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Investors are pouring money into India’s trendy new tea cafes

Reuters/Ahmad Masood
Business is growing.
Published This article is more than 2 years old.

India’s tea entrepreneurs may finally be getting their mix right.

On April 19, tea retailer Chai Point said it had raised $20 million (Rs132 crore) in series C funding, its single-largest round so far. The investment, led by private equity fund Paragon Partners, also saw the participation of existing investors like Saama Capital and DSG, the company said in a statement.

Chai Point started out in 2010 in Bengaluru. Today, it sells about 300,000 cups of tea daily across its 100 outlets, besides making a large number of deliveries and installing its tea machines, boxC, in offices.

“This funding round is primarily aimed at further strengthening the brand’s multi-channel go-to-market strategy,” said Amuleek Singh Bijral, co-founder and CEO, Chai Point.

The tea cafe business has caught investors’ fancy in the last few years as more urban consumers, with higher disposable incomes, spend on branded cups of the hot beverage.

In March this year, New-Delhi-based Chaayos announced the appointment of Ajay Kaul, former India head of Jubilant Foodworks, as its chief adviser. Jubilant operates American pizza chain Domino’s in the country. Chaayos, backed by investment firm Tiger Global, also announced plans to add over 300 stores over the next five years, up from the current 50.

Startups apart, large beverage companies, too, have been eyeing the tea business.

In 2015, Mumbai-based consumer goods giant Hindustan Unilever, which sells popular tea brands Brooke Bond and Red Label, opened a high-end tea joint, Taj Mahal Tea House. Then, in 2017, the world’s second-largest tea company, Tata Global Beverages, announced the launch of Chai-Unchai, a tea cafe in Bengaluru.

So why has tea-making turned into big business in India now?

Chai in India

India has traditionally been a tea-drinking nation. For every cup of coffee, Indian drinks 30 cups of tea. In 2017, the country consumed 678,200 tonnes of packaged tea, making it the world’s largest market for the commodity, according to research firm Mintel.

Street vendors here hawk the beverage for as little as Rs5 for a 50ml cup on average. However, it is the coffee chains that have proliferated all across the country, with global majors such as Starbucks and Costa Coffee and organised local players like Cafe Coffee Day doing brisk business. In comparison, organised tea retail remains underdeveloped.

But things have changed in recent years with the proliferation of Chai Point and Chaayos outlets.

“These chains have done a lot of innovation and out-of-the-box thinking around tea,” said Anil Talreja, a partner at Deloitte India. “What is also helping their cause is the rapidly changing demographics where younger millennials are seeking such offerings.”

And this new set of consumers is willing to spend more on eating out. “While the tea-chain market is still nascent, discretionary spends have really gone up, especially on the food and beverage side,” said Chai Point’s Bijral, pointing to the growth in the country’s $48 billion food-services market.

Alongside fatter wallets, socialising over tea is moving from street-corner joints to stores, much like it did with coffee. And investors can’t wait for their cuppa.

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