A sharp LinkedIn analysis by growth specialist Unnati Bagga has sparked fresh scrutiny into the financial health of Third Wave Coffee, one of India’s fastest-growing café chains. Despite strong investor backing and an expanding footprint, the company continues to post steep losses.
According to its FY 2023–24 financials, the Bengaluru-based brand reported ₹120 crore in revenue but suffered losses exceeding ₹50 crore. Monthly cash burn is pegged at ₹4–5 crore, indicating a business model under serious strain.
Unit Economics: A Brewing Problem
With over 70 outlets in metros since 2017, Third Wave’s high-rent locations often demand ₹12–15 lakh monthly just for real estate. Each store costs ₹1–1.2 crore to build, taking more than three years to break even. Yet, monthly store revenues remain at ₹12–14 lakh well below the ₹18–20 lakh breakeven threshold.
While peak-hour occupancy reaches 70–80%, off-peak periods see utilization dip below 30%. Weekend traffic is notably stronger up to 2.5x that of weekdays—but insufficient to offset operational inefficiencies.
A Revenue Model Misaligned with Its Audience
Roughly 55-60% of revenues come from coffee, 30–35% from food, and 5–10% from merchandise and beans. However, only 15–20% of the customer base consists of true coffee enthusiasts. The majority are casual or convenience-driven visitors, leading to lower repeat purchases and high customer acquisition costs (₹800–1,000 per head).
Scaling Without Solving the Core
Post-funding, Third Wave scaled rapidly from 10 to over 70 stores within two years. This included a ₹15 crore central kitchen and spending where overheads consume 18–20% and marketing 12–15% of total revenue. However, the aggressive expansion outpaced the resolution of core business inefficiencies.
Tough Competition and Supply Chain Drag
The company faces stiff competition from Blue Tokai (with estate ownership and a stronger D2C model), Starbucks (brand dominance, higher AOV), and leaner packaged-product players like Sleepy Owl. Third Wave’s customer acquisition cost of ₹800-1,000 significantly exceeds the ₹400–700 range seen among peers.
Its supply chain adds further stress. With coffee sourcing costs 25–30% higher, 8–10% wastage, and no backward integration, the company remains highly exposed to price fluctuations and logistical bottlenecks.
VC Expectations vs. On-Ground Realities
The report highlights a critical tension between venture capital growth mandates and the slower maturity cycle of F&B retail. While VCs often seek exits within 5–7 years, coffee chains typically need 8–10 years to achieve sustainable profitability. The brand’s current focus on GMV and topline valuation appears misaligned with the operational realities of a café business.
Fix Before You Grow
Each store’s recurring shortfall of ₹4-6 lakh translates into systemic losses across the network. Without realignment of store-level economics, customer retention, and sourcing strategy, further growth could only magnify the losses.
Bagga’s analysis underscores the need for a pause-and-pivot strategy: recalibrate before the next cup is poured.
Also Read: Rajat Gupta’s Journey: From 1.5 Cr Salary to Repill Founder
