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Third Wave Coffee

  • Writer: Jinal Sanghavi
    Jinal Sanghavi
  • 8 hours ago
  • 7 min read




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In this episode, we are excited to unpack the third wave coffee revolution that's transforming how we experience this coffee in India as well as dive deep on the business model of Third Wave Coffee, founded in 2016 as a Koramangala roastery-café by Sushant Goel, Ayush Bathwal, and Anirudh Sharma, that is leading this shift in a fast growing $1 bn market. With 200+ cafés across 12 cities, they prioritize coffee-first experiences, innovative beverages, and community spaces, challenging giants like Starbucks in urban neighborhoods for GenZ and millennial customers.

Learn more about the coffee industry, evolution of cafes in India, Third Wave Coffee's story to a professionally managed company and more. Do let us know if you enjoyed this episode!


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Episode Notes

Lazy to listen to the whole episode? Fair enough. Just scan through our notes below and maybe that'll entice you to give us a shot. We're not just any other podcast. We bring perspective and stories to the data, facts and business models.



The Third Wave Coffee Revolution

In the first wave of coffee, coffee consumers generally did not differentiate by origin or beverage type. Instant coffee, grocery store canned coffee, and diner coffee were all hallmarks of first wave coffee. First wave coffee focuses on low price and consistent taste.


The second wave of coffee began in California in the late 1960s where few stores began sourcing from artisanal producers, and roasting and blending with a focus on highlighting not only countries of origin, but also their signature dark roast profile. Peet's Coffee inspired the founders of Starbucks of Seattle, Washington. The second wave of coffee introduced the concept of different origin countries to coffee consumption, beyond a generic cup of coffee. 


Third-wave coffee is associated with the concept of specialty coffee, referring either to specialty grades of green (raw and unroasted) coffee beans (distinct from commercial grade coffee), or specialty coffee beverages of high quality and craft.


The "Third Wave" movement i.e post-2000s US coffee revolution is identified by:

·       Single-origin, high-quality beans over commodity blending

·       Artisanal roasting and preparation with transparency

·       Direct farmer relationships and ethical sourcing

·       Coffee-first positioning over food/space


World over, coffee is a ~$120B Market and the 2nd largest traded commodity after oil.

US ranks 1st on the list of top coffee drinking countries.Northern Europe dominates coffee consumption per capita. Arabica and Robusta are two major types of plants used to make different sub-branches of coffee beans with different palette notes, flavors, and caffeine content.


The Cafe Evolution in India

The modern Indian cafe story as we know it started in earnest with the launch of Cafe Coffee Day, or CCD, in 1996. 


CCD was founded in 1996 by V.G. Siddhartha, a first-time entrepreneur from Karnataka, India. To attract customers, CCD focused on offering high-quality coffee, freshly brewed in front of the customers, and a comfortable environment for socialising, studying, or conducting meetings. 


Then on back of Friends success and “Central Perk” came Barista in 2000 - It was the first “specialty coffee” cafe in India. Barista pioneered a modern, clean layout, with magazines, board games and guitars encouraging consumers to spend more time there. 


Covid-19 outbreak was “a blessing in disguise” as it led to a spike in coffee consumption, and artisanal brands witnessed a manifold increase in sales. As more Indians moved up the value chain, they also moved from commodity to speciality coffee. Drinkers started to explore how people are beginning to understand how coffee is grown, processed, and sourced.


Key Players in the Cafe Business in India

  1. Starbucks - 

    1. 504 Stores in 81 Cities

    2. Very low 3% same store growth

    3. 12 New Stores this Quarter

    4. 1300 Cr Revenue + Loss Making

  2. CCD

    1. 1100 Cr Revenue + Loss Making

    2. ~ 450 Outlets - Reduction to manage heavy debt and financial challenges

  3. Blue Tokai

    1. Blue Tokai Coffee Roasters: Founded 2013, ~110 outlets across 10 states, revenue of ₹74 crore (FY22) with 80% growth, backed by investors including Deepika Padukone, A91 Partners; raised $35 million in Series C (2024)

    2. They have expanded Internationally as well - Japan and now UAE plans


Company overview

Third Wave Coffee is fundamentally a coffee-first café QSR (quick service restaurant) chain, with a focus on the in-store experience: beverages, food, social space, and atmosphere in urban neighbourhoods and transit hubs


In 2016, Third Wave Coffee started as a small roastery in Bengaluru in Kormangala with initial focus on B2B – supplying roasted beans to cafes and restaurants. "Back then, people didn't go to cafés for coffee—they went for the space and food. Coffee was incidental. We wanted to create a coffee-first experience." — Anirudh Sharma, Co-founder

The roastery became a differentiator, merging transparency, quality, and experiential retail. Below is its timeline from inception to scale, till date.

