Daybreak - Third Wave built a coffee brand. Now it's betting against it

Episode Date: July 22, 2026

No coffee chain in India is clearly profitable. Third Wave Coffee, which lost 110 crore rupees in FY24 with nearly 70% of its stores in the red, is trying to change that with cake. Its new sub-brand, Third Rush, has put around 200 dessert items on the menu, with plans for 50 cafes by year-end. CEO Rajat Luthra, former head of KFC India, has already pared the losses. The dessert margins clear 50% and the chain badly needs the footfall. But customers walk into Third Wave for coffee not tres leches. Can desserts turn the business around without changing its identity? Apply to become The Ken’s Intermission Producer: https://the-ken.com/jobs/intermission-producer/Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

There is a bright pink sign under the owning at Third Wave coffee outlet in Indranagar. It says third rush. And it is a sign for desserts. The menu runs to around 200 items from a gym jam dress laches to a pineapple cake. The same pink signs have gone up in Koramangla, Saddashivnagar and Vijayak bank layout. By the end of the year, Third Wave wants Third Rush inside about 50 cafes. This is a coffee chain that is betting. bake on cake. And it caps a long run of reinventions. First, third wave wanted outlets right

besides Starbucks. Then it packed its food menu with pizzas and panir ticker wraps. And now the whole push is dessert. Here's the thing about coffee. People don't actually drink that much of it. Arrival chain's founders said it plainly to my colleague, the Ken reporter Noha Boberi. No coffee place can live on coffee alone. The real game is getting much. more money out of every customer who walks in. That pressure is real for third wave, because in FY 20204, the company lost 110 crore rupees on a revenue of around 240 crores.

Close to 70% of its stores were losing money. And this came after it had raised nearly 665 crore rupees, which is about $70 million across 10 funding rounds. Investors were naturally getting nervous. So, the company brought in a fixer. Rajat Lutra, who was the former head of KFC India, and he took over as the CEO. Third Rush is basically his brainchild. Which is why the desserts need to pull a much bigger job than you would imagine for this coffee chain.

They are meant to fix the business itself. Cakes, though, are tricky. Fresh ingredients spoil, wastage adds up, and holding quality steady across dozens of outlets is hard. So one question hangs over third rush. Is this the bet that finally turns third wave around or is it the more shiny distraction that is pulling the chain away from what it was built to be? Welcome to Daybreak, a business podcast from Le Ken. I'm a host Nikda Sharma and I don't chase the news cycle.

Instead, every day of the week, my colleague Rachel Vargis and I will come to you with one business story that's worth understanding and worth your time. Today is Thursday the 23rd of July. Why desserts of all things? Think about how people drink coffee these days. Many people want less caffeine, especially later in the day. And that leaves cafes quiet by the evening. Third Wave needed a reason for people to walk in at 7pm.

So the idea basically grew out of ice cream. Third Wave already sold it and customers kept asking for more variety. More flavors led to more experiments and that opened the door to desserts. To learn the category, Third Wave's managers studied Theobroma and Magnolia Bakery. Magnolia actually became the model, thanks to its fresh desserts and strong recall. That is why Third Rush sells five kinds of dress laches, Magnolia's most famous item. In fact, Third Wave even hired Magnolia's swamoh head baker Ram Praveh Kupta as its executive pastry chef. The margins help explain the excitement.

Food earns Third Wave the least. around 15 to 25%. Coffee sits higher at 25 to 35%. Deserts and seasonal drinks clear 50%, and they climb even higher when the cafe bakes them in-house. A footfall problem sits underneath all of this. Third Wave's average outlet pulls in about 15 lakh rupees a month. For comparison, a mature blue toky store does 25 to 30 lakhs.

So Third Wave has to sweat its space harder. Its cafes run large, 500 to 1,500 square feet, far bigger than a typical theobroma. Those 200 dessert items are expected to lift revenue by about 20% on top of coffee. The Wangshu Dutta of the consulting firm, Third Eye site, frame the logic well. Deserts and specialty drinks carry similar margins, so cake earns its keep another way. It lifts the average bill and keeps the cafe busy. He said, third rush runs on. impulse, giving cafe goers a social reason to step in beyond coffee. But to really understand

the gamble, you have to look at the man who's making it. More on him in the next segment. Hi, it's Brady here. You haven't heard my voice on Daybreak before, but I work with the Ken's podcasters, including Snigda and Rachel. I'm interrupting Daybreak right now because our podcast team is hiring for two roles, and you or someone you know might be a good fit. The first is the producer for intermission, which is our ultra-long-form video podcast where we cover one company per episode. The producer ties the whole team together and makes sure we meet every deadline and that each episode's release goes smoothly. This involves a lot of talking to people and influencing your colleagues, as well as using your judgment to solve problems before they happen. The second role

is the audio production intern. I feel like this one is self-explanatory, but basically Basically, you would help our brilliant technical producer, Rajiv, clean up recordings, and keep our studio running. You'll get exposure to a range of podcast formats, and I'm sure you'll finish the internship with a nice portfolio. Links to the details and to apply to these jobs are in the show notes, and if you know someone who might be interested, send them our way. Thanks.

For years, under the founder, Sashon Goel, thought we've expanded fast and and bled money. Investor trust slipped, which is why the company brought in Rajat Lutra, the former head of KFC India as the CEO. Lutra went after the costs. He standardized the menu across every outlet. Each item now has a written recipe written down to the milliliters of milk and the ounces of coffee in a cappuccino. The cost of opening a new cafe dropped from about one and a half crore rupees under Goyle to 80 lakh under Lutra. The result is also showed up. In the financial year 2025, losses narrowed to 94 crore rupees on a revenue of 285 crores. More than 90% of cafes are now profitable at the store level. In the financial

year 2026, the top line grew 25% while the losses shrank and third wave opened 84 new cafes. It plans another 100 this year. Lutra says that the company should turn profitable by the end of this financial year. If it does, it would be a first, because no coffee chain in India makes money yet. Even Starbucks, more than a decade with the Tata group, is still in the red. Third Rush was Lutra's idea. He kept it as a separate brand on purpose. So, a food push would leave the third wave name clean.

Investors are listening. The company is in talks to raise $100 million from existing backers, Westbridge and Kragis to grow third rush. Here is the tension, though. All of this efficiency has changed how third wave feels. New outlets are smaller and more uniform. One former manager said that the cafes now look more like a KFC than a Starbucks. Discounts and buy one get one deals have crept in.

Lutra waves off the worry and notes that the deals are not daily. The Wednesday offer for one exists to pull in traffic on a slow midweek day. And then comes the harder question. of identity. Theobroma sold to Christ's capital for more than 2,000 crore rupees, so desserts can clearly build real value. That took 13 years though, and a firm belief that dessert was the whole point. People walk into Theoboma for cake. They walk into Third Wave for coffee. Turning one to the other is a climb that Third Rush faces. And Third Wave has built a habit worth noting. It chased Tabak locations when it expanded

and then borrowed Blue Tokai's food playbook and now it is trailing Magnolia and Theobroma into dessert. This time, the plant does look sharper and a strong product could truly pull people in. But it is also possible that it turns into one more detour away from what third wave set out to be. If that is how it lands, no amount of trace letches will sweeten the result.

Daybreak is produced from the newsroom of the Kempark India's first subscriber-focused business news platform. What you're listening to is just a small sample of a subscriber-only offerings and a full subscription offers daily, long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the ken.com and click on the red subscribe button on the top of the website. Today's episode was hosted and produced by my colleague, Snitha Sharma, and edited by Rajiv CN.