Rising from the Ashes
MMA in partnership with KAS organised a Start-up Series event on “Chai Kings – Rising from the Ashes!” Mr V Shankar, Founder CAMS & Director, ACSYS Investments Pvt Ltd., was in conversation with Mr Jahabar Sadique, Co-Founder & CEO, Chai Kings.
Shankar: As with every other techie, you started your life coding but very soon moved to the business side and shortly became an entrepreneur. Chai Kings is, I guess, your fourth or fifth iteration at entrepreneurship. You have over 50 outlets now and are rapidly aiming to reach 100 outlets. What drove you from a steady salary, no surprises sort of job into entrepreneurship? What were the first challenges you faced?
Jahabar: We moved from a regular working job to entrepreneurship for very silly reasons. We—my partner Balaji and I—were working together almost for about 12 years. Every now and then there was a little bit of discussion about starting something of our own, though we had zero knowledge about what business and entrepreneurship were all about. We wanted to get away from the mundane job of doing the same thing day in and out. We thought if we could start a business, we could take our vacations whenever we wanted and be our own boss. Such sort of silly things drove us towards entrepreneurship!
We started off with a lot of franchisee businesses. A good thing about that was we learned a lot of things. If we had started the brand at that point, we might have failed. We had such big brands like Toni and Guy, Green Trends and Subway—all of them taught us how to run a business. They all had the frameworks done. We did that for about four years. That gave us confidence to start our own brand.
When we decided to do our own brand Chai Kings, the initial issues that we had were never anticipated by us. For instance, nobody was willing to let their places on rent for us. We went neatly dressed, travelled in nice cars and told them, “We are going to open a chai shop.” It didn’t sync with them.
The kind of jobs and profile we had and our aspiration to start a tea shop did not go hand in hand. That was a huge disconnect initially. We had to convince them that it would really go well. We would tell them our blueprint and how the shops would be five years down the line. That was early days, till we had 10 to 12 outlets. Now we get calls all over. Wherever there is a small 400, 500 square feet shop, people think of us and ask if we want to rent that space to start Chai Kings there.
How did the thought of Chai Kings occur to you? How did you address the customer perception of serving tea in more stylish way?
Before Chai Kings, we thought we could do a small, non-vegetarian restaurant. That’s how we started. Since a restaurant would be capital intensive, we thought of starting a coffee shop and our discussions led to chai shop. Once we decided to go for chai, for one and half years, we did a market study.
To our surprise, there were a lot of brands up north and a lot of brands outside India as well. We knew what would work in Chennai. All our discussions led us to believe that if we could position the product at the right price, give them the right ambience, not overdoing it to give a Starbucks kind of an environment or give them a hundred Chai options to choose from, if we didn’t do all that and keep it simple for the customer, then it could always work.
Since we had plans to go outside Chennai, Chai was our preferred name.
We opened four stores at a stretch in three months. Balaji and I were always in the stores. Whoever walked into the store would always say that they also had this idea to start a similar shop. I think people were very hesitant about starting a tea shop because of social reasons or maybe they thought that it might not work out because people sell tea at Rs 8 in local tea shops and that it might not work out economically, and that if it is priced at Rs 50 like in Starbucks, then it will not be a mass product.
So positioning the product was the difficult thing maybe for the first time entrepreneurs. Since we there in the market, we were able to figure out that this might work. That made us come up with the product.
What was the initial customer reaction? Were they happy with it or thrilled? When did you decide on scaling up?
The initial customer reactions were very, very promising, but then there was very less walk-ins into the shops, predominantly because people were not able to relate to the shop and the product. We’ve always seen tea shops with a boiler outside, a guy standing and making tea. We gave a small space for customers to walk in and there is a counter for billing and a counter to collect the tea. The kitchen is not visible to the customer.
Five years back, people were not really able to relate the name Chai King to a tea shop. Then Swiggy and Zomato happened. In 2016, they moved into Chennai and we already had our cardboard flask ready. It helped us to take the product to about 10 km surrounding our shops. It also gave us the confidence that this was going to work.
