The untapped potential of ‘chai’ in India

  • The emergence of start-ups selling the Indian ‘chai’
  • India, the tea drinking nation


India, which is a predominantly tea-drinking nation has its own domestic version of the beverage. Tea consumption in India outnumbers coffee consumption, wherein, according to the data from Statista 65.8% of Indians drink tea regularly, while 53.5% drink coffee on a regular basis. However, at an overall level tea drinking outnumber coffee consumption with a wide margin. According to the Quartz India, for every cup of coffee Indians drink 30 cups of tea. Further, tea making and selling are much more ubiquitous in India as compared to coffee, with street vendors (chaiwallahs) selling tea in every busy street and neighbourhood all over the country, no matter how remote a place is. Chaiwallahs in a given marketplace try their best to differentiate from their competitors in a vicinity by serving tea with the best possible flavour, with a right mix of tea leaves, milk, sugar and spices. Tea is more of a roadside affair in India. On the contrary, coffee has been more of an indoor beverage that it is usually consumed in coffee shops, snack shops and restaurants. Tea has got more of a rustic and domestic connotation, whereas coffee has got a more foreign and exotic connotations attached to it.

Therefore, it is no surprise that a lot of coffee chains sprang up in India in the late 90s and in the new millennium. In 1996, Café Coffee Day started with its first outlet at Bengaluru and then expanded to other parts of India over a period of time. The company today boasts of more than 1500 outlets in 209 cities across India. Barista started in 2000 and presently, it has about 200 outlets in the country. Costa Coffee, the British coffee chain entered India in 2005 and expanded to 100 outlets, this was followed by the American multinational Coffee Bean and Tea Leaf, which entered India in 2008. Finally, the US coffee giant Starbucks found it too hard to ignore India and entered the nation in 2012. The common factors among all these beverage chains were a strong focus and emphasis on coffee. Furthermore, their outlets are air-conditioned, interiors are beautifully designed and have comfortable seating arrangements for social gatherings and for the spending of quality time. All these chains sell tea, but tea is not of the same taste as served on Indian roadsides or made in typical Indian homes. All these chains focus on elegance and were apprehensive on serving the roadside Indian tea in exotic ambiences.

Finally, it was time for somebody to take a risk and debunk these apprehensions. Indian entrepreneurs envisioned serving Indian tea in exotic ambiences on the lines of coffee chains operating in the country. The start-ups currently operating on this business model are Chaayos, Chai Point, Tea Halt, Teanation, Chai Patti, Infinitea, TeaBox, Udyan Tea, Chai Thela and tpot among others. A majority of these companies were founded by Indian entrepreneurs, who saw potential in this market and were supported by venture capitalist funding. The details about these companies are given below. Most of the start-ups came up after 2010, almost a decade after the proliferation of coffee chains in India. Chai Point started from Bengaluru in 2010 and today it has around 100 outlets across India. In 2018, it raised USD 20 million in Series C funding. The investment was led by Paragon Partners along with the participation of Saama Capital and DSG. Chaayos started in 2012, with its first outlet from Gurugram. It received Series A funding to the tune of USD 5 million from the venture capital firm Tiger Global. Currently, it has expanded to 52 stores. Chaayos raised USD 12 million in Series B funding from SAIF Partners and the Singapore based growth stage investment firm Pactolus.

Moreover, the roadside tea is still available for anything between 10 to USD 30 US cents, while a more sophisticated version is sold at the aforementioned stores, which range from 25 cents to even higher than 1 USD depending on the flavour and quantity ordered. There were and are concerns whether Indian customers would be willing to pay USD 1 or more for a cup of tea in such chains, though most of the chains are flourishing, especially in major cities across the length and breadth of India. Additionally, from a macro perspective, India is an emerging economy where personal disposable income and consumer discretionary spending is continuously increasing. The spending habits and culture are making a huge shift and consumers are willing to spend more on a cup of tea if he or she is able to savour on it in an air-conditioned setting with a comfortable seating arrangement and ambience. This is definitely a market worth investing and the growth of Chaayos and Chai Point is a testament to this fact. This market was ignored in the last decade owing to apprehensions associated with the selling of roadside tea in exotic ambiences. Hence, it is due to this reason that at present investors see a lot of optimism in this sector and millions of dollars are poured in from international venture capital firms from the United States, Hong Kong and Singapore. Presently, more than 10 start-ups have ventured into this business and many more might join the bandwagon in the next few years, as the real potential is still being unexplored, which has a lot of room for expansion. But the level of competition among the players is still high, and we may see consolidation in this industry over the medium to long-term, though the overall business prospects continue to look hot as the morning tea.

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