Getting the right brew: 4 tea start-ups explain biz models, profitability

The challenge with tea is putting a premium on what is a staple item in Indian homes

Following the proliferation of coffee in the market, the last few years have witnessed a handful of entrepreneurs attempting to brand, premiumise, and build both online and offline retail models around tea, noting that India has been a tea-drinking nation. But that's a double-edged sword. The pro is that there's little need for educating the Indian consumer — be it a Rs 5 cutting chai or a Rs 300 per cup first flush from a single estate grade in Darjeeling. The challenge, however, is putting a premium on what is a staple item in Indian homes, as well as being able to consistently scale up and become a lifestyle choice. Food habits take a long time to change, which is why most 45-year-olds prefer Thumbs Up over Coke, says Abheek Singhi, senior partner at Boston Consulting Group."The brand has to have mass appeal to make a profit in a business like this because the retail economics are driven by throughput as opposed to gross margins," he says. Here's how four recent players are tackling the business:

From point to Chai Point
 

Amuleek Singh, the founder of Chai Point, says: “In the long term, any tea company will have to go omnichannel.” Chai Point started its business in 2012, and today it has 150 stores across metro cities. Singh claims to be the largest hot beverage chain in the nation and has received Rs 200 crore in funding, so far, from Eight Road Ventures, Paragon Partners and more.

The business model works thus. “We are an omnichannel beverage brand that also caters to walk in, as well as delivery,” Singh says, adding that the company has 3,000 dispensers that dispense coffee and chai and are being used across 14 different cities. These are Android-driven IoT-enabled dispensers. It has around 2,000 customers under the dispenser channel. A dispenser machine customer charges monthly maintenance of around Rs 2,000 plus consumables. The average is 2.5 cups per employee and that translates to around Rs 27,000 in revenue per month."It is a good margin business and is much more scalable," Singh says.  Food contribution is around 37 per cent.  Singh gets his tea from Assam, Darjeeling and the Nilgiris, and also allows customers to order online through channels that include Uber Eats, Zomato, and Swiggy. Chai Point sells around 400,000 cups of tea a day with prices around  Rs 80 a cup and lower for the vending machine model.  The challenge is staying true to the course. Indian customers are evolving and have aspirations and Chai Point will have to remain fresh as a brand.  From iced teas to hibiscus tea, one has to have it all. Singh plans 200 more stores and says that while he is not profitable yet, the milestone isn't far away. 

Last year, the company closed at around Rs 150 crore. "The category and the audience in which we play are not going to stop consuming our product," he says.

Packaged in India, sold in NYC
 

Vahdam Teas, which was launched four years ago, primarily built its business model on cutting out the middle man in the tea business by sourcing directly from a collection of around 100 assorted tea gardens from across the nation. The company is on a run-rate of $10 million a year, according to industry sources, and expects to be profitable by the end of this year. Bala Sarda, the entrepreneur whose firm's name is a reverse anagram for the name of his father Madhav, set up its warehouses in New Delhi for two specific reasons. "One that the airport in New Delhi has direct and quicker access to foreign airports for export, and the second, its dry climate is better suited to the longevity of tea as distinct from Kolkata, where it is much more humid. Vahdam has a 25,000 square foot warehouse in Okhla, Delhi. The start-up, so far, has raised around Rs 30 crore from investors, which include Fireside Ventures. The company gets around 99.99 per cent of its revenue from foreign markets.  “In India, garden-owners have started their own brands, so there is no middle man to cut out. But for us, the middle man we are cutting out is the auction house, the importer, the trader and so on," Sarda says, adding that he's clear that he won't touch brick-and-mortar retail for now. Vadham Teas are premium-positioned with prices starting at $10-$15 per 100 gm, and a box of teabags for anywhere between $4 and $6. 

Sarda says his inventory cost is around two-and-a-half months of the revenue. His biggest cost beyond tea as of now is marketing. His biggest challenge is the fact that being an Indian brand how to stay relevant in the US market. To that end, his office in NYC has half a dozen employees, in addition to 120-plus in India. A secret recipe that Sarda shares? “It’s not a bad thing to have the made in India-label on your product,” Sarda says. He’s got a good reason to say that. Last year, media mogul Oprah Winfrey added Vahdam Teas to her list of favourite things.

Tea, single malt style

Teabox, one of the earliest to jump into the space, has received around $10 million from investors, including Ratan Tata, Accel and RB Investments. Teabox decided it would retail online, focus on international markets, and play at the top of the pricing pyramid right from the get-go. Its founder, Kausshal Dugarr, says revenues are growing year-on-year, but declines to disclose the exact financials. The company retails a range of 200 different teas that start at Rs 4,500 per kg (Darjeeling black) and go up to around Rs 2 lakh a kg (Badamtam). Dugarr has sold 200,000 kg or a billion cups since the company started six years ago; he sees most of his business come from offshore clientele. "I would say around 70 per cent of our customers are outside India," he adds.

That, however, doesn't mean he's profitable and to boost sales and profitability, Dugarr took a call to set up a network of offline or bricks-n-mortar stores, starting with Bengaluru international airport.  That will be followed by around half a dozen stores at Mumbai international airport, the Orion Mall in Bengaluru, the upcoming Maker Maxity Mall in Bandra Kurla Complex in Mumbai, and other places. Teabox is witnessing as much as Rs 1.2 lakh in daily sales at its first retail location at Bengaluru airport. “From a demand perspective, there is no challenge to premium tea,” Dugarr adds, indicating that tea brands like the Singapore-based PWG have logged $100 million revenues in just 12 years of operation. Does Dugarr not see selling large quantities of tea at lower prices a faster route to growth? He answers that he doesn't see that model alone as being profitable.

Serving your cuppa

Step inside any of its 60 stores across the country and a loud “Welcome to Chaayos” is how you will hear store employees greet customers. 

Nitin Saluja, the founder of tea-house chain Chaayos, owned by Sunshine Teahouse, based in Gurugram, thinks that you can't reinvent an intrinsically Indian tradition like tea. “Talk to anyone who is a tea-drinker and ask them how they like their cuppa in the morning and you will get answers that range from kadak chai with less milk, tulsi and no sugar or black tea with honey and ginger,” he says. “Meri waali chai" is the core driving philosophy at the company. "That's the model that Chaayos is built around. We try to give customers what they want because everyone drinks tea differently." It's also done at a mid-level price point that ranges between Rs 60 and Rs 160 per beverage, playing at a lower price and consumer category when compared to Starbucks, where the cheapest coffee beverage starts at Rs 220. 

The company — backed by Tiger Global, Saif Partners and Integrated Capital —  was launched in late 2012 and has raised around $17 million in funding. Its officials say that they see all its stores performing to expectation, which means all are "profitable". Saluja doesn't specify which store it is but his best performing location is logging around Rs 4 crore a year.  All stores are company-owned and company-operated and use teas that are a proprietary Assam CTC blend. 

Chaayos pulls cash in from another revenue stream — foods and snacks — that includes items such as vada pav, egg bhurji, and sandwiches. Food accounts for about 40 per cent of Chaayos revenue, meaning its contribution can't be underestimated. The Chaayos model, therefore, is built on snacks and chai. Chaayos' plans include launching 240 more stores in five years through a combination of debt and equity.