Karthik Pasupathy

If you're in India, chances are you would've experienced the following at least once

1. An autorickshaw driver asking "where do you want to go? Pay me the same amount as the app"

2. A hotel manager requesting "Please cancel the booking on the app, ma'am. We'll give you a discount instead"

3. A plumber or an electrician saying "There's a lot of work on top of what you had mentioned on the app. Pay the shown amount on the app and pay me the remaining. And, here's my card. Contact me personally if you have any more requirements."

But, the situation wasn't the same five years back.

What Happened?

Autorickshaw drivers charged Rs. 500 for a 10 km ride. Hotels charged us exorbitant amounts for an AC room and plumbers and electricians dodged our calls and came at their own will.

Hospitality, private transport, and home services were huge, unorganized, and independent sectors. They understood the demand. So they made their own rules.

They became arrogant. They decided to get more money from every customer. They never thought about recurring customers or bothered about customer satisfaction. They always thought "Where else are they gonna go?"

Instead of robbing people in broad daylight and causing them frustration, they could've charged the customers a reasonable amount, catered to more customers, and made a lot of money.

The arrogance and mistreatment of customers by a few of these people led to the rise of the aggregator startups.

The Dawn of Aggregator Startups

As the arrogance of independent sectors rose to new heights, a few smart minds watched it all. They saw their parents and neighbors suffer. And, they leveraged the opportunity.

Coming from an engineering and technology background, they were tempted to find a solution. They thought "Why not build services that connect people with genuine service providers!" And they did. The first sector to see such disruption was ride-hailing services.

When Uber and Lyft were becoming trendsetters in the US during the early 2010s, a couple of folks started to replicate a similar model in India. Within a short span of time (2014-2015) there were several such services to choose from. There was Ola, Meru Cabs, Taxi for Sure, and a few other small players. It came at the right time because India was undergoing a massive technological shift back then. With the influx of affordable smartphones, most people having access to 2G or 3G data, and the interest among various institutional VC firms to invest in India.

The aggregator startup economy started flourishing in India.

Attracting Both Parties

When they started out, these apps offered attractive benefits to both the users and the service providers. This eventually created a landscape where it has become a habit for the users to use only a specific app as a preferred mode of getting services (be it hailing a cab or booking a plumber). On the other hand, service providers started relying on these services for their livelihood. For example, cab drivers stuck to working for ride-hailing services as they get consistent income. Also, cab drivers who operated independently heard what other drivers are making through ride-hailing apps and joined these services eventually. The companies that were closely monitoring this behavior decided to make profits. Result? Service providers had to give a significant portion of their income as commission to these aggregator startups and users had to pay a premium to use the service.

The service providers who once enjoyed seeing so much earnings slowly realized the reality of being part of an aggregator model. But, they couldn't do much. The sectors that were once filled with arrogant service providers are now filled with anxious, helpless people who can't set their prices or take 100% of their earnings home.

The Anomalies

But, a small subset of these sectors tries to stay away from all this. They formed a union and tried to run things on their own. For example, places like Goa still don't allow Ola, Uber, or any other app-based services in their state. They still operate taxi services and the prices are decided among the union. This way they charge fair prices, make enough profits, and take them all. Even places like Jammu and Kashmir do the same.

I'd want to write about this in the first place because the rise of aggregator startups has taught us an important lesson. Never take your customers for granted. Whenever a sector goes rogue without any rules and treats its customers badly, they present a business problem and a market opportunity for new startups. Everything the sector disagreed to implement for decades will be achieved by an app within a couple of years.

Fascinating!

Photo by Nathan Dumlao on Unsplash

Instant coffee is a lazy man’s beverage. Throw a spoon of instant coffee powder and sugar into a glass of milk, microwave it for a minute and you get a glass of hot coffee. No wonder the younger generation is drawn toward instant coffee.

I am no exception. Even though I am a tea person, I can’t start my day if I did not have my dose of morning coffee.

Our love for coffee

Coffee is still a staple among several Indian households. India as a country plays a significant role in coffee production and consumption. India produces 4.5% of the World’s coffee and 78% of the coffee produced in the country is exported as coffee grown in India is considered one of the finest coffees in the world.

We also rank high on coffee consumption, especially the South Indians. India consumes 1,20,000 tonnes of coffee every year of which 80,000 tonnes are consumed by the Southern states (Tamilnadu, Kerala, Andhra, Telangana, and Karnataka). The country also boasts 2,50,000 coffee growers, of which 98% are small vendors.

