Bengaluru-based tea cafe chain Chai Point is going to focus on its dispenser business for the next four years in the hope that it will be the stepping stone to the brand’s launch in tier 2 and tier 3 cities.
As it has already covered tier 1 cities by word of mouth and by being the first entrant in the store format of selling tea to white-collar customers, the company now wants to enter new markets, but without opening new stores.
The B2B-modelled tea dispenser business that Chai Point launched in 2016 has grown exponentially, claims founder Amuleek Singh Bijral. “The concentration of offices in Bangalore is so much that we quickly realised that the dispenser business is going to be a very big opportunity. We are very clear that our stores will grow only in tier-1 cities for the next 2-3 years. But our dispensers and retail products will go to the rest of India, and we hope that will create our brand in other cities,” Bijral told The Passage.
Marketed as BoxC, Chai Point’s dispensers have evolved from being semi-automatic to now an Internet of Things- and AI-enabled machine that not only automatically dispenses tea and coffee, but allows users to pay through the machine using UPI or Paytm.
Bijral said the company is already very invested in the BoxC business. “Two years ago, dispenser business was just 10% of the revenue, which has already grown up to 35-40%, while home delivery which was 15% now contributes 25% to the overall business. Wherever our consumers are present, that is white-collar employees, we will be there. It is a planned move.”
Founded in 2010, for the first four years Chai Point had placed its bets on physical retail stores for most of its sales. In 2014, Bijral launched the ‘chai-on-call’ service, allowing customers to order tea and snacks over the phone or through its app. However, with the entry of food delivery and restaurant aggregators such as Swiggy and Zomato, the home delivery channel went through the roof.
“The scale at which the delivery business grew really surprised us. We didn’t think it would become such a big part of their total sales,” said Shweta Bhatia, partner at global VC fund Eight Roads Ventures. Eight Roads Ventures invested USD 10 million in Chai Point in 2015, with a subsequent participation in 2018.
Bhatia believes Chai Point is now able to think about chai in a very holistic manner and it doesn’t matter if people are coming to the store or getting it delivered to their office.
“The idea was that when the stores were doing well, what can be done to serve customers who are inside offices? In that space, he (Bijral) has been able to make a really good headway with the BoxC business,” Bhatia said.
Sandeep Murthy, partner at Lightbox Venture that has invested in companies such as Faaso’s (now Rebel Food), InMobi, Cleartrip, Furlenco, among others, said moving from the store format to the dispenser model was natural because the dispenser business was big for other players like Café Coffee Day (CCD) as well.
“The bulk of CCD’s revenue comes from the B2B business, driven by dispensers installed in offices. When you look at the numbers you realise that all the machines put in offices drive a significant part of their bottom line contribution,” Murthy said
Murthy said Amuleek has put in a lot of effort to make sure the dispensers are not just tea vending machines. "He has added a lot of IoT and AI features to intelligently monitor the milk level and other mixes, which will make it more efficient and perhaps provide a better product than other dispensers.”
Bijral said they decided to upgrade their dispensing machine by observing the consumption habits of customers.
The BoxC machines are made in China. Bijral said the partnership with Chinese manufacturers has grown to a point where it is not just limited to hardware manufacturers but also includes software manufacturers. “We are looking at partnerships to develop not just machines but the software behind it. We are working on a lot of customised packaging for us. Rather than a commodity partnership, we are doing Chai Point-specific and exclusive partnerships co-designed by us,” Bijral claimed.
Dispensers for scale, stores for brand building
In two years, Chai Point claims to have installed more than 2,000 tea and coffee dispensers in offices across eight cities. The BoxC business works on a subscription model, where companies don’t have to buy the machine but just have to subscribe for the monthly consumption. Currently, Chai Point offers subscription to offices with at least 50 employees consuming around 80-100 cups of tea every day. The monthly subscription fee ranges from Rs 17,000 to Rs 21,000 depending on the consumption for a 50-member team.
Since BoxC is payment integrated, Chai Point is also offering a differential pricing model where companies can choose to either pay 100% or a part of the tea expense of its employees. “Spending Rs 60-70 on tea is although affordable, there are only so many customers who are willing to spend that much in a week. So now employers can either choose to pay 100% for the tea or have a novel payment model where a part of it is paid by the employer, while the rest is paid by employees using their cards, UPI wallet, Paytm, etc.,” Bhatia explained.
Bhatia believes in four years their dispenser business will contribute to half of their revenue. And Bijral now looks at the Chai Point stores as more or less a brand-building platform.
“Expansion of stores is relatively slower as you can’t open 1,000 stores in a year. But you can deploy dispensers in the thousands. So there are some channels that will grow faster than the other,” Bijral said.
Bijral said there are 140 physical stores in eight cities in multiple sizes and format, ranging from sit-and-dine stores on high streets to smaller stores in office buildings, which don’t have space for customers to sit — a quick tea and snack, and off you go. Bhatia said they would engage with customers in a productive manner in these stores.
“As we get bigger in online and dispenser business, our relative contribution on marketing will increase. But fundamentally, we are focused on building better stores as a brand platform. We are going to open in shopping malls to develop the brand. We recently opened at Bangalore airport, Goa airport, and we will be there at other airports as well,” Bijral said.
Bijral is planning to bring the BoxC business in a B2C business format too. “From the current 2,000 dispensers available, we plan to double within a year,” he said.