On December 2, we had a fascinating conversation with Mr A Babu Rao and his son A Shashank, the owners of Café Niloufer. They shared the evolution of one of Hyderabad’s most iconic brands and their future expansion and growth plans.
Mr A Babu Rao
The story of Cafe Niloufer began in 1978 with Mr A Babu Rao, who had the vision of creating tea that was not just delicious in taste but also carried the spirit of the city of Hyderabad!
Over the years, Cafe Niloufer with its own unique traditional taste of Hyderabadi Chai, has become a household name in the city. From a single outlet in Lakdikapul, today Cafe Niloufer has opened outlets in Red Hills, Banjara Hills and Himayatnagar.
Although the core of Cafe Niloufer is in its iconic blend of chai, it has also ventured into new areas, slowly becoming a household name in the retail business with its tea powder. Café Niloufer is also expanding its menu to serve different segments. It also has major expansion plans in India and abroad with son Shashank strengthening Mr Babu Rao’s hands.
Mr Babu Rao
Mr Babu Rao’s story is one of rags to riches. As a child, he did not have money to attend school. Fortunately, some benevolent members of the local community sponsored his education till Class 9. Mr Babu Rao found himself with no money when he entered Class 10. His father sold the milk giving cow he had for Rs 125 so that he could give his son Rs 100 to complete Class 10. Mr Babu Rao felt sad that his father had sold his most precious asset. But his father told him that it was his duty. In future, if the occasion rose, he could help another person in need. This had a tremendous influence on Mr Babu Rao and his outlook towards life.
After completing his education, Mr Babu Rao on the advice of well-wishers travelled from Adilabad to Hyderabad by train without a ticket. He was completely empty handed and did not have even a spare dress when he reached Hyderabad in 1975. He began as a salesman in a textile shop and for two weeks, spent the nights on the footpath and took his bath at the waiting room of Nampally station. But very quickly he made an impact with his hard work, attitude, and commitment. Soon, Mr Babu Rao moved to a restaurant where he could work, make some money and have boarding and lodging.
At the restaurant, he learnt the tricks of how a food outlet was handled. One of the customers who had come to eat at the restaurant thought he would be a good fit at his café and asked him to join there.
At the newly opened Niloufer Café, Babu Rao worked not only as a waiter but sometimes even as a sweeper. He also washed utensils at times. His strength was making tasty tea, and he also had a knack for selling things. After seeing his work, the owner of the cafe asked him to continue running it. Later, when he wanted to end the contract, he gave Mr Babu Rao the café. From then on, there was no looking back.
The name Niloufer comes from Niloufer Hospital and the Nizam tradition. The beautiful daughter in law of the Nizam was called Niloufer. Mr Babu Rao wanted his café to be as popular as the daughter in law. There is little doubt that Mr Babu Rao’s wish has been fulfilled.
For over 20 years now, Mr Babu Rao has been arranging a two-time meal for the patients and attenders, who come for treatment to the MNJ Institute of Oncology and Regional Cancer Centre and Niloufer Hospital. That is his way of showing respect to his father who had sold his cow for Rs 125 to fund his education.
Many cancer patients pass away during the treatment. Their caregivers and family members do not have the resources to conduct their final rites or transport their bodies back to their native villages. Mr Babu Rao has come to their rescue and helped more than 2,000 people lay their loved ones to rest.
Shashank
Mr Babu Rao’s son, Shashank after his graduation in electronics and communication engineering had no plans to join the family business. But when he saw how passionate his father was about his work, he started thinking why he could not take the business forward. Once he had made up his mind to join the family business, he decided to do his MBA in operations and finance. Shashank’s strength is standardization of the processes so that Niloufer can offer the product to customers consistently throughout the year. More recently he has been trying to standardize project implementation.
Shashank has put in place a flat organizational structure that has decentralized decision making. The span of control is typically 4-6. Shashank is not in favour of rapid expansion. The experience of other brands has shown that it often leads to dilution of quality and lack of consistency.
Café Niloufer today
Shashank looks at his father as a chai visionary. Father and son want every household in the country to consume Niloufer Chai. Indeed, Niloufer has come a long way in the last 40 years. With close to Rs 100 crore turnover, 600 employees, strong commitment to ethics and values, the company also commands a strong loyalty from its employees. During Covid, no employee left. In fact, after Covid, the employee strength has multiplied three times. Mr Babu Rao takes good care of employees. He pays them well and provides career progression opportunities even to employees who start as table cleaners. Mr Babu Rao takes care of the education of the children of employees so that they will not have to work in a hotel.
Mr Babu Rao believes in giving customers the same quality of tea he himself consumes. He uses the best materials for the tea he offers. He uses buffalo milk and not packed milk. He makes 4 cups with one litre of milk while others make 10 to 12 to cut costs. Niloufer uses tea costing Rs 700-1000/kg whereas other restaurants could be using tea costing Rs 200/kg. Unlike other restaurants which boil the tea for only 2-3 minutes, Niloufer does it for a full 7 minutes.