2017: Opened first retail café in Bengaluru's Koramangala neighborhood; Validated product-market fit with strong customer response; Focused on perfecting the coffee experience before scaling

2019:Began controlled expansion within Bengaluru; Developed standardized operating procedures; Built supply chain relationships with Indian coffee estates

2020-2021: Despite COVID-19, raised significant capital;  Pivoted to delivery and retail coffee products; Accelerated digital ordering capabilities

2022 - 24: Aggressive expansion across multiple cities;  Crossed 100+ store milestone; Became one of India's largest specialty coffee chains


Founders & Leadership Team

  1. Sushant Goel (Co-founder & Former CEO): Served as CEO until March 2025, transitioning to board role under new CEO Rajat Luthra

    1. As CEO, Goel was instrumental in scaling Third Wave Coffee from a single roastery/café in Bengaluru to 100+ outlets across multiple Indian cities.

    2. He played a central role in business strategy, fundraising, investor relations, and expansion during the company’s formative and growth phases.

  2. Ayush Bathwal (Co-founder): Technology and operations background

    1. He is known for his technology and operations focus, helping build the operational foundation of the business, from systems and processes to scaling delivery and customer experience.

  3. Anirudh Sharma (Co-founder): Product and sourcing expertise

    1. Anirudh Sharma is a co-founder with a strong emphasis on product strategy, sourcing, and coffee quality.

    2. He has been a key driver behind the product offering and supply chain — particularly sourcing high-quality beans and building out the specialty coffee experience across venues.

  4. CEO Rajat Luthra

    1. Rajat Luthra was appointed CEO of Third Wave Coffee effective from the first quarter of the FY 2024-25 transition, succeeding Sushant Goel in the top operational role.

    2. Luthra brings nearly three decades of experience in the Fast-Moving Consumer Goods (FMCG) and Quick Service Restaurant (QSR) sectors, having previously served for about 10 years as CEO of KFC India & Nepal (Devyani International) — one of India’s largest quick-service food brands.


Financial Strategy

  1. Retail Store Sales (Core Driver:

    1. In-store espresso drinks, pour-overs, cold brews

    2. Average transaction value: ₹300-450 ($3.50-$5.50)

    3. Peak margin stream given direct customer interaction

    4. Coffee bags and branded merchandise

  2. Wholesale & B2B (Growing Segment)

    1. Bulk bean sales to corporate offices, restaurants, hotels

    2. Recurring revenue with lower customer acquisition cost

    3. Enables brand presence beyond owned locations

  3. Direct-to-Consumer (DTC) / Subscriptions

    1. E-commerce coffee bag sales via thirdwavecoffeeroasters.com

    2. Subscription model: recurring monthly coffee deliveries

    3. Higher margins (50-60%) vs. retail

    4. 15% YoY growth in specialty coffee DTC segment

  4. The cost structure is ~30% over 3 big heads:

    1. Employee Costs: Includes expansion team hiring, training infrastructure buildout. This will normalize as stores mature and central functions leverage across larger base.

    2. Material Costs: Direct correlation with 67% revenue growth + new roastery setup. Cost of goods should stabilize at ~35% with volume purchasing power and supply chain optimization.

    3. Rent : Each new store adds ~₹80-120L annual rent. However, rent/sq.ft. economics improve with mix shifting to smaller format stores and secondary cities.

  5. Key investors: Series C, likely valued at ~$150MM

    1. WestBridge Capital: Tier-1 India VC, strong board relationships and exit network

    2. Creaegis: PE firm focused on consumption, operations-led growth

    3. Sujeet Kumar: Instamojo co-founder, payment rails expertise relevant to coffee franchise model

    4. Arpan Sheth: Early believer, likely strategic value


What is Required to Win in the Coffee Business?

  1. Consumer Understanding:

    1. India is price-sensitive yet aspirational - must deliver value perception

    2. Not just convenience product - hospitality and experience matter deeply

    3. Long dwell times (2-3 hours) vs Western quick turnover model

    4. Localization is non-negotiable - one size doesn't fit all across India

  2. Strong real estate strategy: Footfall-oriented sites matter - neighbourhoods, business districts, transport hubs, emerging urban markets.

  3. Rapid expansion must be balanced with solid unit economics and cost control - especially in rent-intensive café formats.

  4. While Third Wave’s packaged portfolio is receiving traction in ecommerce and quick commerce channels, the brand is yet to tap the HoReCa segment

  5. Businesses that look cooler, for example, like coffee, have it much difficult in making money. While the wave of Coffee sellers has made it a buyers market in some ways, coffee continues to chase the kind of premium buyer whose numbers remain a matter of conjecture in many way. Like all retail businesses in India, the impact of rent remains disproportionate, and offers no relief really in a market that is still overheated, if not as piping hot as some of the coffee Third Wave offers. The path to profitability remains distant for now, even as Third Wave’s regular customers should be reassured that their preferred chain has enough runway to serve them for some time yet.

  6. China offers great hope for investors and promoters in these companies, but we believe that it will be very difficult to replicate the China success in India because of the following:

    1. The gap in purchasing power parity. The average income in China vs. the average income in India The proportion cost of a coffee is not comparable at all.

    2. Real Estate Economics - China has Large, planned commercial hubs with Predictable footfall but India has Fragmented real estate with High rents

    3. Amongst other reasons Luckin succeeded because of - App-only ordering that means lower cost of serving the customers 


The Moat Question: Is customer loyalty and brand enough when cafés are easily replicable? What stops Blue Tokai or Starbucks from copying everything?



 
 
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