The tea chain, which received a $1 million funding earlier this month, will soon be opening outlets in a few other cities.

Features Interview Thursday, January 16, 2020 - 18:23

When Westerners, especially the British, sailed east to colonise India, they missed this drink so much that they destroyed forests, changed topographies and tamed natives only to be able to enjoy a cup in their newly colonised country. In Japan, the making of this drink is considered an art. Have you already guessed what we’re talking about?

Yes, the amber coloured tea, that is sometimes aromatic with the addition of spices and herbs. While we’re in the mood for some chai, here’s the story of Chai Kings, a tea outlet that serves 15 varieties of tea.

The Chennai-based outlet, which is just three years old, was in the news recently for raising $1 million (Rs 7.2 crore) funding from investors The Chennai Angels (TCA) along with Hyderabad Angels and TiE India Angels. Founded by friends Jahabar Sadique (41) and Balaji Sadagopan (43), the tea chain with its minimalist branding serves delicious smelling, hot teas of different kinds – ginger, masala, iced, Sulaimani – in addition to coffee and a few other beverages and snacks, with prices starting at Rs 20.

The idea at first, however, was to start a coffee place. We met Chai Kings co-founder Jahabar at a coffee joint in Chennai one Sunday evening, and our conversations, minus the coffee given the time of the day, takes off from their foray into business.

“We quite liked how Madras Coffee House was functioning in the city, and wanted to start something similar – a coffee place positioned between the Madras Coffee House and the Cafe Coffee Day business model,” confides Jahabar.

But when the two got together with a few other friends to discuss their business model, the group would often break for, well, tea. “We would take frequent breaks and this would invariably be for tea. We thought why not start a tea place ourselves?” says Jahabar.

Jahabar and Balaji had worked together at an IT firm until 2012 and when they moved to different companies they decided to venture into business. “We knew being an IT employee would not last for long and we always wanted to enter into business together. We first went into the franchise business and at one point we were running 4 Green Trends, a Tony and Guy, one Subway and a few more places. This did not last for long and we wanted to start something on our own,” Jahabar shares.

And with Chennai often regarded as the land of filter coffee, the two did not have any second thoughts when they zeroed in on tea. “I think, from what we know it is a total misconception. I think everybody has a cup of coffee in the morning and maybe one more in the evening but people don’t say no to a cup of tea at any time of the day. Tea drinking has no time. People are coffee lovers here but one of our data points suggested that 2:5 is the ratio between coffee and tea drinkers,” he vouches.

Cutting chai

Chai Kings’ first outlet was opened in October 2016 at Kilpauk. Two more followed in December in Mount Road and Anna Nagar, and then another in T Nagar. “We pooled in all our life savings for these four outlets… we knew opening just one will not work. We were confident of making these four outlets profitable and so we took the plunge,” he begins.

At first, like with any new business, things were slow. “People would look at the joint with its white theme and its tea glass logo, not sure if it was a tea shop. We would sometimes stand outside with a tea glass in our hand to encourage walk-ins. Then we placed a big standee of a chai glass. It was a slow beginning but it picked up steadily,” Jahabar tells us.

The entry of food delivery partners like Swiggy and Zomato was a major boost to their business, shares Jahabar. “At first we were making Rs 500 daily and slowly it became Rs 10,000. Our cardboard flasks were priced right and with Swiggy and Zomato, business started picking up. In the areas we had our outlets, we were covering about 30-40% of the city,” he says. By this time they had opened two more outlets, taking the total to 6.

And soon they were ready to look for funding. “From the beginning we were not interested in the debt route, we always kept our books clean and prepared for funding. Places like Chayos and Chai Point are heavily funded and it was only time we did too. We approached Chennai Angels.”

With the Rs 2 crore funding from Chennai Angels in July 2018, Chai Kings was able to open 12 outlets, taking the total to 18. “We added a small amount of Rs 75 lakhs and opened 5 more. By mid-2019 we had 23 outlets in Chennai.”

Their second round of funding of $1 million came through this month and the duo have plans to open 55 outlets on the whole. “We are planning to add two more cities – Coimbatore and Hyderabad. Perhaps Bengaluru by the middle of this year,” he adds.

Staying ahead of the game

When Jahabar and Balaji decided to venture into the tea business they spend a good part of their day downing several glasses of chai at different outlets to know the market first-hand. “We go full steam when it comes to market research. Before we started we went almost everywhere – Delhi, Bengaluru, Dubai, etc. to know the market,” he explains.

And once they did, the two were confident of staying afloat. “Ours is not a loss making model. Compared to other players in the market, where they are making 30-35% losses compared to the revenue, we are not doing that badly. Our profitability right now is slower due to expansion,” he points out.

And the costing of their chai – Rs 20 – is their biggest advantage. “45% of our costs comes from food. We have another 20% for salary and 18% for rent. As a company we are looking at experimenting with different models and different price points in different areas,” he reveals.

Chai Kings’ revenue too has steadily improved, he shares. “When we started we did not have this kind of revenue. Now it is between Rs 10 and 12 lakh per store but earlier it was Rs 6 to 7 lakh. Our online revenue is 40% of our store revenue and this has tipped the scales.” At present, Chai Kings sells about 25,000 cups of tea per day, with ginger chai taking the top spot.

Chai Kings recently opened its first outlet in Coimbatore inside Brookefields Mall and will soon be launching 6 stores at once in Hyderabad. “Hyderabad is 10 times Chennai when it comes to the tea drinking habit. There are a lot of tea drinkers and the market there is different. We plan on launching the stores together and make some noise to let them know we’re there. Coimbatore people, however, seem to know us from Chennai so we don’t need as much advertising as Hyderabad,” he explains.

Jahabar also tells us that they are not deterred by the presence of competition. “That is present everywhere. In Coimbatore, for instance, there’s Velan’s Coffee and they do phenomenal business. We need to figure out a way to get people to come in. We do extensive market studies to see what’s available and how we can give what’s not,” he says.

“We’ve done 27 outlets in our third year and I think that’s a good number. The highest number of outlets opened by a brand in one year was by Cafe Coffee Day – 80 in a year,” he shares.

Jahabar continues, “When we first started, we were zero percent confident of opening 100 outlets in 5 years. Now 500 outlets seems definitely doable. In our experience we’ve seen more businesses fail than succeed. I believe success lies in execution.”