Mr Babu Rao attaches great importance to customer satisfaction. He believes that one satisfied customer will bring thousand more customers. Even today he spends 17-18 hours every day in the stores to understand the pulse of the customers and to listen to complaints if any. He also tastes the tea and if it is not to his liking, he goes to the kitchen to demonstrate how it should be prepared.
Mr Babu Rao feels that this kind of involvement is needed to ensure that employees are motivated and charged to give their best and maintain the highest quality standards. In many other restaurants, the owners do not spend time in the store. Even if they do so, they sit at the cash counter and do not get fully involved in the operations. For Mr Babu Rao, profits are important, but they are only the by-product of great customer service and excellent product quality.
Niloufer has moved into the FMCG segment, keeping in view the volatility of the restaurant business, which could be seen during the pandemic. The company now markets Niloufer tea powder. Niloufer is also setting up a 4000 sq ft store at the airport. This is one of the biggest spaces provided by GMR. It will be a European style ambience with Hyderabadi taste. As soon as people drive out of the airport, they will be able to get the feel of Hyderabad in a modern ambience.
Niloufer will continue to focus on the product, quality, consistency, aesthetic value and the feel. With its strong differentiation and appeal to the 25-30 years youth segment, Niloufer looks poised for a phase of major growth.
On what makes Niloufer unique
There are many international competitors like McDonald’s, Starbucks, KFC. There are many domestic competitors too. But Niloufer has created a niche for itself. Indeed, as Shashank puts it, more than customers, it has fans.
Tea is the core offering. Consistency through standardized processes is the main mantra. The tag line is Wahi swad ek naya andaz. The tea tastes the same day after day.
Mr Babu Rao spends 17-18 hours a day in the outlets, talks to customers and identifies new ideas for expanding the menu. Shashank develops the proof of concept and runs trials before launching a new item.
Many customers come to Niloufer 3-4 times per day. They literally own the brand. It is thanks to this strong customer loyalty that there is good word of mouth and the brand continues to grow in popularity.
On consumers in the olden days and today
In the past, people had less money. Usually, there would be one earning member in the family. They were also less aspiring. Now they have more money with all family members typically earning. They are prepared to spend money in good hotels with good ambience. They are looking for a good experience. At least, every Sunday, most families want to go out and have a meal outside.
On Niloufer’s major strategic decisions
Shashank joined the business about 12 years back. Between 2011 and 2015, there were no major decisions as Shashank was still receiving training across functions.
Since then, some bold moves have been made. The first big idea was to set up air-conditioned cafés. Subsequently, several large formats have been rolled out.
Mr Babu Rao has never thought small. He has been a quintessential risk taker. In Banjara hills, Niloufer has expanded from 5000 to 15000 sq ft. In Himayatnagar, the initial plan was to set up a 3000 sq ft outlet but this has gone up to 18,000 sq ft. Hyderabad Airport wanted to distribute 4000 sq ft among 10 brands. But Mr Babu Rao wanted all the 4000 sq ft for Niloufer.
It is not easy to set up such large stores with world class ambience. Moreover, when operating on such a large scale, huge investments are needed and there are challenges in breaking even. But Niloufer has achieved this in most of the stores in just 2-3 months. This is mainly because the café has been able to attract customers and generate the required topline.
On going global
Many Indian food brands have tried to venture abroad and failed. There are both macro and firm level factors at play here.
Indian food companies face some disadvantages. Institutional infrastructure is weak. There is effectively only one research institution, CFTRI (Central Food Technological Research Institute) in Mysore. Access to modern technology is limited.
Companies also take a short term approach. They do not make sufficient investments in research. Often, they rush into overseas markets, without doing the necessary home work.
Niloufer is proceeding cautiously. Shashank believes standardization and consistency are important for success in global markets.
Shashank is clear that it is not just about targeting the Indian diaspora but also about the local population. Foreigners should accept the brand. For this, tweaks in the menu are needed. Niloufer is trying to master unorthodox tea (milk based) before it enters the global market. Niloufer is also trying out new formats such as tea costing Rs 1000 per cup (using premium tea leaves plucked from the garden before sunrise and costing Rs 75,000 – 100,000 per kg in auctions) and expanding the menu.
Responding to a question, Shashank mentioned that Niloufer is setting up an export factory for serving the Middle East and US markets. Initially, it plans to offer packaged tea through an ecommerce platform.
Concluding Notes
Niloufer’s success has been spectacular. But Mr Babu Rao remains as grounded as ever. He believes that he must be alert all the time to ensure that he does not fall from this strong position. He works hard and remains fully involved in the day to day operations. Indeed, hard work is the common thread running through the company’s history. His undivided attention to the business, his focus on the customer and his commitment to employee welfare makes Niloufer well placed to build on this success. Son Shashank is a good complement to his father. The father son duo will surely take Niloufer to greater heights.
