources in CCD say a few prominent Indian companies have shown interest in investing in and repositioning the brand, to bring it at-par with the competition.

“Three or four very well-heeled investors have shown interest, and we are confident that at least one of the deals will fructify soon,” a senior CCD official said on the condition of anonymity.

Company sources said the potential investors have expressed interest in increasing the brand’s value, not renaming it.

“The investors will not kill the brand as Cafe Coffee Day has huge market value. They will try and capitalise on the brand itself. In simple terms, we need money to make money, and the investors will help us with that,” the official said.

Brand and profits hit

People who knew Siddhartha personally describe him as an entrepreneur who loved to take risks. His chain popularised coffee even in tea-drinking regions, and provided a lot of employment.

However, after his death, “the brand was definitely hit”, said a source in the company. “His demise left the company with a liquidity crunch. Covid-19 and the lockdown hurt business. Until then, we were coping,” the source said.

Company officials said a major chunk of profits comes from over 59,000 CCD vending machines installed in offices — something hit hard by the lockdown.

“People have not been in offices, so there is nobody to drink coffee. Only 20,000-25,000 vending machines are operational as of now. Covid has hurt us here too,” said the official.

According to The Economic Times, Coffee Day Enterprises Limited’s (CDEL) revenue from coffee and related businesses was at Rs 442.57 crore in the first quarter of financial year 2020-21, down 6.20 per cent from the Rs 471.85 crore it chalked up in the corresponding quarter a year ago.

A company source said the losses caused by the Covid-19 pandemic would be known at the end of the second quarter.

Probe into fund siphoning

In a letter allegedly written before his death, addressed to the board members of CDEL and the “Coffee Day family”, Siddhartha had blamed himself “for the failure to create a profitable business model despite his best efforts”.

The letter, which is under police investigation, mentioned that a private equity investor was forcing Siddhartha to buy back shares for a transaction carried out six months before his death. The added pressure from lenders and harassment by tax officials made it impossible for him to “survive”.

An internal investigation conducted by Ashok Kumar Malhotra, former DIG of the Central Bureau of Investigation, appointed by the company’s board, found that Rs 2,693 crore was routed by Siddhartha from CDEL to his closely held firm, Mysore Amalgamated Coffee Estates Limited (MACEL).

“We are broadly agreeable to the statement made by VGS that he failed to create the right profitable business model despite his best efforts as it was created largely out of high cost borrowings and PE (private equity) investment carrying high rate of returns,” the company then said in a BSE filing.

The filing said CDEL would seek to recover Rs 3,535 crore from MACEL, which is due to be paid to the company’s subsidiaries. CDEL had earlier concluded the sale of its stake in tech consulting firm Mindtree, and the proceeds were used to pare down debt by Rs 2,100 crore.

Malhotra’s probe gave a clean chit to the Income Tax department, which was alleged to have harassed Siddhartha, leading to his death.

Malavika’s letter

A few days ago, Siddhartha’s wife Malavika Hegde wrote a letter addressing all employees about how they had managed to bring the company’s debt down to Rs 3,200 crore from Rs 7,200 crore in the last year.

“We think that we can bring that to a more manageable level with our plans to sell a few more of our investments shortly,” Hegde said.

Thanking employees for standing by her during this tough time, she called Cafe Coffee Day a “story worth preserving”.

“Knowing him (VGS) for the last 32 years, I can tell you that his company was his world and his employees were his family. I am grateful that despite a deadly pandemic-enforced lockdown, we have been able to sustain businesses and jobs in the last few months. Coffee Day is a genuine Indian consumer story worth preserving,” she wrote.

Still a valuable brand

Brand guru Harish Bijoor, who had been associated with the conceptualisation of Cafe Coffee Day in its early days, told ThePrint that since Siddhartha’s death, the company has exhibited a degree of passiveness.

“When a company is on a roller coaster, they don’t have time to think. Cafe Coffee day got off this roller coaster on 31 July 2019 (the date of Siddhartha’s death). This gave the company good time to think and the perfect opportunity to redefine and reposition itself for the future. Not every company is presented with such an opportunity and CCD can and should make the most of it,” Bijoor told ThePrint.

At a time when PM Narendra Modi is speaking of Aatmanirbhar Bharat and being ‘vocal for local’, Café Coffee Day reinventing itself is a good thing, said Bijoor.

“Every product today is talking about being ‘vocal for local’; Siddhartha had this vision 20 years ago. Cafe Coffee Day was way ahead of its time, and this is the time for it as its direct competition is not of Indian origin. It is a 100 per cent desi brand,” Bijoor said.

K. Ganesh, founder and serial entrepreneur at GrowthStory, concurred that CCD has very good locations, brand recognition and nationwide distribution.

However, he said the real valuation of the company is a challenge. “Due to the pandemic, they may have to shut down half their outlets. But there is no doubt that as a brand, Cafe Coffee Day is still something to be reckoned with,” said Ganesh.