Caf Coffee Day Retail management

Project Report

Submitted to: Prof. T.K. Chaterjee

Prepared by: Abhinav Arya (2011007) Akshay Shukla (2011026) Garima Shah (2011076) Mohammed Ali Yasser (2011112) Manoj Kishan Solleti (20111196) Rishi Saluja (2011157)

CAF COFFEE DAY

Corporate Profile It was in the golden soil of Chikmagalur that a traditional family owned a few acres of coffee estates, which yielded rich coffee beans. Soon Amalgamated Bean Coffee Trading Company Limited, popularly known as Coffee Day was formed. With a rich coffee growing tradition since 1875 behind it coupled with the opportunity that arose with the deregulation of the coffee board in the early nineties, Coffee Day began exporting coffee to the connoisseurs across USA, Europe & Japan. In the calendar year 2000, Coffee Day exported more than 27000 tones of coffee valued at US$ 60 m to these countries and, for the second time in its short career of 7 years retained the position as the largest coffee exporter of India. Coffee Day has a wide and professional network in the major coffee growing areas of the country comprising over 48 agents and 50 collecting depots. Coffee Day's two curing works at Chikmagalur and Hassan cure over 70,000 tonnes of coffee per annum, the largest in the country. Coffee Day has a well-equipped roasting unit catering to the specific requirement of the consumers. The process is carried out under the control of experienced personnel to meet highest quality standards. The most modern technology available is used to maintain consistency and roast the coffee beans to the demanding specifications of the discerning coffee consumers. Coffee Day Comprises of the following Sub Brands Coffee Day - Fresh & Ground Caf Coffee Day Coffee Day Vending Coffee Day - Xpress
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Coffee Day Exports Coffee Day - Perfect Caf Coffee Day currently owns and operates over 1200 cafes in all major cities in India. It is a part of India's largest coffee conglomerate named Coffee Day, ISO 9002 certified company. Coffee Day's most unique aspect is that it grows the coffee it serves. Key Features Pioneers of the Caf Concept in India with the its first Caf at Brigade Road, Bangalore in 1996. This Caf was opened as a Cyber Caf (first of its kind) but later, with the burst of cyber cafes it reverted to its core competency Coffee. Essentially a youth oriented brand with majority of its customers falling in the 15-29 year age bracket. Each caf, depending upon its size attracts between 400 and 800 customers daily. It is a place where customers come to rejuvenate themselves and be themselves. USP of the Brand: Affordable Price Quality Coffee Winner of Platinum, Gold, Silver and Bronze medals at the India Barista Championship 2002. Product Sources: Coffee Day's most unique aspect is that it grows the coffee it serves in its cafes. CoffeeDay has a well-equipped roasting unit catering to the specific requirement of the consumers. The process is carried out under the control of experienced personnel to meet highest quality standards. The most modern technology available is used to maintain consistency and roast the coffee beans to

the demanding specifications of the discerning coffee consumers. The coffee beans are supplied to all the cafs from Chikmagalur. The eatables at Caf Coffee Day, Nagpur are catered by different vendors: example: ice creams are catered by Treat, Milk by Dinshaw and Bakeries by Redz. Caf Coffee Day also sells merchandise through its stores. 5 per cent of the revenue comes from sale of merchandise. Quality standards: Caf Coffee Day has a check on quality all the time and in several aspects. The operational incharge will go around checking business, record keeping service and check the feedback forms. The food in-charge will look at the way food is being stored, coffee is being made, what is the time take to extract the coffee and so on. Marketing person will go about checking displays, how the merchandise are displayed Merchandising: At Caf Coffee Day merchandise started more as a sentimental thing than as a revenue stream. They wanted to reward coffee lovers and they started selling mugs. People wanted to wear something that reminded them of the cafe so they designed T-shirts and sold thousands of those. But soon it has become a serious business. 5 per cent of their revenue comes from the merchandising.

Distribution Chain
Caf Coffee Day products can be classified into two categories namely coffee-based and noncoffee based. Since the distribution chain of the two products is different we will talk about them as different products. Apart from this broad classification, another category offered by Caf Coffee Day is merchandise available in its stores. 5 per cent of the revenue comes from sale of merchandise.

