Third Wave Coffee Roasters’ Losses Surge Despite Revenue Growth

Third Wave Coffee Roasters, a Bengaluru-based quick-service coffee chain, witnessed a significant rise in losses during the financial year ending March 31, 2023 (FY23). The company reported a net loss of INR 54.3 crore in FY23, a staggering 272% increase compared to the INR 14.6 crore loss reported in the previous fiscal year.

Revenue Growth Outpaced by Rising Costs

This financial performance presents a puzzling picture. While the startup’s losses have nearly quadrupled, its sales also experienced a significant surge. Revenue skyrocketed by 356% to INR 144.4 crore in FY23, compared to INR 31.7 crore in FY22. This growth in revenue can be primarily attributed to the company’s expansion strategy, with the number of operational retail outlets increasing across the country.

Third Wave Coffee generates revenue through the sale of coffee and other food items, both online and through their physical stores. Including other income sources, the company’s total revenue climbed 351.8% to INR 144.6 crore in FY23, from INR 32 crore in FY22.

Breakdown of Expenses

However, the company’s expenses grew at an even faster pace than its revenue. Total expenditure for Third Wave Coffee shot up by 332% to INR 201 crore in FY23, compared to INR 46.5 crore in the previous year.

• Procurement Costs: The cost of procuring coffee beans and other ingredients witnessed a substantial increase, rising by 387% to INR 43.3 crore in FY23 from INR 8.9 crore in FY22.

• Employee Benefits: Employee-related expenses, including wages, gratuity, and provident fund contributions, nearly quadrupled to INR 57.6 crore in FY23 from INR 15 crore in FY22. This rise aligns with the company’s expansion and the need for additional staff at new outlets.

• Rent: The company’s rent expenditure jumped by 310%, reaching INR 43 crore in FY23 compared to INR 10.5 crore in FY22. This reflects the additional costs associated with operating a larger number of physical stores.

Financial Performance Indicators

Despite the significant increase in revenue, Third Wave Coffee’s EBITDA (earnings before interest, taxes, depreciation, and amortization) loss also widened. The company’s EBITDA loss rose to INR 38.7 crore in FY23 from INR 12 crore in the previous year. However, there was a slight improvement in the EBITDA margin, which moved from -37.8% in FY22 to -26.8% in FY23.

Funding and Competition

The company recently secured $35 million in a Series C funding round led by private equity firm Creaegis in September 2023. Existing investors, including WestBridge Capital and Udaan co-founder Sujeet Kumar, also participated in the round. To date, Third Wave Coffee Roasters has raised a total of $62 million in funding, with prominent names like Nikhil Kamath and Ayyappan Rajgopal among its backers.

In December 2023, the company undertook a restructuring exercise to “consolidate” its teams, resulting in layoffs impacting approximately 10% of its workforce, or around 80 employees.

Third Wave Coffee Roasters operates in a competitive market, facing challenges from established players like Starbucks and emerging rivals such as Slay Coffee and Blue Tokai. The company’s ability to optimize its operational costs and improve its financial performance will be crucial to its long-term success in this dynamic market.