V.G. Siddhartha founded Café Coffee Day (CCD) in 1996 in Bangalore with an initial capital of Rs. 1.5 crore. The first CCD café was started in Brigade Road, where it sold coffee for Rs. 25 a cup and offered internet services. This idea attracted the youth, mainly IT professionals. CCD soon became a symbol of urban culture, selling espressos and lattes where people drank filtered coffee predominantly.
CCD expanded across the country to 1600 plus outlets in various cities. It soon became the largest coffee retailer, and the brand focussed on attracting footfalls than pricing. The company went public in 2015 and became a dominant player in the coffee chain retail segment. It posted a net profit of Rs. 8.03 crores, Rs. 48.94 crores and Rs. 60. 27 crores in FY 2017, 2018, and 2019, respectively.
However, from the operational aspect, things were not smooth. In its quest for expansion, CCD accumulated a debt of Rs. 6328 crores which rose to Rs. 6574 in 2019. The promoters had pledged their shares worth R.s 3522 crores to raise loans, and in one instance, the Income-tax department uncovered Rs. 650 crores of unconcealed income. Facing pressure from the equity partners to buy back the shares, harassment of lenders and income tax officials led the founder V.G Siddhartha to commit suicide. It was revealed later that CCD had a debt of around 11000 crores. Shares of CCD tanked.
The New CEO of Coffee Café Day
Malavika Hegde was a non-executive board member of CCD and wife of V.G Siddhartha. She studied engineering at Bangalore University, married V.G. Siddhartha in 1991, and has two sons. Coming from an influential family in Karnataka where her father, S.M. Krishna, was a politician and was former Chief Minister and External Affairs Minister of India.
As a non-executive member, she did not draw any salary from CCD but owned four percent stock. Life for her changed 360 degrees after the death of her husband in 2019. After knowing about the 7000-crore debt of Coffee Day Enterprises Ltd (CDEL), she took over as CEO in December 2020. Earlier she was in charge of day-to-day operations since 2008. Hegde made her first public statement in July 2020 to the 25000 employees of CCD and committed that Café Coffee Day as a brand was worth preserving and keeping it going in the future.
The turnaround
The total debt of CDEL was around 7200 crores when Malavika Hegde took over as CEO. Thousands of jobs were at stake for CCD employees, and she had to keep the company viable. She managed to bring down the debts to 1731 crores by March 2021. This was bringing down the debt by 75% and that too at the time of Covid. She stood up to the challenge and paid 1644 crores to the lenders.
CDEL got an undisclosed amount from Blackstone, a Private Equity Firm in the U.S., and sold its stake in Mindtree ltd, which helped reduce debt. The shares of CDEL have risen by 68% February 2022, beginning to Rs. 71.80. The resilience of the new CEO has put the company back on track and has given investors optimism. Though the CDEL is still loss-making, it is in a revival mode given its performance in 2021.
Financial performance
CCD has posted an income of 154.45 crores in the quarter ending September 2021, showing a 75% growth of its previous quarter. Total operating expenses were also down to 198.13 crores against 317.93 crores for the same period in the previous year. This has resulted in the company reducing its operating loss from a high of 262 crores to 84 crores in September 2021. CCDEL currently has 518 crores debt that includes both short and long term.
CCD presently operates 572 café outlets in 165 cities and 333 CCD Value Express Kiosks across hospitals, airports, and corporate offices. The total number of CCD vending machines serving coffee to customers is 36,362 at the moment.
Proving others Wrong
Malavika Hegde, after taking over, wanted to uphold the legacy of her husband and took up the challenge of reducing the company debts and growing the business along with motivating and nurturing the employees. The death of VG Siddhartha came as a shock to the business community and his wife, who was a witness to her husband’s idea and business launch and was a part of CCD since inception.
Malavika Hegde faced an uphill task when she took over. CCD was facing massive debts, the founder had committed suicide, and lenders, investors and authorities were breathing down the neck. CCD was on the verge of closure, and its shares were suspended from trading on the day the news of suicide broke.
Reducing debt was not easy. The company, despite the pandemic, took some strategic steps and paid off lenders and got new investments to keep it going. Hegde is in the process of reviving the CCD, with key financial indicators showing a positive turnaround. The effort is to keep its outlets operating smoothly and standing up to competition from others, including Starbucks.
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