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Aroma therapy

Business Standard - March 7, 2006
Smell the coffee. Not from a percolator, but in the midst of a coffee estate. And wake up to the collective birdsong from 300 different birds. If you're looking for a taste of plantation life, make a quick getaway to the coffee estates of Coorg, just a five-and-a-half hour drive from Bangalore. Tata Coffee will soon be opening its bungalows, once lived in by planters, for vacationers who love the outdoors. While it may be a great holiday idea for you, for the Rs 203 crore Tata Coffee, Asia's largest coffee company, it's a serious business proposition.

Says M H Ashraff, managing director, Tata Coffee, "We need to diversify into other areas so as not to become over-dependent on commodities." Ashraff believes that turning the plantations into a tourist retreat was a natural fit, especially since the company has around 20 bungalows. The gameplan is to initially let out 12 bungalows and then scale up operations. By the end of 2006, the company hopes to be able to let out 15 bungalows. Ashraff will not divulge any revenue targets.

But a back of the envelope calculation shows that at an occupancy rate of 50 per cent for 70 rooms, used for 200 days in the year at an average room tariff of Rs 3,000 per room (taxes extra), revenues could be in the region of a little over Rs 2 crore in a year. The F&B will bring in some more money: a meal for one costs Rs 250, or Rs 350 if you want it a little more elaborate. Breakfast is on the house. The initial investment hasn't been too large. It could cost Tata Coffee approximately Rs 10-20 lakh on average to refurbish each of the bungalows.

That apart, the company will be investing in housekeeping and waiting staff. Running costs are not likely to be too high, says vice president, corporate, Christine Jamal. A sound business idea? "Certainly a great way to sweat one's assets," says an industry watcher, "because the bungalows are lying vacant. At an initial investment of around Rs 3.5 crore and fairly low operating costs, the payback period should not be more than three to four years, provided revenues stabilise at Rs 2 crore.

However, it's clear that the business cannot be scaled up significantly, unless the company builds more bungalows. "We will look at expanding into the tea gardens later," says Ashraff, referring to the five tea gardens that the company recently bought. Also, with already more than 1,000 homestays in the Coorg area, Tata Coffee may not be in a position to raise room tariffs beyond a point, so it will need to offer something to differentiate itself. Any tips from Indian Hotels? "No," laughs Ashraff, "We're doing this our way; Plantation Trails is going to be different."