How Chaayos got its brew right
By offering customized tea, Chaayos has succeeded in cashing in on the opportunity in India where 30 cups of tea is consumed for every cup of coffee
New Delhi: In 2008, while he was living in Houston in the US, Nitin Saluja and his wife were craving a cup of tea after dinner but they couldn’t find a place that served a freshly-brewed cup of strong tea. That’s when the idea of starting a tea cafe came to him. Two years later, Saluja returned to India and discussed the idea of starting a chain of tea cafes with his colleague and friend Raghav Verma. Both were Indian Institute of Technology (IIT) graduates who worked together at software company Opera Solutions LLC. Both were also tea lovers and realized that a potentially lucrative opportunity existed for “a good cup of tea outside of home”.
The idea led to a lot of research on tea. The duo discovered that India was predominantly a tea drinking country, consuming 30 cups of tea for every cup of coffee. At the same time, they found that more than 1,500 cafes existed for coffee—and none for tea. “The value of tea consumed in the country today can be estimated at roughly Rs1 trillion; yet, most of this was inconsistent or unhygienic and not what the customer was looking for. This was a market ready to be disrupted,” says Saluja.
“We felt that chai had always been neglected and had not been given the treatment it truly deserved. It was one of those few daily consumption items that had seen no change in how it was consumed since independence,” says Verma.
It was an idea whose time had come, given the sheer size of the opportunity. This was no easy task as it required the creation of a new category. The acceptance of tea outside of homes was a daunting task. It took two years of thorough research to figure out consumer preferences that included a survey of people on the ground.
Saluja explains: “The basic premise was to do tea in a contemporary way so that modern audiences accept it. We created the “meri wali chai”—tea customized how you like it and how you make it at home so you can have an adrak (ginger) wali chai or a combination of adrak, tulsi, saunf, kali mirch with less milk or more milk or more water or less water. We were able to latch on to that. This has found a lot of love with the customer—the fact that the customer does not have to settle for any tea and they can get a good cup of tea exactly to their liking. Added to that was the ambience and the snack items that we introduced.”
The chai cafe and expansion
That is how Chaayos launched its first cafe in November 2012; since then, the chain has been adding outlets at a rapid pace, with more than 100% growth year-on-year since inception. In 2015, Chaayos had a total of 15 cafés in the Delhi/National Capital Region region and by 2016, it expanded to Mumbai with a total of 33 cafés in the country. Today, Chaayos operates in six cities (Delhi, Mumbai, Gurugram, Noida, Ghaziabad, Chandigarh) with 53 cafes. The promoter duo is confident of having a total of 70 outlets by March.
The chai cafe chain is giving a run for their money to coffee chains while gaining popularity among the millennials, defined roughly as those born between early 1980s and the early 2000s. Chaayos is not in a very competitive space though there are a couple of other tea companies that are offering the tea cafe experience. Bengaluru-based Chai Point, and Mumbai-based Tea Trails have flourished by offering an alternative ambience and greater variety, chipping away at the dominance that coffee chains, notably Café Coffee Day, have enjoyed so far. Besides tea, these cafes offered a variety of food items such as pakoras and egg buns that helped make the cafe a popular choice among the hungry office crowd.
According to Rahul Singh, president, National Restaurant Association of India (NRAI), “We are a tea-drinking nation and the need of the hour was to rejuvenate chai and give it a cooler look with a place to hang out with. Chai cafe market is still in nascent stages, but holds immense potential....if there can be 2,000 coffee cafes, I strongly believe there can be more than 10,000 chai cafes in the country. Chaayos has got the product right and with its contemporary-looking cafes, is getting a lot of traction with the youth.”
Recently, Chaayos launched its largest outlet at Mumbai Airport to target global travellers.
Says Verma: “The idea was always that we have to keep chai at the centre of everything. The core was always chai and then understanding what does contemporary India want to have in a shape and form that they would more readily enjoy. For instance, we came out with this range of iced teas with different flavours.”
