A cold winter evening leaves one yearning for a hot beverage. And no matter how much of a cappuccino person you are, no other drink can slake that thirst as well as a steaming glass of elaichi-adrak masala chai. In fact, so sure are the founders of tea café (a misnomer though that might be) chains such as Chai Point, Tea Trails and Chaayos about their offerings that they think you will spurn the CCDs of the world for their doors. “The consumption of tea in India is ten times that of coffee. While there are nearly 3,000 cafés dedicated to coffee, there were no comparable upmarket places for tea. This is why we decided to go ahead with Chaayos,” says co-founder Raghav Verma. Along with Nitin Saluja, Verma launched his first tea café in November 2012, taking the number to 25 — two in Mumbai and 23 in Delhi NCR — by 2016. “We have stores at DLF Promenade, GIP Noida and Connaught Place in Delhi and Bandra and Juhu in Mumbai.” Verma adds that Chaayos’ very first outlet — at DLF Cyber City in Delhi — received a huge response in its first month of operations. “We started with an average footfall of 100-150 per day and broke even by the 3rd month,” he says. “It was a great testing ground for us. People loved our products, after which we introduced new items in the food and chai categories,” explains Verma, adding that the current average footfall at the same branch is 700 a day.
Uday Mathur, co-founder of Tea Trails, started off in much the same way, with the first outlet of his tea café chain being launched in December 2013 at Viviana Mall in Thane, near Mumbai. “Starting out, we saw a good response from consumers. The average footfall was around 200-250 per day back then; now, it has touched 400-450 per day,” he says. With nine cafés in Mumbai, Tea Trails is planning to launch the next five across Mumbai, Delhi, Hyderabad and Chennai. “The only dependable source of tea for the public so far was their local tea vendor selling cutting chai. There were no restaurants that sold good tea as well. So, we simply aimed to provide people with a wonderful cup of tea,” he explains. Mathur, who also founded Eurokids, travelled the world with his wife — and Tea Trails co-founder — Kavita, studying teas and visiting tea gardens across the world. The nearly 100 varieties of tea offered at their cafés are sourced from China, Japan, Turkey, Sri Lanka, Darjeeling and Kangra. “We also serve mocktails with tea blends,” he says. The café abstains from the use of tea bags and prefers whole-leaf tea. Of course, Mathur and his chain are sticklers for the quality of water used, the temperature at which the tea is brewed and the time for which it is steeped. “We provide sand timers for each brewing, which makes it a little mini tea ceremony for us,” he smiles.
According to a report on Indian café and tea bars published by Technopak in 2015, the size of the market is around Rs.1,820 crore — growing 20% in value each year — and constitutes 27% of the overall café and tea bar market, which stands at Rs.6,750 crore. The market is made up of 3,500 chain and standalone tea and coffee bars and is expected to touch 6,200 over the next six years. The report points out that while tea bars are relatively new in the market, they have been growing continuously since 2008 and are 250-strong across the country at present. The earliest entrant and also the largest player is Chai Point, started by Amuleek Singh Bijral in Bengaluru in 2010. Run by Mountain Trail Foods, Chai Point has 90 stores with 600 employees across six cities. The company, however, chose not to participate in the story.
Besides independent café chains, even branded tea manufacturers have set foot in this market. While HUL has tea cafes under the Taj Mahal brand, regional player such as Wagh Bakri has opened seven tea lounges. Sanjeev Raikar, research analyst at Euromonitor International, says, “These ventures not only act as an additional source of revenue for the manufacturers, but also as a medium for promotion for their off-trade brands, especially their premium tea offerings. Such ventures will continue to grow as they leverage the fast-growing premium tea market in India.”
Brew-haha over tea
Perhaps the dramatic flourishes around tea are understandable in a chai-drinking country like India. “We’re not only offering a wonderful space but also a great product,” says Verma of Chaayos. And since every community has its own ideas about what to put in tea and how, the company gives people the option of customising the final product. “Some people like ginger, pepper and cinnamon with very little milk, some with less water. We thus came up with our desi chai concept, a best-seller that offers up to 12 add-ons that can be customised in about 12,000 ways,” he explains. About 80% of the orders at Chaayos are for milk-based teas, with kulhad chai, God’s chai (Kangra tea), lemon grass and Moroccan mint flavours bringing up the rear.
Chaayos currently sources its ingredients from various fixed vendors across India. While Tea Trails makes its food fresh at its outlets, Chaayos follows the concept of a central kitchen, from where ingredients are dispatched to café kitchens each morning to be assembled and served hot. “We have a central kitchen each in Delhi and Mumbai. Here, we prepare various tea blends and send them across to the cafés,” explains Verma. Mathur of Tea Trails says the brand ensures standardised offerings by putting certain checks in place. “For example, we have fixed 150 sq ft as the kitchen space needed at each outlet. We use standardised equipment and our recipes are all standardised.” The café ties up with local vendors for all its requirements, with teas being sourced from India and abroad. Tea Trails also operates a central warehouse in Mumbai, where the café does its own packaging in single serving form.
