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Jun, 13 2019

A REFRESHING HOT POT OF GROWTH

As young India goes out to work, it’s the ‘chai’ stalls that are the meeting points for students, working professionals and even aged seniors. As the new India accepts the chai culture, we find out why it’s also a highly profitable venture .

From being all famous ‘chai the las’ to now becoming the ‘chai’ stalls, the humble chai has had a huge makeover. Especially, early disruptors like Chai Point changed the way India consumes tea. While this drastic customer transition towards branded chai outlets has happened over the years, it is the demand for hygiene kitchens that is driving the growth and will drive the growth further, observes Rohit Kumar, General Manager, Eagle Peak Garam Chai, which runs the chai chain called Chai Garam.

“It’s primarily the growth in the middle class, and quality and hygiene consciousness that is drawing customers to branded tea stalls,” he says. On an average, as many as 100-150 customers visit a tea kiosk or a stall in any metro city; footfalls increase by over 20-30% during weekends. While the footfalls are higher if there is a seating or a dine-in facility, the target customers for chai stalls are often working professionals, students and youngsters.

BUSINESS MODEL

According to Charles M, Regional Manager, South, Tea Trails, the average set-up cost of 200-300 sq. feet kiosk would be around Rs 15 lakhs and could go as high as Rs 20 lakhs including taxes and excluding lease rentals. While the food menu would be limited at such stalls, the investment would include Rs 7-8 lakhs on interiors and Rs 4 lakhs on kitchen equipment while décor, lightings and fixture would cost Rs 4 lakhs. The remaining cost would comprise inventories, taxes and miscellaneous expenses.

As per Charles, a store is capable of generating Rs 10 lakhs revenue every month, while 7% would go to the brand as royalty and around 30% of the overall sales would be spent on raw materials and other stocks. After monthly expenses of fixed costs like rents, salaries and bills, a franchise owner could earn up to Rs 3.5-4 lakhs every month. While the gross profit is 35%, the gross margin is close to 70%, he reveals.

For such formats, locations with high footfalls like airports and high-streets are the most preferred places, he says, while suggesting that although IT parks and technology parks have good traction, they would not necessarily bring higher returns as these places are closed during weekends and national holidays, and comparatively have higher rentals. While kiosks can be operated with two staff with average salary of Rs 10,000-15,000 each, the rentals would vary between Rs 30,000-50,000 depending on the locations, and could be much higher if located at airports.

Alternatively, Tea Trails also has a café format and the investment for the same could be as high as Rs 55 lakhs. Charles says such cafes can generate Rs 15,000- 25,000 per day and the café owner can earn up to Rs 6 lakhs every month, excluding all expenses, depending on the location. Further, he says, 60% of the business comes from the walk-in crowd at the store, while the remaining 40% will be through online sales. He adds that a café can serve customers in a radius of about 3-5 km when online orders are accepted. “With the advent of online food delivery, online orders could start from the first day. The demand for evening snacks and late night snacks is usually higher during the weekends,” he says.

FRANCHISE MODEL

Operating from over 25 outlets across India, franchising was the obvious choice for Vamsi Krishna, cofounder of Chai Resto, when he wanted to expand and explore new markets. Just in Bengaluru alone, he has more than 15 chai bars set up across various corporate offices and technology parks. “Local partnership is crucial for a brand to grow in newer markets and the participation of the local store owner is equally important,” he says, commenting on why the brand chose the franchise model.

Meanwhile, echoing a similar thought, Kumar, says, “We at Chai Garam are a platform for entrepreneurship. It is a part of our mission statement. We seek to partner with spirited entrepreneurs locally and work with a decentralized operating model.” Further, Kumar suggests that although the segment may seem over-crowded with many players, being an early market leader the brand has understood the challenges in the market and has strategized a fool-proof franchise model that will ensure that the franchise outlets run successfully.

STARTUP COST: 15-20 lakhs

OPERATIONAL EXPENSES: 3-5 lakhs

MONTHLY REVENUES: 6-10 lakhs

GROSS PROFITS: 3-5 lakhs

BREAK-EVEN TIME: 18-24 months

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