DIL extends partnership with Costa Coffee as Starbucks renegotiates rent agreements with property owners

INDIA – Devyani International Ltd (DIL), the largest franchisee of Yum Brands in India, has extended its partnership with UK-based, Coca-Cola-owned cafe chain Costa Coffee.  

According to ET Retail, the agreement has initially granted DIL development rights for a period of five years and is extendable from time to time subject to meeting of development and contractual obligations. 

While Coca-Cola acquired Costa Coffee globally three years back, in India, Costa Coffee has been operated by rival PepsiCo’s exclusive and biggest bottling partner RJ Corp-owned DIL since 2005.  

The arrangement between DIL and Costa Coffee makes India one of the few markets where the UK-based Coffee chain is aligned directly with a PepsiCo bottling partner. 
 
However, in India, Costa Coffee – with just 44 stores – remains a small business, unlike scale players such as Starbucks and Cafe Coffee Day.  

DIL presently runs two formats of Costa Coffee stores—full retail at high-street locations and malls, and branded kiosks at airports, hospitals, and food courts at highways. 

The company was recently listed on India’s stock exchange, following its initial public offer (IPO) earlier this month to raise ₹1,838 crore. 

RJ Corp chairman Ravi Jaipuria in an interview with Et Retail has expressed confidence in DIL’s performance noting that he expected the division to turn profitable this financial year if there is no third wave of the Covid-19 pandemic. 

Starbucks renegotiating rent agreements

Meanwhile, Cafe chain Starbucks is renegotiating rental agreements with property and mall owners in India in light of covid-19 disruptions that continue to affect food service establishments across the country. 

Tata Group, the operator of Starbucks in India, had earlier engaged property and mall owners and restructured rental agreements till the end of the last fiscal year. 

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The company however continues to see the pandemic disrupt its businesses, necessitating the need to renegotiate rental agreements. 

“We are now going back to the landlords and having discussions again, saying this is a new phenomenon,” said Tata Consumer managing director Sunil D’Souza. 

Starbucks currently has 224 coffee chains across India and recently reported that 25-26% of its sales in India are now through deliveries, compared with single-digit sales two years ago. 

The company has however seen it dine-in business take a nosedive as consumers keep off public places in an effort to observe social distancing guidelines.  

ET Retail reports that Starbucks is not the only one as other top retailers and restaurant chains in India are now insisting on fresh clauses in new lease contracts to protect them from pandemic shocks. 

According to the Indian daily, most tenants are stating that they will not pay rent, or pay in proportion to actual business, if the government orders closure of stores and malls, along with a force majeure clause. 

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