Coffee-based products: Amalgamated Bean Coffee Trading Company Limited (Caf Coffee Day) is a fully integrated coffee company, involved in every activity from growing coffee beans on its 5,000 acres of plantations through harvesting, roasting, blending, exporting and retailing. The value chain for coffee based products has four parts:
Coffee plantations Coffee Cultivation & Harvesting Coffee processing Processing, selection, blending & roasting

Cafe Storage & Grinding

Regional Distribution Centres Receive coffee from headquarters & sends to different cafes

Non-coffee based products: These products include eatables like sandwiches & pastries
and drinks like milk shakes. These products are usually procured from the local supplier which is a company-owned kitchen in case of metro cities and outside vendor in case of other cities. For non-coffee based products in cities where the number of stores is greater than 20, company opens its own kitchen which acts as the only supplier to all the outlets. For cities where the number of stores is less than 20, the work is outsourced to a local vendor on a six months contract. The company monitors and controls the quality of products supplied by these vendors.
Local company-owned kitchen or Cafe-coffee day store Storage Preparation & Packaging

Mapping of Supply chain outside vendor

Chikmagalur

Bangalore (South India Head Distributor)

New Delhi (North India Head Distributor)

Local warehouse

Local warehouse

Outlet

Outlet

Outlet

Outlet

Outlet

Outlet

Demand Forecast
Coffee- based products: Usually it takes a month before the order reaches the store from
the date it is ordered. The regional distribution centre collects demand forecast from the stores in the region and then sends the order to the company headquarters in Chickmagalur. Demand forecast for the upcoming month are based on the sales in the previous month. Other factors like festive season and setting of stalls in colleges are taken into account. Usually the formula is: Quantity Ordered = Sales in previous month*1.5 Present Inventory To take into account other factors a different methodology is used.
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Festive Season: To take care of increased demand due to festivals like Navratras and Diwali, data for last three years is analysed. Suppose the festival is in October and quantity ordered is based on sales in August then for the last three years percentage increase in sales in October as compared to August is calculated and mean is taken. This percentage increase is then multiplied with sales of august to calculate the order quantity. Quantity Ordered = Sales in previous month*(1.5+Percentage increase) Present Inventory College Festivals: For college festivals last years sales figure is directly added to the quantity ordered. Pooling of demand In cities where there are a few outlets demand is pooled to reduce uncertainty in the forecasted demand figures. Even in cities with a large number of outlets, 10-15 outlets in the same geography pool their demand to the same effect. Pooling of demand reduces the risk associated with stock outs at a single outlet and thus Caf Coffee Day is now using a factor 1.35 in place of 1.5 in places where demand pool is of more than 10 outlets.

Non-coffee based products: The demand forecast method is different for cities that have
company owned kitchen and for cities where these are supplied by an outside vendor. For Cities with company owned kitchen: Orders are placed on a daily basis. Each store is directly connected with the headquarters, other stores in the region and company owned kitchen through an integrated SAP system. Each store places its order through the online system before 8:00 PM. Demand forecast is based on the average of last three days sales figure of the item. For weekends (Friday, Saturday & Sunday) figures for last weekend are taken into consideration for calculating the average. For Cities without company owned kitchen: For such cities company selects a local vendor to supply non-coffee based products. Employees of the selected vendor are trained for two weeks
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to familiarize them with processes to be followed, ingredients and quality control procedures. Caf Coffee Day usually enters into a six month contract with the vendor and maximum quantity of all the items is fixed on the first of each month. There is no minimum quantity limit in the contract. Orders are placed by phone before 6:00 PM each day. Maximum quantity for each Item: Maximum Consumption on any day in previous month*1.25 All the vendors usually provide a credit of one month and the payments are made at the end of each month. If there is any dispute between the quantity supplied by the vendor and the quantity received by the store that the company pays for whichever is less. Vendors are responsible for the quality of preparation as well as the quality during transport. It is the responsibility of the vendor to arrange for proper transport till the items are delivered to the store.
Inventory management

Coffee- based products: Raw material for these products is coffee beans which are ground
in a special grinder once an order is placed by a customer. Since coffee beans are nonperishables and inventory carrying cost is very small, there is not much of a system for inventory management of coffee beans. While placing new orders present inventory of coffee beans is taken into account, other than this there is no inventory management for coffee beans.

