Why Chaayos is adding a stronger dash of premium to its cafes

The company has been conducting trials at select cafes, such as adding new items to the menu and improving its food and beverage presentation, Chaayos’s finance chief Pranav Dahiya said. 

These efforts to upgrade the customer experience make a good case for Chaayos to charge a premium, said Ankur Bisen, head of retail at India’s Technopak Advisors. This comes at a time when larger cafe chains such Starbucks, Blue Tokai Coffee and Third Wave Coffee Roasters are in fierce competition to win a bigger share of India’s tea and coffee market.

Brands like Chai Point and Chaayos have an average order value (AOV) of ₹170, compared to ₹250 for Starbucks. Blue Tokai Coffee Roasters and Third Wave Coffee, which brew more artisanal varieties, may have an even higher AOV (about ₹300), Bisen said.

Chaayos, which operates under parent company Sunshine Teahouse Pvt. Ltd, serves a variety of tea, snacks and other beverages. It gets about 35-40% of its revenue through aggregators such as Swiggy and Zomato.

Last week it expanded its offerings to include cold drinks such as Mixed Berry Smoothie, Choco Peanut Smoothie and Mango Icy Slush. 

“Our new cold menu just went live in Mumbai and Bengaluru and will soon go live in NCR as well. This year our cold product launch comprises an extensive range of beverages made from fresh and natural ingredients for the upcoming summer,” said Dahiya, adding that the company plans to execute three new launches every year.

While Chaayos’s signature beverage is tea, it is also experimenting with coffee varieties in select cafes in Delhi. So far, it only serves two varieties–filter coffee and black coffee. Its tea varieties include Kulhad Chai, Kesar Chai and Masala Chai.

India’s tea and coffee cafe market comprises different types of consumers, Bisen said. While the coffee-led proposition has an international benchmark in people’s minds, tea is a more built-up version of an informal structure such as a neighbourhood chai shop or a tiffin centre. 

The supply chain for brewing coffee also differs from that of tea, which is a more home-grown concept, he explained. Of India’s $1 billion cafe market, Bisen estimates that nearly 60% is coffee-driven while the remaining comprises tea.

Food consumption is also an important segment for Chaayos and contributes nearly half of its revenue. The company recently launched fusion tacos, and some of its other snack varieties include samosas, vada pav and pakodas.

Founded in 2012 by Nitin Saluja and Raghav Verma, Chaayos has about 200 cafes in seven Indian cities including Mumbai, Chennai, Bengaluru and Chandigarh. With centres in all the metros, the company also plans to expand to tier-II cities, especially in chilly regions where it sees robust demand for chai.

Last month, Tata-backed Starbucks also announced plans to operate 1,000 cafes in India and double its employee base by 2028. It also entered India’s tea market recently.

While the addressable market for cafes in India is negligible when compared to the $53 billion food services market, brands such as Starbucks may look for adjacent growth opportunities by using their infrastructure to also serve tea, Bisen explained.

Chaayos’s revenue from operations rose by 75.6% to ₹237 crore in FY23 from ₹135 crore a year earlier. The surge was driven by expansion in new and existing markets, coupled with a rise in revenue per cafe on the back of post-covid growth, Dahiya explained. 

However, its losses and expenses also soared by 34% and 65% during the period to ₹95 crore and ₹349 crore, respectively. Dahiya said the company has made considerable progress towards profitability in FY24.

Apart from Tiger Global, its investors include Elevation Capital, Alteria Capital and Think Investments.