Home / Industry / Retail /  Are organized tea chains here to stay?

Bengaluru: In hindsight, Sangeeta Talwar may have been simply ahead of times.

Talwar was executive director (marketing) at Tata Tea Ltd in 2008 when she received board approval to open a chain of tea cafes. The idea made sense for India’s biggest packaged tea brand—after all, India is a country where tea is the hot beverage of choice for consumers.

Things didn’t pan out the way Tata Tea and Talwar hoped they would. The four Chai Unchai outlets that Tata Tea opened in Bengaluru in 2008, with plans to expand to other cities over time, downed their shutters within a year.

Because tea is a largely familiar concept in India, “the novelty of lifting it to stores was quite limited as opposed to, say, coffee", says Talwar, who is now a consultant at Flyvision Consulting.

Yet, less than six years after Tata Tea pulled the plug on its tea outlets, the concept of chai cafes has made a comeback. A clutch of entrepreneurs have managed to raise funds and set up 100-odd tea cafes and kiosks in India under labels such as TeaHalt, Chai Point and Chaayos, with the hope of finally cracking the market.

What has changed? For one thing, Indian consumers have become more willing to pay a premium for ready-made tea than they were half a decade ago. That has attracted more entrepreneurs to the space.

“Clearly, investors want to do a Starbucks pivoted around tea," said Abheek Singhi, senior partner and director at Boston Consulting Group.

India consumes roughly 20% of the world’s tea; yet, coffee has stolen a march over India’s national beverage when it comes to organized retailing. Cafe chains such as Starbucks and Cafe Coffee Day have expanded in recent years as their outlets turned into hangout spots for young people in a country where coffee consumption is a sixth of that of tea’s.

According to data from Euromonitor, the packaged tea market in India is estimated at a yearly 12,600 crore and expected to reach 17,600 crore by 2019.

Until recently, entrepreneurs haven’t been willing to take the risk of scaling up an unproven concept such as tea retailing.

“Very few people have paid attention to it," said Chai Point founder Amuleek Singh Bijral.

That’s changing, helped by the development of organized work spaces in large metros.

At one office campus in Bengaluru, for instance, Chai Point sells about 12,000 cups a day.

Identifying the opportunity was easy, said Nitin Saluja, co-founder of Gurgaon-based Sunshine Tea House that promotes tea cafe chain Chaayos, which raised $5 million from Tiger Global Management this year.

“That the market exists is a no-brainer," said Saluja, who quit a US job to start the chai cafes. “Everyone drinks tea every day, and it’s just a matter of access and getting the right cup."

According to Ash Lilani, head of Silicon Valley-based Saama Capital and an early investor in Chai Point, the tea market has received a global endorsement of sorts with Starbucks’s acquisition of Teavana—a high-end loose tea leaf store present across in malls in the US—in 2012, with plans to set up tea bars gradually, after the purchase of Tazo—a manufacturer and distributor of packaged herbal tea—in 1990.

To be sure, some analysts are still doubtful about the sustainability of pricey chai chains in the country. While there is demographic in the country to support the concept, it lies “at a price point that is much lower", said Dheeraj Sinha, chief strategy officer (South and South Asia) at Grey Worldwide.

A cup of chai at Chai Point, for instance, costs 20, while one at a roadside tea stall costs 5-10. Chaayos is hawking teas priced between 40 and 170, and TeaHalt sells tea for 10 at kiosks inside offices—at its cafe’s, prices start at 40.


Suneera Tandon

Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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