British coffee chain Costa Coffee has reworked its India strategy to turn profitable and expand its footprint. The new strategy involves closing unprofitable locations, segmenting strategy for different locations, changing the look and feel of outlets and customising the menu to better suit the Indian palate.

The chain, which has a master franchisee agreement with Devyani International, a subsidiary of Ravi Jaipuria owned RJ Corporation, is looking to expand only at metros. According to Santhosh Unni, who took charge as the CEO of Costa Coffee last year, the company went through its share of mistakes before setting the model right.

“The biggest mistake was to try and replicate the same UK model in India, when it was launched in 2005. We found that the UK model is not working in India where people look at coffee shops as a meeting place. So we had to alter the format and the ambience of the chain,” Unni said.

The chain had also made the mistake of opening stores at wrong locations.

“We took lease rentals at a very high price. That hurt us a lot. As a part of the consolidation process we decided to shut down 10 to 12 stores” he said. At present, Costa has 40 outlets operational across India.

The company is now planning to open stores only in the metros. “We will not go to tier II and III cities at least in the next three to four years. Since Costa is an urban format, location plays a crucial role,” he said.

The company is planning to expand its outlets more than six fold to between 250-300 outlets by 2014.

“We want to penetrate more in the south because that covers three important metros and there is a huge coffee drinking population,” Unni said.

As part of the restructuring, Costa will have four key formats situated at airports, malls, high streets and IT parks. “We have also introduced something called the off premise business where we are setting up kiosks in marriages, and seminars meetings. This has become our most profitable venture till now,” he said.

Costa is now seeing a ‘profitable’ 24 per cent growth in the last quarter of 2009. “We are hoping to see 15 to 17 per cent growth this year too. This will cover the losses that will take place for setting up new chains,” he said.

The chain has also introduced innovation in terms of Indianising the menu.

“We have introduced something called Mogiano, which is a combination of Mughlai and Italian to suit Indian tastes,” Unni added.