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

**Snigdha Sharma** (0:01)
There is a bright pink sign under the awning 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 Jim Jam dress leches to a pineapple cake. The same pink signs have gone up in Kodamangala, Sadashivnagar and Vijaya 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 big on cake. And it caps a long run of reinventions. First, Third Wave wanted outlets right beside Starbucks. Then, it packed its food menu with pizzas and paneer tikka 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 founder said it plainly to my colleague, The Ken reporter, Nuhab Ubere, No coffee place can live on coffee alone. The real game is getting more money out of every customer who walks in. That pressure is real for Third Wave, because in FY 2024, 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 dollars across 10 funding rounds. Investors were naturally getting nervous. So the company brought in a fixer, Rajat Luthra, 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 The Ken. I'm your host, Snigdha Sharma, and I don't chase the news cycle. Instead, every day of the week, my colleague Rachel Varghese 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.
So, 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 liches, Magnolia's most famous item. In fact, Third Wave even hired Magnolia's former head baker Ram Pravesh Gupta as its executive pastry chef.
The margins help explain the excitement.
Food earns Third Wave the least, around 15-25%.
Coffee sits higher, at 25-35%.
Desserts 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 Tokai store does 25-30 lakhs. So Third Wave has to sweat its space harder. Its cafe is run large, 500-1500 sqft, far bigger than a typical Theobroma. Those 200 dessert items are expected to lift revenue by about 20% on top of coffee. Divangshu Dutta of the consulting firm Third Eyesight framed the logic well. Desserts 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.

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