Three months down the line, the product received very good feedback. Nobody was complaining. There were repeated walk-ins. We almost knew all the customers coming into our shop. We had to figure out how the financials would work. From there to now, the numbers have multiplied.
Even before we started, we allocated some funds for this venture. We put aside some amount and were determined to make it work. We couldn’t afford to lose our complete life savings.
Let’s move to 2018 when you decided that you needed some fresh capital and you decided to pitch to angel investors. Tell me about the pitch process. How did you convince them?
Venture funding, angel investors and valuation—All of that was completely new to us. Yet, even before we started, we knew this was the route we’d go as we’ve seen other companies take this road. Franchising or debt option was not a viable option to scale. We knew we had to have a working model and a working product in hand. We did six outlets in total. Before that, I met a couple of investors to see what kind of questions they would ask me.
Five years back, people were not really able to relate the name Chai King to a tea shop. Then Swiggy and Zomato happened.
All of them were small time investors. I just met them to figure out their mentality. One of my friends who’s into fundraising introduced me to a person called Piyush in Chennai Angels. I met him sometime in November 2017. He liked the product and the brand. He put me on to Chennai Angels. I sent the pitch deck and presented to Chennai Angels by end of 2017. The room was full of guys between 40 and 50 plus. All of them were entrepreneurs and who have seen it all. I was scared. I pitched for about 15 to 20 minutes. There were questions for about 10 to 15 minutes. Very simple questions and to the point. I answered them and went out. There were two or three pitches that day. I was waiting outside. One gentleman came out and said that my presentation went really well and there was a lot of interesting discussion. That person is none other than you, Shankar! I knew about you only after enquiring with others! I went back home. They came back and told us they liked the product. We asked for 1.5 Cr but it got over subscribed to 2.1 crores. Valuation and all that were discussed later but we were really happy with the way the entire process happened.
The customer behavior was the most encouraging part for us during Covid. When the authorities allowed the takeaways, we could see huge walk-ins to the shops. That was a big morale booster for us.
From 2018 to 2020, things were humming along. You had money in the bank and were adding stores. Then the entire country came to a halt on March 24th. Tell us what went through your head when that announcement of lockdown came on TV.
Complete chaos. Just before the lockdown came, we opened three stores at a stretch in Coimbatore. We came to Chennai and the next day was the lockdown. We didn’t know what to do. We left everything and made sure that everybody was safe. Even after three weeks down the line, nothing was very clear.
Tell us first about the period from April to September 2020. How did it impact your finances and how did you organize the finances? How did it impact the morale of the team? How did you keep them going? Lastly, how was the customer behavior?
We had funds in the account at the start of lockdown, as we had raised funds by end of 2019 to do a total of 55 outlets. We had done only 45 and we had some money in the bank. So finance was not a concern at that point, but then we knew that growth was going to be shunted for at least about a year. And if we didn’t take any drastic measures, we might lose all the money in the bank. We had to do a lot of cost-cutting measures in terms of manpower, food costs and pricing.
We also wanted to raise some more money from Chennai Angels. So we went back and told them of our requirement and we could raise one round of 1.6 crores, so that we were safe at least for another one and half years, even if the lockdown continued for a prolonged period. Everywhere, people were running away, going back home. We did not sack our people because once things opened up, it would be difficult to go and hire anybody. We need people who are trained with us.
Up to 60% of our kitchen staff are from North East, mainly Assam. Another 40 to 50% are local staff who manage the counters. During the lockdown, most of the locals went home but those from North East stayed with us. We have given quarters to our staff. Even before Covid, we ran a culture that people will be taken care of by the company. We just had to make sure they were all safe and didn’t get Covid.
The customer behavior was the most encouraging part for us during Covid. When the authorities allowed the takeaways, we could see huge walk-ins to the shops. That was a big morale booster for us.
