The specialty coffee scene is buzzing with news from Third Wave Coffee, a rapidly growing chain that’s making waves in the industry. Recently, the CEO, Rajat Luthra, announced that a remarkable 90% of their outlets are now generating positive earnings before interest, taxes, depreciation, and amortization (EBITDA). This achievement stems from a year of diligent efforts to refine their unit economics, paving the way for future profitability.
Expansion and Growth Plans
In an exciting move, Third Wave Coffee celebrated the opening of its 140th store—the second location in Chennai—this past Saturday. With ambitious goals set, the company is targeting 150 stores by March 2025. Their operational revenue for the fiscal year 2024 saw a staggering 67% year-over-year increase, reaching ₹241 crore.
However, the company did face challenges, as losses soared to ₹110 crore in the previous fiscal year. Luthra explained that these losses are primarily linked to their aggressive expansion strategy. He emphasized that while the company is in a stronger position than in previous years, the path of growth is never without its hurdles.
Strategic Insights on Growth
Luthra elaborated on the intricacies of expansion, noting that scaling from 120 to 150 stores is vastly different from the leap from 20 to 100 stores. He revealed that it typically takes 6-7 months for new outlets to mature and achieve break-even status. This delay in returns contributes to temporary losses during the expansion phase.
To enhance their unit economics, Third Wave Coffee has initiated several cost-optimization strategies. These include:
- Improved input sourcing
- Streamlined logistics management
By adopting a cluster-based expansion strategy, the company aims to keep logistics costs at bay while simultaneously enhancing operational efficiency.
Future Directions and Merchandise Plans
Looking ahead, Third Wave Coffee has set its sights on opening an additional 80-100 stores in fiscal year 2026, primarily focusing on existing markets. In a bid to diversify, the chain has recently ventured into retail sales with packaged products, backed by a newly established roastery and innovation lab in Bengaluru. Currently, merchandise contributes 3-5% to their overall business, but they aim to elevate this figure to 10-12% by next year.
Luthra is enthusiastic about expanding their merchandise line, which includes easy coffee bags and blends. The company plans to leverage quick commerce and collaborate with the HORECA (hotel, restaurant, café) sector to bolster sales. "Our vision is to evolve into an omnichannel brand, yet cafés will remain at the heart of our operations," he stated.
As Third Wave Coffee anticipates closing the current fiscal year with a revenue target of ₹300 crore, the company is also setting its sights on achieving profitability in the foreseeable future. With their innovative strategies and robust growth plans, Third Wave Coffee is indeed brewing up a storm in the specialty coffee market.
For coffee enthusiasts and industry followers, staying connected with Third Wave’s journey promises to be an exhilarating experience.