Non-Coffee based products: Most of the non-coffee based products are perishable
products therefore inventory management is required. Each store follows FIFO (First in First Out) system for all perishable products. For inventory that is about to expire in two days the SAP system generates an alarm. For better inventory management usually stores in a locality follow a pooling system. In this system the store in which alarm is generated can send this item

to other stores where daily sales are comparatively higher or where there is a shortage of the item. This prevents loss due to decay.

Store-1

Store-2 Pool for Unsold Non-Coffee Based products

Store-3

Store-4

Implementing Technology:
Retail automation system was first deployed in retail outlets at Chennai. It is being introduced in all outlets in a phased manner. Stewards at CCD outlets are provided with Lipman NURIT 8010 Wi-Fi-enabled handheld devices. These come with an in-built microprocessor, thermal printer and smart card reader. Each outlet is provided with two to eight portable devices depending on the size and requirement of the outlet. The automation system has three modules: 1) Sales automation: Using the handheld device, a steward is able to connect to the kitchen over the Wireless LAN. He takes orders electronically, and prints out the bill on the spot. The order is fired to the kitchen, which starts preparing the coffee and snacks. Time taken from order placement to delivery has reduced to only 10 minutes now. Mismatched orders are reduced to almost zero as the bill is handed over to the
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customer immediately. This handheld device is also used for billing and can accept Credit/ Debit cards. Stewards can mark their attendance using a smart card, and the system keeps track of the number of transactions a steward handles in a day, thereby keeping track of his productivity.

2) Inventory management: The system also helps in supply chain management as it lists the raw materials required by each outlet. These details can be entered into the system which tracks raw material automatically and notifies when it needs to be replenished at a particular outlet. Also, it is wirelessly connected to a central computer system and can communicate with similar devices anywhere in the world in real time. Therefore, sitting in New York, one may find out with exact precision the happenings over a cup of coffee at CCD outlets located in Bangalore, Dubai or any other location. Hence Inventory management at outlets has become quite efficient. 3) Loyalty management: CCD has launched an effective Caf citizen loyalty program wherein a smart card provided to the customer stores all-important customer-related information such as his/her profile, likes and dislikes, previous visit to any of the CCD outlet, and so on. When this card is swiped on any of these NURIT 8010 devices anywhere in the world, all vital information is displayed on the screen to enable the front-end caf staff to serve him to the best of his satisfaction. For every purchase the customer accumulates points on the card and he may use these points and redeem the same on his subsequent purchases. Also, customers may register their

complaints/queries at the outlets, which is communicated instantly to the Customer Care staff that instantly gets going to provide solution to the queries

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Use of IT to manage Supply Chain

The supply chain scope is entirely made up of information, and the breadth of this information determines whether the scope is global or local. To make its scope global and to manage its complex and geographically dispersed business, CCD needed a packaged solution to handle production and supply chain management, so Caf Coffee Day looked for an integrated solution that could support its continuing rapid growth. After following a review of ERP solutions from major global vendors, Caf Coffee Day selected the SAP ERP application as the best fit for its requirements. As the new ERP environment would be critical to the smooth running of its business, Caf Coffee Day placed great emphasis on selecting the platform to run its SAP softwareand in backing it with a comprehensive support package. Since SAP software is based on Java, and it runs particularly well on UNIX-like operating systems therefore Caf Coffee Day opted to run its SAP ERP application on SUSE Linux Enterprise Server, based on the operating systems price-performance, reliability and scalability. Since CCD cannot tolerate any downtime for the SAP environment therefore using SUSE Linux Enterprise Server Priority Support for SAP Applications, gives CCD full reassurance that this business-critical environment will be up and running 24 x 7. Also Selecting SUSE Linux Enterprise Server as operating system for SAP ERP provided the required performance, reliability and scalability with low cost of ownership. To ensure effective support for the entire ERP solution stack, Caf Coffee Day selected SUSE Linux Enterprise Server Priority Support for SAP Applications, provided by Wipro Infotech. This joint support offering gave Caf Coffee Day a single support entry point, reducing complexity, accelerating problem resolution and cutting the total cost of ownership. The solution also provides seamless integration with SAP Solution Manager into the SAP Global Support backbone. SAP ERP plays a

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crucial role in helping CCD to manage internal operations and to maintain control over an extended supply chain. The rollout of SAP ERP has helped Caf Coffee Day to improve control over its business operations, enabling the company to maximize supply chain efficiency and cut costs while simultaneously improving the quality of service to its clients. The SAP software also provides detailed financial and management information for reporting purposes, supporting more effective long-term strategic planning and enabling targeted growth. SUSE Linux Enterprise Server provides an economical, reliable and scalable platform for SAP ERP. As Caf Coffee Day continues on its rapid growth path, this scalability will help CCD to expand the business without disruption and without incurring significant additional costs for the IT environment.

