Inside a bright green and yellow outlet of Chaayos in Delhi’s Connaught Place neighbourhood, Swati Singh is taking some respite from the heat. But the Delhi University student isn’t sipping the usual cold coffee or lime soda; instead, she’s savouring a cup of saunf (fennel seed) chai, one of the many varieties offered by a chain that has made India’s unofficial national beverage its flagship product.
“…mostly we end up going to the coffee places like Starbucks or Cafe Coffee Day, (but) this place seems worth trying,” the 22-year-old said, adding that she liked the idea of experimenting with all the different tea flavours.
Customers like Singh have helped this store become one of the most profitable outlets for Delhi-based Chaayos, a company founded in 2012 by Nitin Saluja and Raghav Verma, who graduated from the Indian Institute of Technology in Mumbai and Delhi respectively. Their goal: to capitalise on India’s small but growing business of chai cafes.
In a country where the humble cup of tea is consumed by millions at roadside tea stalls and at home, quirky cafes by companies such as Chaayos, Bengaluru-based Chai Point, and Mumbai-based Tea Trails have flourished by offering an alternate ambience and greater variety, chipping away at the dominance that coffee chains, notably Cafe Coffee Day, have enjoyed so far.
Chaayos, owned by Sunshine Teahouse that is backed by New-York based Tiger Global, now has 37 stores in Delhi, Mumbai, and Chandigarh. But for Saluja and Verma, the plan is to get bigger and better, experimenting with different formats, such as the 24-hour outlet recently opened in Gurugram, and adding new technologies to change the way Indians drink their tea.
India is the largest producer and consumer of black tea in the world, with close to 90% of households drinking the beverage. But for all this love of tea, it wasn’t until fairly recently that tea cafes became successful.
While large corporates such as the Tata Group opened chai shops in the mid-2000s, they mainly focused on selling expensive premium teas that few Indian customers were willing to pay for. Instead, locals flocked to coffee chains such as Cafe Coffee Day and Barista, which had been launched in the ’90s. As a result, hardly any tea chains had managed to scale up beyond a handful of stores.
So, in 2012, when Saluja was working as a mechanical engineer in the US, he realised there was an opportunity back home to transform the tea business. He quit his job as a consultant at Opera Solutions and returned to India, launching Chaayos along with Verma (the two were introduced through common friends) in Gurugram’s Cyber Hub in November that year. Though he planned to shutter the store if he didn’t make any returns in six months, he quickly found that office-goers from nearby companies like Deloitte and Google were keen to stop by for a quick cup of chai on their lunch or smoke breaks.
“(The) market was 100% ready for Chaayos…it’s just that those who’ve done (tea cafes) in the past have had a problem with the format,” Saluja told Quartz in an interview at the company’s office near the border between Delhi and Gurugram.
At Chaayos, Saluja focused on selling affordable, customisable brews instead, allowing visitors to pick and choose from 12 basic ingredients (including cardamom and holy basil) to create their preferred type of tea. Each cup was priced between Rs46 and Rs149 ($0.71-$2.31), and the menu also featured a variety of food items such as pakoras and egg buns. That combination helped make the cafe a popular choice among the hungry office crowd, with customers mainly purchasing a Rs65 ($1.01 including taxes) cup of chai and some snacks, taking the total average spend per transaction to around Rs260-Rs270. In comparison, a cappuccino at a Cafe Coffee Day starts at Rs100, while at Starbucks it’s Rs155.
Over the next few years, Chaayos expanded to six outlets in Delhi-NCR. At the same time, competition in the sector was heating up, with brands such as Chai Point and Tea Trails expanding their footprints across India. That sparked investor interest, prompting Tiger Global to give Chaayos $5 million in 2015. Since then, the company’s store count has gone up to 37.
The second element of Saluja’s strategy is related to location: the typical outlet is spread over 700 square feet and found in a mall, corporate parks or on a high-street, where cheap tea shops are often few and far between.
“It is very difficult to find such price points (i.e. Rs65 tea) in such expensive real estate,” Saluja said. “But you’ve got to align your whole model accordingly. The way this game can be won is by attracting more people to your store, as opposed to extracting more (money) from customers.”
And that game plan seems to be paying off.
“Chaayos is like a Starbucks for chai,” Saloni Nangia, president at retail consultancy Technopak, said. It’s the presence of food on the menu that makes the business economically viable, though customers are no doubt drawn by the prospect of lingering over a cup of tea.
For the year ending March 31, 2016, Chaayos posted a turnover of Rs11.8 crore, a 247% increase from Rs3.4 crore in the previous year, according to data platform Tofler. But though its losses widened in the same period, Saluja says things will look up soon.
“We’ve been always talking about positive cash flows right from our first store. I think we will be able to sail to cash level break-even very soon, and live off it for a long long time,” he said.
Chaayos is now experimenting with longer opening hours to try to convince customers to drink tea at different times. Some of its outlets offer breakfast as early as 7am, and it’s already seen some success with 24-hour stores in Gurugram, a model that it’s considering replicating in other markets.
By mid-2018, Chaayos wants to have 75 outlets in its existing markets. In comparison, rival Chai Point, which launched in 2010 and has received nearly $10 million in funding, has now hit 94 stores in Mumbai, Pune, Hyderabad, Delhi-NCR, and Bengaluru, and is looking to grow even further.
But Saluja is taking things slow for now. “Chai is not a kid’s play,” he said.
One of the biggest issues that he’s confronted is the lack of consistency across stores. Store personnel have always made beverages themselves, instead of using machines, so the taste varies from outlet to outlet. Now, the company is focusing on minimising human intervention, and a 13-member research and development team has built specialised machines, called Chai Monks, to make perfect cups of tea every time, and at every location. These machines will soon be rolled out across Chaayos’ stores.
And in the next five years, Saluja is hoping that will help make the brand a national name.