Café Coffee Day: A Case of Spilled Coffee!

Abstract

The case discusses a top listed coffee café company and the decisions it faced due to the sudden demise of its founder and chairman, V. G. Siddhartha. The reason for his death was attributed to the high level of leverage in the company, which led to the distress that forced the founder to tragically end his life. The family behind Café Coffee Day had a 150-year-long history of growing plantation coffee and had been able to successfully integrate this business with serving coffee using their own farm-grown product. The family had owned and operated cafés from 1996 and when, in October 2014, the company decided to launch an initial public offering (IPO) with the objective of raising INR 11,500 million, the issue was oversubscribed 1.81 times in the price band of INR 316–328. The company was thus listed on both the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) and started trading shares on secondary bourses. The case dwells on the question of what should be the optimal level of debt in a company so that it does not lead to financial distress costs rather than an increase in the value of the firm.

Also, after the Café Coffee Day founder’s death, how should the company deal with the present situation to sustain the empire by remaining afloat? Should it reduce the debt burden by selling some of the noncore assets, or should it sell the company to a competitor such as Starbucks or Barista and exit the coffee café business? What type of strategy should the firm apply to come out of this complex situation?

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

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