Rising from the Ashes - Business Mandate -(Feb 2022)

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1 FEB 2022

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FEB 2022

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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 conversa‐ tion with Mr Jahabar Sadique, Co‐Founder & CEO, Chai Kings.

S

hankar: As with every other techie, you started your

We started off with a lot of franchisee businesses.

life coding but very soon moved to the business side

A good thing about that was we learned a lot of things.

and shortly became an entrepreneur. Chai Kings is, I

If we had started the brand at that point, we might have

guess, your fourth or fifth iteration at entrepreneurship. You

failed. We had such big brands like Toni and Guy, Green

have over 50 outlets now and are rapidly aiming to reach

Trends and Subway—all of them taught us how to run

100 outlets. What drove you from a steady salary, no

a business. They all had the frameworks done. We did

surprises sort of job into entrepreneurship? What were the

that for about four years. That gave us confidence to

first challenges you faced?

start our own brand.

Jahabar: We moved from a regular working job to

When we decided to do our own brand Chai Kings,

entrepreneurship for very silly reasons. We—my partner

the initial issues that we had were never anticipated by

Balaji and I—were working together almost for about

us. For instance, nobody was willing to let their places

12 years. Every now and then there was a little bit of

on rent for us. We went neatly dressed, travelled in nice

discussion about starting something of our own, though

cars and told them, “We are going to open a chai shop.”

we had zero knowledge about what business and

It didn't sync with them.

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!

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

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had 10 to 12 outlets. Now we get calls all over.

to give a Starbucks kind of an environment or give them

Wherever there is a small 400, 500 square feet shop,

a hundred Chai options to choose from, if we didn’t do

people think of us and ask if we want to rent that space

all that and keep it simple for the customer, then it

to start Chai Kings there.

could always work. Since we had plans to go outside Chennai, Chai was our preferred name.

How did the thought of Chai Kings occur to you? How did you address the customer perception of serving tea in more stylish way?

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

Before Chai Kings, we thought we could do a small,

hesitant about starting a tea shop because of social

non-vegetarian restaurant. That's how we started. Since

reasons or maybe they thought that it might not work

a restaurant would be capital intensive, we thought of

out because people sell tea at Rs 8 in local tea shops

starting a coffee shop and our discussions led to chai

and that it might not work out economically, and that

shop. Once we decided to go for chai, for one and half

if it is priced at Rs 50 like in Starbucks, then it will not

years, we did a market study.

be a mass product.

To our surprise, there were a lot of brands up north

So positioning the product was the difficult thing

and a lot of brands outside India as well. We knew what

maybe for the first time entrepreneurs. Since we there

would work in Chennai. All our discussions led us to

in the market, we were able to figure out that this might

believe that if we could position the product at the right

work. That made us come up with the product.

price, give them the right ambience, not overdoing it 22

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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

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Five years back, people were not really able to relate the

the shops, predominantly because people were not able

name Chai King to a tea shop.

to relate to the shop and the product. We've always seen tea shops with a boiler outside, a guy standing

Then Swiggy and Zomato

and making tea. We gave a small space for customers

happened.

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

of that was completely new to us. Yet, even before we

and we already had our cardboard flask ready. It helped

started, we knew this was the route we'd go as we've

us to take the product to about 10 km surrounding our

seen other companies take this road. Franchising or

shops. It also gave us the confidence that this was going

debt option was not a viable option to scale. We knew

to work.

we had to have a working model and a working product in hand. We did six outlets in total. Before that, I met

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.

a couple of investors to see what kind of questions they would ask me. 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

Even before we started, we allocated some funds

the brand. He put me on to Chennai Angels. I sent the

for this venture. We put aside some amount and were

pitch deck and presented to Chennai Angels by end of

determined to make it work. We couldn't afford to lose

2017. The room was full of guys between 40 and 50

our complete life savings.