From a commercial and a business point of view, coffee hasn’t changed much for several years. It was either filter coffee, which is still the preferred way of coffee for the previous generation, or instant coffee which is quite popular among young people who live alone or with roommates as it is easy to make. And, if an industry hasn’t changed in a long time, it is normal for businesses to get into that space and try something new. The Indian coffee market entered that phase last year.

The new-age coffee companies, which we’ll see about in some time, came into the market with the hopes of bringing something new to the instant coffee market. With new flavors and bold marketing campaigns, a new segment of instant coffee started getting visibility – premium instant coffee.

The target customer base

The target persona of these coffee brands are youngsters who enjoy coffee and are inclined to try something new like dark chocolate coffee, hazelnut coffee, and so on. And, they should also be willing to pay a premium price. So, it narrows down to a niche of people who are working in IT jobs and startup companies who wouldn’t mind paying 2 – 2.5x more for their coffee. (Note that a large part of middle-class families still buys coffee powder on a daily basis in the form of Rs.2 sachets.)

If you think ‘who would pay so much for coffee?’, you’re wrong. There was a significant boom in the instant coffee market during the beginning of the pandemic. This reminds me of the arrival of cafes in India. When cafes started in India, people thought they will never take off. Their argument was ‘why pay a hundred rupees for a cup of coffee if you can get it for ten rupees in a normal roadside coffee shop?’. But, cafes stayed and have become a huge thing now. Every Starbucks outlet is crowded these days.

We’re seeing similar growth in the instant coffee space. Thanks to marketing and powerful storytelling by new-age coffee brands.

The story behind every cup of coffee

The marketing of premium instant coffee revolves around creating a story behind a cup of coffee. Every pack contains information about the type of coffee it is (100% Arabica), where it was grown (something like ‘along the slopes of Chikmagalur’), and at what elevation it was grown (3124m above sea level) by a family that is into the coffee business for several generations, the flavor note in each blend, and so on.

The details and the story behind a cup of coffee make it more of a conversation starter among friends. I can see people discussing coffee flavors, where it came from, etc. With subtle storytelling, the new-age coffee companies made coffee a cool thing among the younger generation.

If you think about it, it doesn’t matter at which elevation your coffee was grown or whether it is 100% Arabica or not. In fact, we don’t even know other types of coffee! But, we still believe in the story. We feel exclusive and special when we open a box of premium instant coffee.

This reminds me so much of Indian youngsters talking about cars. They talk about how long does it take for the car to go from 0-60 km/h, despite knowing about our traffic and driving conditions and the fact that we can’t drive past 40 km/h in city conditions.

But, it is good to see that the storytelling pays off. There are over 30+ coffee companies selling premium instant coffee in India. And, the competition among them has brought an alarming trend in how coffee is being marketed.

Coffee brands are marketing coffee as a supplement to working around the clock.

The alarming trend

The ads and marketing campaigns I came across were normalizing the concept of overworking. Being a workaholic is portrayed as a cool thing. I saw one particular coffee brand running campaigns with slogans like “Drink this coffee before pulling an all-nighter” and “new perk of drinking coffee: faster promotions”. I was surprised to see it because, for several decades, coffee was always portrayed as a morning drink – something that prepares you for the day. But, I never thought it would be used to normalize sacrificing sleep for a faster promotion (as if that happens!).

But, people love it. And, they spend 2.5 – 4x more than what they spend for a regular instant coffee (this is very similar to how customers pay 2x for a glass of tea in fancy tea shops). A 50g bottle of premium instant coffee is sold for Rs.350 – Rs.500, whereas the normal instant coffee cost Rs.90 – Rs.100. This happened with chai a couple of years back and is now happening in the coffee space.

There are also other trends that are becoming popular. This includes cold brew coffee, drinking black coffee, making coffee in a French press, and so on.

Love it? Hate it?

Is this a healthy trend? Honestly, I am not worried. A huge portion of coffee consumers in India are still middle-class families who resort to conventional filters and instant coffee brands. The trend I see might attract only a very small portion of this consumer base to try a premium instant coffee. And, I personally don’t think people are looking for flavored coffees. A lot of them (like me) want their coffee the normal way. But, the one thing I am worried about, is the normalization of working around the clock and pushing coffee as fuel to stay awake.

Coffee brands who are working on their marketing campaigns should also think about the long terms effects of what they stand for.

Photo by Swastik Arora on Unsplash

How much impact can branding have on the price of a product? The answer is anywhere from 100% to 1000%.