There is a little bit of infighting between Swiggy and Zomoto but then, they have their own markets shares. We also have a market share and we have become slightly bigger now. So it has evened out. It is working out for us and for them too.
Did the hygiene factor become important at that point relative to normal chai shop?
There’s only one change we did. Majority of them liked the glass cup that we served. We had to stop that as sharing cup could be contagious, if it was not cleaned properly. Apart from that, we put all safety and hygiene measures in place. By July-August, we could see more customers. They preferred us because they thought we were more hygienic.
How did you manage the online part of your business and the costs associated with the platform and the unit economics of that segment?
Online aggregators like Swiggy and Zomato are definitely an advantage for companies like us. For well-established brands like Saravana Bhavan, it may not be a big plus. For us, only because of them, in the initial days we became popular faster. Otherwise, it would have taken much more time. Initially we started out with a few delivery staff in our outlets but we could do a maximum of about 15 deliveries each, between evening 4 and 7. With Zomato and Swiggy, we do between 100 and 150 orders a day. When we started off in 2016, it took us time to understand the model. We were getting orders. Money was coming in but it was going out as well. We had to really work out what the pricing had to be, because there was a huge amount of 25% going out as aggregator fee.
Then there is discount that we have to offer on the platform to attract customers. Our online and offline pricing are completely different. Our online pricing is slightly hiked but we also need to make sure that we don’t really hike it up so much that we scare away the customer. So that was the difficult part. Once we got that cracked and figured out the food costs, the discount that we could offer and aggregator fee, then this model really worked wonders for us. Our 50% of revenue comes from online orders. We get approximately about 1.5 crores a month from Swiggy and Zomato. That is a big number for any business. We really had to work hard for that.
A lot of other factors also helped us because when we came in, there was nobody else in the market who could give them hundred orders per store. So that meant there was a stiff competition between Zomato, Swiggy and Uber. Now, Uber is gone. There is a little bit of infighting between Swiggy and Zomato but then, they have their own market shares. We also have a market share and we have become slightly bigger now. So it has evened out. It is working out for us and for them too.
Can you explain to people what a cloud kitchen is?
Everything is same with a cloud kitchen. We will prepare the product and send it the customer either as takeaways or online orders. A customer cannot walk in and have tea or coffee in the shop. It’s just a kitchen, a small shop. We normally take a first floor property where the customer wouldn’t walk in. We just dispatch online orders from that. With cloud kitchen, we cut down our investment by about 60 to 70% and just do the kitchen part. We don’t do the customer area, nor the interiors, seating or furniture. All of that is completely removed. Your investment is safe and you almost get about 50% of the business through the online platforms.
In the field of entertainment, OTT and home theatres have sort of become mainstream. People are happy with that. What is going to be the balance between online delivery and on-premise dining?
Online platforms are going to be there and they’re going to only grow from here. In our shops, I can accommodate only about 150 customers between 4 and 7 pm, by rotation. Both online and offline can completely co-exist. We cannot bet on one and lose the other.
Will on-premise dining be preferred for specialty restaurants like Thai restaurant or Mexican restaurant? For restaurant chains that want to expand, is cloud kitchen the way forward?
Everyone have got their own strategy. For example, there is Rebel Foods, which has got about 10 brands with them. They don’t have a single store. It is working wonders for them and they are able to generate revenue, but they are heavily funded as well. But there are brands that struggle without a store and having only a cloud kitchen. They’re struggling very badly to generate orders. It’s not working out for everybody. Whoever can get the balance of both online and offline worlds will really click.
What is your short message for entrepreneurs?
You need to have a really good support system. My partner is my pillar of strength. It’s good to have someone to talk to, to understand, to reflect what you think about, discuss things and take it forward. For some people, the support system is the family. For some, it is their partners and for some, it’s their investors. You can’t build the support system during a difficult time. You have to build it along, even as you build your business from scratch.
Jahabar Sadique, Co-Founder & CEO, Chaikings