Chaayos is one of the upstart companies enlivening the Indian tea market. It’s a relative minnow, with sales of just $2 million, but has attracted investors and growing press coverage. In September it announced $12 million of additional funding, following a $2 million infusion last October and $5 million in 2015.
“Upstarts” are ventures with a highly distinctive business model that “enliven” the market by adding something new. Other small tea firms that share these features are Chai Point (2010), Tea Trails (2013), Chaipatty (2010), Infinitea, and Chi Thela (2015) in direct tea service, and Teabox and Vahdam in online tea selling (both firms are looking to establish their own branded stores). The upstarts may be small but they are filling untapped spaces in the market. An article on Café Coffee Day, the domestic coffee powerhouse, specifically identifies as a major threat the competition not just from other coffee sellers but “tea outlets like Chai Point and Chaayos.”
New Dehli-based Chaayos ranks third in sales among the new innovators, with Bengaluru-based Chai Point leading. Chaayos is viewed as closing the gap fairly quickly. None are profitable―as of yet. They are each around 5-7 years old. They are tiny players in a huge market; the total revenues of the leading seven are around $30 million. Their rise reflects a characteristic of the Indian and British landscape: a near invisibility of branded tea sellers and services in contrast to the massive coffee chains, even though these are two nations where tea consumption has long been many times that of coffee. The main explanation for the lack of large-scale tea chains in both India and the UK has been that tea was very much an in-the-home beverage. Chaayos’ co-founder (2012), Nitin Saluja, commented in a press article that India consumes 30 cups of tea for every single cup of coffee. His studies showed that there were around 1,500 coffee cafes in India and zero for tea. Café Coffee Day, by contrast, operates more than 1,500 stores with sales of $200 million. Chai Point, Chaayos’s larger upstart rival has 100 locations with revenues of $10 million. Chaayos has 52 stores in India and is expanding.
Saluja describes getting tea accepted outside the home was “a daunting” task that took two years of “thorough” research to study consumer preferences and habits. The coffee chains established a style and ambience that attracted millennials, office workers, and students to drop in. In the UK, daily tea consumption is hundreds of million of cups a day greater than coffee with sales close to $1 billion a year. The Guardian newspaper noted in 2017 that “While it’s barely possible to walk down a British High Street without passing roughly 75 Costas, Neros, or Starbucks, there is no chain dedicated to the UK’s most popular hot drink.” Chaayos” $12 million of new funding was announced within a few weeks of Coca-Cola’s acquisition of Costa – for $5.1 billion.
While each of the upstarts has a clearly different identity, they share common features in moving tea outlets closer to tea preferences. Tea Trails, for example, targets the opposite end of the market from Chaayos, offering high end exotic teas in “destination cafes” worth visiting. Chai Point is stronger than Chaayos in the corporate market, through on-premise brewing machines (this segment now amounts to 30 percent of revenues.) Chaayos is expanding home and office delivery (20 percent of sales.)
Behind the differences are the same driving forces of innovation: Ambience + variety + snacks + personalization + technology leverage.
Here are snapshots of Chaayos, other Indian firms and lessons for/from the UK and other markets:
Ambience: Chaayos views chai as the core of its business and organizes its operations to enhance the chai experience. The appeal is “tea customized how you like it and how you make it at home.” Its locations are outside expensive real estate areas, permitting the firm to price aggressively while also providing customization and variety of ingredients. The cost per cup is 70¢-$1.30, versus $1.50-2.30 for the leading coffee chains. The priority is to attract customers to the stores rather than increase the money they spend. One of Chaayos’ key performance metrics is return customers; this averages 42 percent. Its LoyalTea rewards program enrolls 95% of its customers. The small size of the stores – 700 sq. ft. on average – is enabling profitable scaling, with new locations breaking even on a direct operating cost basis in 3-6 months.
Just about every tea growth market across the world is paced by innovations in ambience and location: U.K. and U.S. tea pubs, Japan’s variety of exotic tea bars, and the U.S. growth in adding fine tea to fine wines in fine dining. Much of tea news now is a topic of interior decorator innovations. Chaayos, like so many tea innovators, is very careful in making its outlets enhance the tea experience, right down to tables and wall material composition.
Variety: Chaayos offers just about any combination of chai and Chai Point adds even more. And Tea Trails increases the range. Chaayos’ base of twelve ingredients provides for many exotic permutations. Again, this is a requirement for attracting millennials and younger customers, with Hey Tea’s explosive growth in bubble teas and the popularity of cheese tea being other examples.
Snacks: Chaayos has added a wide range of snacks to its menus. Increasingly, the beverage market is tea/coffee/beer and nibbles/meals. The traditional segments are blurring. In the US, a craft beer microbrewery in rural Virginia, definitely not a trendy milieu, has four taps on the same serving stand: one each dispensing kombucha, cold brew coffee, iced matcha, and pale ale. In a Hong Kong bar, you may find matcha as cake, infused in gin or vodka, ice-cream, noodle dishes, and coconut milk lattes. And, maybe, as plain tea.
Personalization: Chaayos is typical here. It starts from expanding “your” choices served as “you” like it. It adds loyalty programs, home delivery of piping hot tea via disposable kettles, and a pricing/product mix that gets customers coming back again and again.
Technology leverage: The upstarts have been brilliant in their selective use of technology. This may reflect the founders’ profiles, with some coming from families with long and deep connections to the tea industry but also, as with Chaayos, engineers and software designers who graduated from the Indian Institute of Technology, one of the nation’s most effective innovation hubs.
Chaayos was early in implementing a comprehensive Enterprise Resource Planning platform to integrate inventory and operations. Part of its new funding is targeted at marketing its Chai Monk “tea robot”, a machine for ensuring maximum reliability, consistency and quality in brewing customized chai.
Chai Point is even further ahead in many areas of customer service, including the use of facial recognition as a password for its loyalty program customers and its Box C, a do-it-all-perfectly brewer/dispense built on its SHARK platform, with IOT, AWS cloud access, partner/store/customer API interfaces. SCM, ERP, POS and payment integration, plus AI machine learning real-time demand prediction algorithms. What all these jargon and alphabet soup terms mean is “really, really neat.” Neat technology focused on high payoff business opportunities translates to industry-reshaping innovation. Teabox’s neat and simple e-commerce software is a landmark in Indian tea selling. Chaayos has a neat inhouse IT department.
Chaayos is the focus of this report. It is impressive and effective. It is also representative of a blueprint for would-be upstarts in other markets. The neglected Indian market is wide open and immense. Consumption of tea represents 79 percent of the non-alcoholic beverage segment, estimated at $30 billion. There is plenty of room for the firms discussed here to grow without having to fight each other.
Here’s an easy prediction. Within the next five years, there will be an acquisition of one of the Indian upstarts, with an extra zero on the figure: not the $5-10 million funding tranches of today but, yes, $50-100 million—or more.