The other day I went to Chai Kings, one of the fastest-growing tea shop chains with my friend and we had tea and two pieces of cake. The total bill came close to Rs.100! I was surprised because if I had had the same items in a normal tea shop, I would’ve paid 70% lesser. So, it got me thinking. I observed the shop and tried to understand what had changed.

The answer was simple. It was branding.

The whole place had a smooth finish to it. The walls and the background had a white and green theme. The guys who worked there wore a uniform. There was a touch screen POS system for billing and an illuminated menu board that displayed different types of chai you can order. Also, every glass they served tea in, was branded. I was amazed to see how a company had taken such great care in branding and creating a consistent experience for the customer. But, the size of the glass and the taste of the tea was more or less similar to the tea I have in my regular tea shop. But, the price I paid for that tea is 100% more than what I pay at a regular tea shop.

The tea shop I go to these days is not as fancy as that of a fancy tea shop. In fact, it is the exact opposite.

It is a small space with dull, paint-stripped walls. The space had two counters and the rest of the place is left empty for people to stand.

The first counter is where the owner of the tea shop sits. The counter is filled with huge glass bottles that had biscuits and tea cakes arranged in them. There is a rack behind this counter that has cigarettes, mouth fresheners, magazines, bananas, lighters, ball pens, shampoo sachets, Gillette instant razor and a stereo system that plays devotional songs in the morning, radio during the noon, and Ilayaraja songs at night.

The second counter is where the magic happens. The small stainless steel counter has a gas stove, boiler, and a few dozen tea glasses. A guy in his dirty vest and dhoti will hum to the song that plays from the speakers and his hands would be creating magic mixing decoction and milk into small tea glasses.

There is a third section where another guy who we refer to as “the vada master” will be slipping small chunks of Urad dal batter into a hot iron pan that has boiling oil. There will be an aluminum tray on a table where the hot vadas will be kept. The distance of this tray will be at the midpoint between the tea counter and the iron pan where the vada is fried.

The tea shops I know don’t just serve me a glass of tea. Instead, they serve me an experience. An experience I can get for just Rs.10!

Why Tea Shops?

Tea shops are the lifeline of our country. It is the equivalent of bars in western countries. It is a place for people to hang out, form friendships, discuss topics, close land deals (happens more often than you think!), look for jobs, etc. According to an analyst report, in a city like Chennai, there are close to 20,000 tea shops, each serving a minimum of 150-300 cups of tea.

An average tea shop makes 1.5 - 2 lakhs in profit every month. If they sell snacks like Bajji, Bonda, etc. they can make more than 3 lakhs a month.

Companies like Chai Kings and Chaiwaale have understood the market, and the potential it has if customers were offered more than tea. They bring more to the game by partnering with food delivery services like Swiggy, UberEats, and Zomato. They have special flasks for delivering tea and they also offer a range of specialty cookies, cakes, and Maggi to lure the audience. Even though it comes at a price that is a little higher than what you pay for a normal tea shop, people like that experience.

Result? An average Chai Kings outlet makes twice of what a normal tea shop makes. And, with 40+ outlets and $1 million in funding, they’re on a steady growth trajectory.

The Rebranding Fever

Brands like Chai Kings and Chai Waale are a classic example of how branding disrupts a largely untapped market. They identify the right niche instead of building a fancy coffee shop, and they identified the right persona to go after. The goal was to attract college, IT and the upper-middle-class crowd. And, within 3 years, they’ve become successful at it. They’re rapidly expanding to cities like Coimbatore and Hyderbad and have made a name for themselves in the market.

But, I have recently observed a lot of smaller tea shops following the path of Chai Kings. They change the name of their shop to something that starts with the word ‘chai’ and they remodel the shop into a fancy looking one. Result? The price of the tea they serve is now Rs.20 instead of Rs.10. This trend is more prominent in areas that are closer to IT parks and large gated communities.

I am worried about this becoming a trend in other parts of the city as this can increase the overall price of the tea that still satiates the hunger of several working-class people and people who are below the poverty line. I’ve seen people who live on just tea and biscuits. Several tea shops don’t increase the price of their tea even though there is an increase in milk prices. They believe in sales by volume and also make enough profits selling cigarettes and snacks. With the increase in prices, the amount that is spent on tea every month will double up and might burn a hole in customers’ pockets. Every fast catching trend also has a downside. But, businesses should try to understand the impact it will create on their customers before attempting for a renovation or a rebranding. They should ask a lot of questions like whether their customers really want such an experience? Would they be willing to pay the revised price?

I don’t know what the future holds for all the 20,000 odd tea shops out there. But, I’d not want to miss seeing a tea master make tea. It is nothing, but a work of art.