Besides cafes, Chaayos also runs kiosks that offer chai in a to-go model at IT parks in Noida. “We are in talks for setting up four or five more such kiosks. “We witness average transactions of about 300 a day at these alone,” says Verma. Talking about their biggest challenges so far, both Mathur and Verma say high rentals are a pain point. According to Ravindra Yadav, associate director, food services and agriculture, Technopak, real estate is the second major cost component after raw materials. “After the challenge of getting the right number of people for the cafés, the next big thing is the cost of real estate. It’s very tough to get the right property at the right price,” says Verma. “Increasing rentals and less availability of premium real estate can take this cost to 20% and above, resulting in narrowing of profitability. To keep a check on the same, these tea joints normally operate from small shops or those that are not in a premium real estate zone,” he says.
Little wonder, then, that these chains are also looking at delivering beverages as an alternative source of revenue. Chai Point is offering its hot beverage delivery through its Chai-on-call service. With an all-electric delivery scooter fleet of more than 60 bikes, the store offers tea in a disposable flask that can retain heat for more than one hour. Chaayos has partnered with IRCTC and is already delivering chai through Tiny Owl, Swiggy and the likes, while Tea Trails has tied up with Zomato and beverage delivery companies such as ThirstCart and clocks about 10 orders per day currently. In the case of Chaayos, customers have to order a minimum of two cups of chai for delivery, translating into an average ticket size of Rs.119.
Yadav, however, is skeptical about the scope of this offering. “The delivery business is only for holding on to the customer; it can’t be a profitable business proposition due to the small ticket size and added cost of delivery and packaging. Brands doing bigger volumes and higher ticket sizes might still succeed,” he says. Verma agrees with this logic, since the ticket size for deliveries at Chaayos is much more than that at the outlets. “For now, we are only delivering milk-based teas and haven’t yet moved to international blends,” says Mathur. These cafés also sell packaged tea blends at their outlets and on e-commerce platforms like Amazon. “We offer 20 varieties of teas, with the best ones being served only at our stores. Our next step would be to retail on food-on-the-go portals,” says Mathur, adding that the outsourcing delivery fee ranges between 10% and 20% per order.
Though this is a relatively new concept, investors have evinced interest in the emerging beverage space. Tea Trails, which started off with an initial investment of Rs.4.5 crore-5 crore by the promoters, raised Rs.6.7 crore from HNIs last year. Chaayos, which started with an investment of Rs.25 lakh, received angel funding of Rs.2 crore. The firm also last year raised Rs.32 crore from Tiger Global, which has been deployed in setting up new outlets, technology upgradation and marketing. Chai Point also managed to raise $10 million last year.
The smart investors backing these chai chains know that it is not enough to just offer a hot cuppa to keep customers hooked. This is why the cafés are also working hard to improve their food offerings. “Our food section comprises about 40% of the total menu and features items that people might like to have with chai. We serve kheema pav, flavoured bun maska and a variety of sandwiches,” says Verma. Similarly, Mathur of Tea Trails talks about the tea-infused food recipes on offer at his café. “Our Burmese tea salad uses fermented green tea and it sells very well,” he adds.
While the prices for Tea Trails start from a basic tea costing Rs.70-80, exotic ones could cost as much as Rs.200 per person. Verma of Chaayos has restrained his pricing, on the other hand, given his target audience. “Our focus is on working men and women in the 21-45 age group. To position ourselves as more reasonable than most coffee chains, we have priced our offerings from a minimum of Rs.49 for a cup, which may go up to Rs.129 for teas such as Darjeeling, honey ginger and aam papad.
Mathur makes 70-80% gross margins per cup of tea, while for food items, margins range between 60-70%. Tea Trails is currently clocking a current turnover of Rs.70 lakh a month from its total 17 outlets (a little over Rs.8 crore), and is expecting to double revenue by the end of next year. “We are going to do this through outlet expansion. By end of 2017, we plan to open about 100 outlets from 17 outlets. Of the 100, 75 outlets will be franchisee-drive and rest will be company owned.” Besides, It is also looking at additional stores in Mumbai, Delhi, Hyderabad, Chennai, Bengaluru, Pune, Vizag and Nashik.
In spite of the rising competition, Verma of Chaayos, which has a team of about 400 people, is not too worried. “For us, homemade chai, that from vending machines or from the tapri around the corner — everything is competition. The only thing that differentiates us is our blends.” With about 80 people on board, a Tea Trails outlet on an average breaks even within 12 months. The company witnesses an average of 150-200 transactions per day per café and has a ticket size of Rs.300-500. Though Chaayos did not reveal its average ticket size, the café claims to clock 600 transactions per day with an average footfall of 700 customers per day. According to Technopak, the success of these tea joints depends on whether the brand can gain consumer loyalty through either the right product or price, or both. “These brands can give stiff competition to mainstream coffee joints if they have the right product mix, ambiance and expansion strategy,” adds Yadav. Whether tea cafés will be able to compete with established coffee chains and still make money for their investors is still in question. But for tea connoisseurs, the fun has just begun.