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

Let's move to 2018 when you decided that you needed some

minutes. Very simple questions and to the point. I

fresh capital and you decided to pitch to angel investors.

answered them and went out. There were two or three

Tell me about the pitch process. How did you convince

pitches that day. I was waiting outside. One gentleman

them?

came out and said that my presentation went really well

Venture funding, angel investors and valuation—All

and there was a lot of interesting discussion. That person is none other than you, Shankar! I knew about

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The customer behavior was the most encouraging part for us

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

during Covid. When the

some money in the bank. So finance was not a concern

authorities allowed the

at that point, but then we knew that growth was going

takeaways, we could see huge

to be shunted for at least about a year. And if we didn't

walk‐ins to the shops. That was

take any drastic measures, we might lose all the money

a big morale booster for us.

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

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.

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

From 2018 to 2020, things were humming along. You had money in the bank and were adding stores. Then the entire

with us.

Up to 60% of our kitchen staff are from North East,

country came to a halt on March 24th. Tell us what went

mainly Assam. Another 40 to 50% are local staff who

through your head when that announcement of lockdown

manage the counters. During the lockdown, most of

came on TV.

the locals went home but those from North East stayed

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.

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.

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 the hygiene factor become important at that point

did you keep them going? Lastly, how was the customer

relative to normal chai shop?

behavior?

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There is a little bit of infighting

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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.

There's only one change we did. Majority of them

evening 4 and 7. With Zomato and Swiggy, we do

liked the glass cup that we served. We had to stop that

between 100 and 150 orders a day. When we started

as sharing cup could be contagious, if it was not

off in 2016, it took us time to understand the model.

cleaned properly. Apart from that, we put all safety and

We were getting orders. Money was coming in but it

hygiene measures in place. By July-August, we could

was going out as well. We had to really work out what

see more customers. They preferred us because they

the pricing had to be, because there was a huge amount

thought we were more hygienic.

of 25% going out as aggregator fee.

Then there is discount that we have to offer on the

How did you manage the online part of your business and the costs associated with the platform and the unit

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

economics of that segment?

don't really hike it up so much that we scare away the

Online aggregators like Swiggy and Zomato are

customer. So that was the difficult part. Once we got

definitely an advantage for companies like us. For well-

that cracked and figured out the food costs, the

established brands like Saravana Bhavan, it may not be

discount that we could offer and aggregator fee, then

a big plus. For us, only because of them, in the initial

this model really worked wonders for us. Our 50% of

days we became popular faster. Otherwise, it would

revenue

have taken much more time. Initially we started out

approximately about 1.5 crores a month from Swiggy

with a few delivery staff in our outlets but we could do

and Zomato. That is a big number for any business. We

a maximum of about 15 deliveries each, between

really had to work hard for that.

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from

online

orders.

We

get

25 FEB 2022

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But there are brands that struggle without a store and having only a cloud kitchen.

A lot of other factors also helped us because when we came in, there was nobody else in the market who

They're struggling very badly to

could give them hundred orders per store. So that

generate orders. It's not

meant there was a stiff competition between Zomato,

working out for everybody.

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

completely co-exist. We cannot bet on one and lose the

market share and we have become slightly bigger now.

other.

So it has evened out. It is working out for us and for them too.

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

Can you explain to people what a cloud kitchen is?

Everything is same with a cloud kitchen. We will

forward?

prepare the product and send it the customer either as

Everyone have got their own strategy. For example,

takeaways or online orders. A customer cannot walk in

there is Rebel Foods, which has got about 10 brands

and have tea or coffee in the shop. It's just a kitchen,

with them. They don't have a single store. It is working

a small shop. We normally take a first floor property

wonders for them and they are able to generate

where the customer wouldn't walk in. We just dispatch

revenue, but they are heavily funded as well. But there

online orders from that. With cloud kitchen, we cut

are brands that struggle without a store and having

down our investment by about 60 to 70% and just do

only a cloud kitchen. They're struggling very badly to

the kitchen part. We don't do the customer area, nor

generate orders. It's not working out for everybody.

the interiors, seating or furniture. All of that is

Whoever can get the balance of both online and offline

completely removed. Your investment is safe and you

worlds will really click.

almost get about 50% of the business through the online platforms.

What is your short message for entrepreneurs?

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?

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

Online platforms are going to be there and they're

some, it is their partners and for some, it's their

going to only grow from here. In our shops, I can

investors. You can't build the support system during a

accommodate only about 150 customers between 4 and

difficult time. You have to build it along, even as you

7 pm, by rotation. Both online and offline can

build your business from scratch. 

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