Besides the beverage innovation, Saluja and Verma have also experimented with the food, keeping it Indian and meant for the local palate. There is the thepla tacos which is a fusion of the gujarati thepla served in tacos style with juicy paneer, or the palak patta (spinach) crispies that have jalapeño with a mayo base, mattar kulcha in a kullad (clay pot)—all hardcore Indian snacks that serve as an accompaniment to tea.
When regulars to Chaayos said that since they visited Chaayos several times in a day, they wanted some more substantial options. Again, it was time to improvise in sync with what a cafe could offer.
All the stores have a colourful ambience and quirky decor. No two cafes have the same decor. “Our stores look very different on purpose—since tea is a high repeat category and the same customers come again and again they should not get bored of the ambience.”
Investment and growth story
Chaayos is the only non-tech investment of Tiger Global Management in India. Back in 2015, the company raised its first round of funding of $5 million and since then, growth has accelerated with Chaayos delivery, which now constitutes 20% of the total business, with orders placed by office staff, housewives, students at colleges, and mothers at home. “The thought is very simple,” says Nitin. “Working women deserve or need that break. So, we have plenty of tea orders on a Saturday or a Sunday morning with working women ordering.”
Chaayos’s revenue has been growing at 300% year-on-year (YoY) and the firm aims to break even in 2018 at a monthly level.
According to the company, Chaayos had revenue of Rs27.28 crore in 2016-17 and reduced its loss by 55% from the previous year. The repeat customer rate of 42% month on month, is a major factor behind Chaayos’s growth.
According to Saluja, a couple of factors are responsible for the rapid growth. “Very early on, we focused on high customer repeat rate and tried to understand what is that experience or product, the hook by which we get repeat customers and today, we have a 42% customer repeat rate which is super-high and has contributed to this revenue growth. Two, adding different product categories both on the food and beverage side to be able to give you reason to come back to Chaayos and of course, adding more stores every year.”
The kettle of technology
Chaayos has invested in technology, and developed all its systems in-house, from the point of sale system and enterprise resource planning (ERP) to customer life cycle management, feedback and delivery software. Through an interconnected ERP system, Chaayos has linked its live inventory at cafes with the kitchen production to ensure wastage of food is negligible. The company is also able to track time taken from order to customer, and efficiency of each and every team member through app-based work station screens to optimize operations and deliver faster customer service levels.
“So, tech helps us not only from the customer perspective but helps us manage wastage and thus maximise operational efficiency,” says Saluja.
The firm is also automating the tea making process to maintain quality, and consistency in taste across all locations and reduce manual dependence. It has invested in a first-of-its-kind internet of things-enabled chai machine called Chai Monk, to bring consistency in all its chais across locations. These machines are in the process of deployment at all cafes, and will cover the entire Chaayos system by March 2018. Unlike a coffee vending machine, the tea machines will also have boilers.
“The idea is to replicate the same chai and make it consistent and eliminate any errors that may creep in manually. We use the same real ingredients, same exact process that is currently followed by hand. The machine just replicates all of this.”
The company also runs a loyalty programme—95% of customers are enrolled in its LoyalTea programme.
Through this, the company is able to understand its customer’s preferences for different occasions and suggest the right product. Additionally, Chaayos has developed a web app and website and most of the delivery business is now contributed by this web app.
Having made the initial breakthrough, Chaayos now faces a challenging future. In terms of customer experience of going to a cafe for a conversation over a beverage, it faces competition from heavyweights like Starbucks and Café Coffee Day. Its delivery service and product consistency still have some way to go.
Editor's Picks »
- Pidilite’s shares hold their ground despite weak rupee and rising crude
- Automobile sector shares trip on rising risks to earnings growth
- Steel companies are taking a shine to their home market
- Investments in HDFC AMC shares are subject to regulatory risks
- Spot electricity prices: Seasonal spikes becoming structural issue