Karthik Pasupathy (aka KP)

Rebranded Tea Shops Are Increasing Tea Prices by up to 100%

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.