After several rounds of retail price increases this year, India's coffee companies are now adding more chicory - a coffee substitute - and cheaper beans in their blends to protect margins and keep the brew affordable for price-sensitive consumers.
Coffee powder prices have risen 30% since January on the back of rising global prices, making it impossible for companies to absorb the higher cost of raw material.
Chicory is currently 10 times cheaper than coffee. Last month, one of India's largest coffee companies that owns a couple of best-selling brands, increased the chicory content in its branded sachets to 40% from 30%.
In Tamil Nadu, the last bastion of pure coffee in India, a top local brand well known for its chain of stores across Chennai and Bangalore, has now introduced a chicory blend to retain price-sensitive customers.
Companies are understandably reluctant to share their costing strategies but the practice is becoming increasingly widespread. "Chicory procurement has gone up significantly over the past 8-10 months, and the buyers are obviously big coffee retail chains and sellers of packaged coffee," an official of a leading beverage and foods firm that also retails coffee said.
Chicory makers confirmed the development. "Earlier most coffee producers were offering blends with up to 30% chicory. Now virtually all my customers have raised it to 47%-49%,' said S Jagdeesh Gupta, managing director, Jyothi Chicory, India's biggest chicory manufacturer that supplies to all the leading coffee companies.
PNR Vijayan, managing director of Jamnagar-based Springhaven Chicory, said the company's chicory sales are up 25% this year while prices have doubled to Rs 40 a kilo. The roasted and ground root of the chicory plant makes an excellent substitute for coffee. Chicory is more soluble in water than coffee. A kilo of pure coffee powder gives 100 cups. A one-kilo blend with 45% chicory gives 200 cups. That makes chicory blends popular with restaurants and commercial establishments.
Imported from France and introduced in India by Brooke Bond India Ltd in the sixties, chicory is now grown mainly in Gujarat. Gautam Duggad, a research analyst at brokerage firm Prabhudas Liladhar, said, "Companies are resorting to various methods to offset margin pressures and fluctuating commodity costs. This (blending more chicory) could be one of the ways."
A spokesman of Hindustan Unilever, maker of Bru brand of coffee, said the firm has not changed the percentage of chicory in its Bru coffee packs.
Gupta of Jyothi Chicory said even instant coffee brands, which did not use chicory earlier, have started buying roasted chicory cubes from Etah in Uttar Pradesh. "They can't use more than 30% because the decoction affects the machine walls," he added.
Chicory content can be up to 90% in the non-branded coffee segment. With no tests readily available to check for quality, consumers don't know what they are paying for, said Vijayan of Springhaven.