blue tokai: Specialty coffee startup Blue Tokai raises $30 million in funding led by A91 Partners

Specialty coffee brand Blue Tokai Coffee Roasters raised $30 million (Rs 245 crore) in its latest funding round, led by Mumbai-based investment firm A91 Partners. White Whale Ventures and existing investors including Grand Anicut Fund and 8i Ventures also participated in the funding round, which also saw some angel investors sell shares.

The coffee brand is expected to have been valued at Rs 650 crore, after the investment round, according to people familiar with the deal.

The Gurugram-based company’s latest capital raise comes on the back of other new-era specialty coffee companies, also attracting increased interest from consumers and investors.

Data from research platform Tracxn showed specialty coffee startups raised $41.1 million in 2022, up from $11.4 million in 2021.

The specialty coffee space includes companies such as Third Wave Coffee Roasters, which raised $20-25 million last year from WestBridge Capital; Slay Coffee, backed by Fireside Ventures, Alteria Capital and Rebel Foods; Sleepy Owl Coffee, Hatti Kaapi and Rage Coffee.

These startups compete with established chains such as Starbucks, Cafe Coffee Day, and Barista.

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Funds raised by specialty coffee brandsETtech

Blue Tokai plans to add 200 new stores over the next three years to add to its current footprint of 60 stores, Blue Tokai co-founder and CEO Matt Chitharanjan told ET.

Blue Tokai did not disclose its valuation, but Chitharanjan said its valuation tripled in its last fundraising. He also said that less than 10% of the amount raised, or almost $3 million, is a secondary component, while the rest is fresh capital.

“We started as an online and B2B business. It was only after two years that we launched our first cafe. Having a physical point of sale was important to interact with customers. expanding our presence in cafes, we realized that having people to try different products and guide them in finding the coffee they love has been very beneficial for us in building the brand,” said he declared.

Co-founder and COO Shivam Shahi said Blue Tokai has operations in nine cities and plans to expand to four more cities over the next 3-4 years. Shahi joined the company in 2016.
Blue Tokai’s cafes account for nearly two-thirds of its revenue.

Abhay Pandey, general partner at A91 Partners, told ET that with increasing availability, coffee is emerging as an alternative beverage choice in India.

“People are consuming more coffee, even in other countries like China, where there is a strong tea culture. We believe this will happen in India over the next 10 years and we will see high growth rates over this period,” Pandey said. “We are entering this virtuous circle of mutually reinforcing demand and supply in India.”

The company reported revenue of Rs 74 crore for the fiscal year ended March 31, 2022 and reports a revenue rate of Rs 150 crore for the current fiscal year, its CEO said, adding that Blue Tokai expected to become profitable by next year.

Launched in 2013 by Chitharanjan and Namrata Asthana as a roaster, the company has three roasters in Delhi, Mumbai and Bengaluru, and serves its pan-India operations from there.

Blue Tokai operates through three main verticals – physical coffee shops, e-commerce and marketplace channels, and B2B, through which it rents coffee machines to head offices and sells coffee products to hotels, restaurants and cafes.

“In addition to cafes, we will be investing in more sophisticated technologies for our B2B leasing business, as it has worked well for us over the past year. We also plan to have more products in our portfolio to boost e-commerce and marketplace activities,” Shahi said.

New age coffee boom

Chitharanjan said Blue Tokai operates in a space that is neither in the super-premium nor the mass-market category.

“Our prices are 20-30% lower than Starbucks but higher than Cafe Coffee Day. Our goal is to provide quality coffee to customers because we have found that once a customer has developed a taste for specialty coffee, it doesn’t come down to basic coffee products,” he said. Chitharanjan pointed out that coffee-producing countries have traditionally not been wealthy, but in India levels income have crossed a threshold where people are beginning to explore specialty varieties of coffee.

However, as interest rates rise around the world and discretionary spending is put on the back burner, coffee chains may be forced to rationalize customer acquisition costs.

“Given the current environment, the focus should be on expanding reach and distribution with effective spending on customer acquisition,” said Pandey of A91 Partners.

“In specialty coffee, opening more stores will be important in getting consumers to experience the product. As consumers increasingly try the product offline, they are more likely to develop the coffee habit and start consuming it at home by ordering online through brand websites or marketplaces,” said he added.

Pandey said that eventually “there will be 2-4 companies that will be successful at scale.”

“In coffee, one of them will most likely be Starbucks and the other 1-3 positions are up for grabs. Also, there will be room for smaller specialty coffee brands, which are viable businesses” , did he declare.

(Graphics and illustrations by Rahul Awasthi)