Chayoos brings tea in a modern, funky cafe format

It's 5.00 p.m. on a faintly chilly Wednesday, and the coffee shops at Safdarjung Development Area in South Delhi look busy. But it's the desi tea cafe Chaayos that is really buzzing with life. On a long workman-like table a group of corporate looking people are in animated discussion, several cups of kulhad chai and sandwiches on their table, jotting notes. At a cosy table for two, an old affluent-looking couple are enjoying a leisurely cup of adrak tulsi chai. At another table, four youngsters sporting casual T-shirts and shorts are playing Ludo over tea.

Approach the big group and it turns out they are a bunch of entrepreneurs and venture capitalists. "Chaayos is my fourth or fifth home. I bring people here all the time," says Khyat Mahajan, who is setting up food discovery platform Binjj. On this occasion he has brought in some UK-based venture capitalists he is talking to, who look quite taken in when their tea arrives in kulhads, or clay pots, on which their names are written in chalk.

Nitin Saluja and Raghav Verma, the founder and co-founder of the Chaayos chain of tea retail outlets, wear a contented expression as they see so much "chai pe charcha" going on. They say they are even more pleased at the sight of such a diverse spectrum of people walking in. It's not just students from IIT Delhi, situated just opposite the market, who frequent the outlet but local residents and office goers from the vicinity as well, many drawn in by the offbeat variants of tea served here, ranging from mirchi chai to fennel tea.

"People go to a coffee chain for a seat and Wi-Fi, but we wanted them to come to our store to drink tea," says Saluja, describing how he spotted the need for tea cafes . "The idea came to my mind when I was working in Houston and had gone out with my wife for breakfast one day. At the end of the meal, we craved for desi adrak wali chai and then idly thought if we were in India in a similar situation what would we do. The only option was to go to a dhaba."

Thus was born Chaayos, an outlet that serves ghar jaisi chai, but with some adventurous twists. There is the standard ginger basil and cardamom or fennel tea made at most homes, but there are also some wild experiments like mirchi tea, aam papad chai and Pahadi chai, a takeoff on the Kashmiri kahwa. In all, there are some 25 variants including with less milk, with honey and ginger as well as some classic Darjeeling and Assam leafy brews.

Isn't it unusual for two IITians to run a chain of tea stores rather than work at a software firm? Well, the founder duo actually went the conventional route. Saluja and Verma, after graduating from IIT Bombay in 2007 and IIT Delhi in 2010, respectively, joined tech and analytics company Opera Solutions, and that's where they met each other.

In 2012, Saluja quit to start Chaayos. "I was the designated tea maker of my family since I was eight years old," says the Lucknow boy, describing how he enjoys nothing more than making and serving tea ever since his mom taught him how to make the brew.

So when he quit to become an entrepreneur, he was clear his business had to revolve around tea. It helped that around the time he was thinking of opening a tea retail chain, India had a surfeit of coffee chains, but hardly any tea chains, surprising in a tea-drinking nation. "The surveys we did showed that people spent 15 times more on tea than on coffee - even in the south, which is perceived as a more coffee-oriented region," says Saluja.

To start with, Chaayos was bootstrapped. Saluja opened with Rs 25 lakh of his savings, of which he invested Rs 12 lakh in setting up the first store at DLF Cyber City in Gurgaon. "The premise was simple. I would give it six months, either put in another Rs 12 lakh or close it down." But in six months, it was clear he had a winner, and that's when Verma joined him with an equity partnership. "I had quit Opera 10 months before to open an online education company, but that didn't work out, so I contacted Nitin," he says. Given that Verma is a passionate baker, who makes cheesecakes and tea cakes, the partnership had synergy. Several of the eats provided at Chaayos, like the Chatpata kebab, are Verma's creations. Incidentally, the eats are also overwhelmingly desi with bun maska, vada pao, bun bhurji and keema pao on the menu. Dhaba-style rusks and jeera biscuits are stocked, too.

Verma's joining was lucky, says Saluja, describing how they got Rs 2.1 crore (in small tranches) in angel funding from Powai Lake Ventures. Zishaan Hayath, Co-founder of Toppr.com and an angel investor at Powai Lake Ventures, describes Saluja as a "relentlessly hardworking person". "He is determined and ambitious, and up to building something awesome. That is why I invested in his venture. I also believed in the space he was getting into. We can do wonderful things with tea. A cool, young, artful hangout place for tea is just the starting point and I believe Nitin and Raghav can do much more than that around tea."

The angel money was used to not only open more stores - Chaayos today has eight outlets in the National Capital Region - but also to develop more products.

"The idea from the beginning was that we will be a tea company not a tea retail company, selling services as well as products," says Saluja. The trademark Chaayos blends are sold in packs that cost Rs 200, not only at their own outlets but also in modern retail and virtual marketplace. Next on the cards is to develop tea machines to brew desi style chai, the R&D for which has been outsourced. Now the duo is looking at Series A funding (their target is about Rs 30 crore) to scale up, and enter Mumbai and Bangalore. "We want to be 10 outlets by the close of this financial year and 60 outlets in 2016/17," says Saluja.

Interestingly, Chaayos has focused on business parks more than high streets or malls. "People actually questioned our logic of opening at a business park as they said office goers would have tea served in their pantries or go down to dhabas," says Verma. But, he points out, the advantage of opening in a business park is that so many people gather in a concentrated area that you get 10,000 people to know about the brand from day one and spread the message. The DLF Cyber City outlet, the duo claims, gets 600 to 700 people every day, breaking the myth that people would not spend on a product that they get at home. Especially when that product comes at a premium - Chaayos tea is priced starting at Rs 59. Of course, Chaayos too has the same challenges that plague most coffee chains - high rentals and getting sustained traffic on all days.

But some strong marketing using social media and activities like sampling at parks and office cafeterias has helped get footfalls. Chaayos also has a loyalty programme where if you have ordered five cups of tea, you get the sixth free. "Seventy-five per cent of our customers are repeat customers. Tea is a repeat purchase product and we realise that having a captive audience is important, so we have a lot of exciting schemes to get them in," says Saluja.

The duo claims that, on average, it takes a store just three months to break even operationally, though it takes 15 months to break even on the capital expenditure incurred. Saluja says the effort is to keep capex low. "An MNC brand will spend up to Rs 1 crore in setting up an outlet. We open in Rs 15 lakh. We have tweaked a lot of things, the capex model, the product game, allowing us higher margins," he says. Chaayos closed 2013/14 with revenues of Rs 1.5 crore from three outlets (two of these opened at the fag end of the fiscal year). It expects to close 2014/15 with revenues of Rs 10 crore from eight outlets. The sharp increase in revenue is due to growth in the number of outlets. Saluja says 55 per cent of an outlet's revenue comes from beverages and the remaining from food. In comparison, for most MNC chains only about a quarter would come from food.

Next on the anvil is a tea delivery service in a five-km radius, using disposable one-litre flasks. A mobile app is under development, as is Chaayos Wallet, a loyalty-based prepaid card. Saluja feels being a products-plus-services company differentiates them from competition, as does their funky style. "We are serving a centuries-old product in a contemporary way," he concludes.