Supply Chain Strength/ Weakness

Again the supply chain of Caf Coffee Day can be analyzed in two different parts, one which extends from coffee plantations to stores and the other which forms the link between the stores and the customers. While in the last two years or so Caf Coffee Day has concentrated a lot on improving the supply chain from stores to customers by use of technologies like Wi-Fi but the same cannot be said for the supply chain from plantations to stores. Method of demand forecasting is very rudimentary with the only emphasis being on no stock outs totally ignoring inventory management. Moreover although all the stores are connected to each other and to the headquarters through a Tata Indicom network yet a store manager still has to order coffee products every month and non-coffee products every day based on forecasting.

Risk Management Issues

Three major risks that are involved in the supply chain of Caf Coffee day are:

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1. Forecast risk: There is a huge seasonality involved in consumption of coffee. Demand variation is large on a month by month basis. Moreover enormous lead times of nearly one month between the time order is placed and the order is fulfilled are involved. The method Caf Coffee Day is using to mitigate this risk is to multiply the demand forecast of individual store by 1.5 while ordering. This creates a lot of inventory in the system mainly at the stores. Thus pooling of demand can be a viable option for reduction of inventory. 2. Disruptions: This is another risk involved. Disruption in supply chain due to labour disputes or natural disasters is a source of worry. 3. Capacity risk: Cost of capacity in roasting is very high. Moreover limited availability of capacity outside the company in India is also a major risk as all other competitors like Barista use foreign vendors for roasting the coffee beans.

Demand Pooling
Let us assume that the average demand (normally distributed) for a store in a specified locality is 28,568 grams with a standard deviation of 653 grams. Also let us assume that the required service level is 99.99%. In this case the required inventory is: Inventory = 28,568 + 653*3.08 = 30,579.24 grams For 10 such stores the inventory will amount to 305,792.4 grams Assume further that there are 10 stores in the same locality with similar mean and variances in demand. If we pool the demand of these 10 stores then New mean = 28,568*10 = 285,680 New SD = (10*6532)1/2 = 2,064.97 Now the required inventory would be (for the same service level)
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New inventory = 285,680 + 2,064.97*3.08 = 292,040.1 Difference between the two inventories = 305,792.4 292,040.1 = 13,752.3 Thus to maintain the same service level we need an inventory which is lesser by 13752 grams if we pool the demands of a few stores in the same geography.

STORE LOCATION
1) Store location is usually decided based on research, or intuitive feeling about the expected footfall

2) CCD partners with multiplexes to open up its branches inside or just near them 3) CCD Lounges are special branches located in upmarket areas where residents have high disposable income

PRICING
1) Pricing is done strategically based on location and type of customer footfall 2) Separate pricing for branches around colleges and corporate firms 3) Variations in price among branches even within the city as well as between different cities

PROMOTIONS
1) CCD does not promote itself much in the media 2) Occasionally publishes print ads and is about to come up with a TV ad soon 3) Relies more on word-of-mouth and strategic store location for sales 4) Emphasizes on good customer service to boost word-of-mouth

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Conclusion
It seems Caf Coffee Day is using its infrastructure in a sub-optimal manner. Caf Coffee Day has all the required technological capabilities that can further improve its demand forecast and inventory management. Decisions like ordering coffee products and non-coffee products can be done by the system itself with the store manager providing necessary supervisory inputs like setting of stalls in college festivals. Moreover pooling of demand can reduce the inventory at stores substantially thus increasing inventory turnover. Resources: Caf Coffee Day, Head Office Bangalore Caf Coffee Day Outlet, Poonam Chambers Nagpur Caf Coffee day official Website

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