An evening with Mr Uday Srinivas Tangella

Introduction

On December 31, 2021, we had a very engaging session by a young entrepreneur, Mr. Uday Srinivas Tangella. Uday is an engineer by profession, but entrepreneurship has always been his calling. Uday has taken up the near impossible challenge of providing premium quality tea to consumers at a price (Rs 10) which has never been achieved in the retail industry. His company Tea Time provides high quality tea to customers at an affordable price without cutting any corners.

After developing his business model, Uday started to share his success with other likeminded individuals who have the entrepreneurial spirit by franchising. This bold but risky step has already created 2800 franchisees across the country.

India’s largest tea chain today, Tea Time now provides direct employment to 10,000 individuals and indirect employment to 25,000 people and vendors and has reached millions of people across India.

Uday’s journey

The idea As he was finishing his graduation, Uday like most other young people, was not clear about what he wanted to do. Should he pick up a job or work as an entrepreneur? Like many other techies, Uday also went to the US for higher studies. While in the US, he noticed that there were branded stores serving beverages across the country. At the same time, he realized that in India, there was not a single beverage brand which had brand recognition across the country. There was no store where people in any part of the country could visit and have a cup of tea without worrying about quality. Ironically, the few chains which had stores in the bigger towns were mostly serving coffee in a country where tea is by far the most popular drink. (For every cup of coffee, 70 cups of tea are consumed.) Uday’s simple vision was: India needs a better cup of tea.

While he was abroad, Uday found it common to see people going to the cafeteria on the ground floor and consuming branded coffee for 10 dirhams. Uday estimated that it would have cost 4 dirhams to make the coffee at home. In India, unfortunately, coffee is sold in the branded retail stores at Rs 200-300 per cup. If in foreign countries, the premium for a branded beverage is 100%, in India it is 2000%. Uday felt a sense of injustice as he thought about the situation.

Launching the business

Uday resolved to use the best quality tea leaves, milk, water and sugar to prepare a cup of tea which would cost Rs 10. He realized that to be able to do this, he would have to keep costs under control. He had to cut costs on interiors and rentals and his overheads while taking care to maintain hygiene. Soon, he was able to standardize his recipe and put in place a process to make quality tea that tastes the same across locations.

Uday spent just Rs 300 to come up with his logo. It was a simple logo with two colours, red and green denoting stop and go. With that, he was ready to launch his first tea store in Rajahmundry. The response from the public was overwhelming. People kept coming to the store. Soon, Uday opened a few more stores. But he realized that without an organization to back him, he would not be able to expand the business on his own.

Franchising

That is when Uday got the idea of appointing franchisees. In fact, till he had appointed 100 franchisees, Uday did not have an office. He was sitting in his car and doing all the negotiations. Sensing the huge market across the country, Uday continued to appoint franchisees. Today, he has 2800 of them in 14 states and enquiries continued to pour. On one day, as many as 107 franchisees opened their stores.

Supply chain

A well-oiled supply chain is important in Uday’s business. It is important that the tea leaves reach the stores within 24 hours of an order being placed. Instead of having a centralized organization, Uday decided to put in place a master franchisee to take care of stores in a designated region. Uday has also opened offices in Calcutta and Guwahati. Experienced tea tasters check the quality before buying the tea.

Today, Tea Time has an agile, cost effective supply chain which ensures that tea plucked from the gardens can reach the stores within three weeks. In contrast, this process takes 6 months for the supply chains of the FMCG companies. While Uday can procure leaves at say Rs 300 and supply to stores at Rs 400, the FMCG companies typically buy at Rs 120 per kg and supply at Rs 500. Uday is confident that this will provide a sustainable competitive advantage.

While the store front and store design may be easy to replicate for a competitor, the streamlined processes which run behind the scenes will not be easy to do so. While the MNCs are trying to maximise their profit margins, they are also left serving the upper end of the market. For Uday, there is an opportunity to serve 750-800 million cups of tea per month.

Building the organization

As he has grown his business, Uday has understood the importance of building an organization. He is appointing a brand strategist. The use of ERP, CRM and various digital technologies have streamlined the supply chain. Uday also has plans to include food items like cookies, biscuits and local snacks in his stores. The plan is to generate 25% of revenues through food.

Concluding notes

With the entry of Tea Time, many unhygienic tea shops have closed down. Uday feels that his formula of high quality at an affordable price can be applied in many other sectors to benefit the Indian consumer.

In short, while Uday’s passion to serve the common man has created a booming business and created many entrepreneurs, his strategies have evolved on a day to day basis. The result is a disruptive business model that has concentrated on serving the completely ignored lower end of the market.

Q&A

Why tea?

Uday has a fascination for tea. People consume tea many times in a day. The day starts with tea. When we reach office, we have tea. When we are with friends, we have tea. When we are upset, we have tea. When we are trying to build a relationship, we do it over a cup of tea. In short, tea is an integral part of our life.

Earlier, Uday had tried his hand at fruit juices. He imported juices from all over the world and offered a choice of 15 fruits and fresh juice without sugar. But the business did not click. Uday realized he needed to find what people liked and he quickly zeroed down on tea.

Uday added that unlike other products, home delivery is not the future for tea. This is because tea consumption is social in nature. Tea is associated with a break and human interaction. Even at roadside tea stalls, people stand and chit chat. Stores will not go away. People will continue to come out of their homes to have tea. Uday has plans to expand the number of stores to 25,000 in the coming years.

On growing competition

Competitors like Chai Point and Chai House are serving tea in the range of Rs 80-200.They are only serving the elite segment in the cities. They are not really targeting the ‘real India”. Chai point has less than 250 outlets while Chai House has less than 200 outlets. When compared to the roadside joints, Tea Time serves tea of superior quality at the same price.

On his growth and exit plans

Uday’s plan is to keep working on his business and improve the asset value. Meanwhile, there is a lot of scope to expand the business, with tea being the second most popular drink after water.

Uday also mentioned that the growth is profitable with 95% of the stores making profits. In contrast, many of the competitors are not reporting profits. They are even shutting down outlets in prime locations such as Rajeev Chowk.

Since the business is generally profitable and growing the help of franchisees, the need for funding is minimal at the current rate of growth. More than money, what is needed is a good team.

Investors will get a chance to monetize their investments at some point of time. But that is a separate decision and some time away.

On the impact of the pandemic

During the initial shut down, business was badly affected. But in June, once the lockdown was lifted, demand shot up. People concerned about hygiene came to Tea Time, instead of going to the roadside joints. With many people working from home, more people aspired to become franchisees. So there was a strong comeback for the business.

On the franchising model

It costs about Rs 4.25 lakhs to set up an outlet. The franchising fee is Rs 50,000 while Rs 125,000 is paid to the Master franchisee. There have been suggestions to increase the franchisee fee. But Uday has put his foot down. He feels that such an approach will not be sustainable in the long run. The franchisees must be able to make profits.

Uday has also shown the human face while dealing with his franchisees. He has treated franchisees with a lot of respect. He has been more than willing to lend a helping hand to franchisees in trouble such as those affected by floods. As Uday puts it, Tea Time is a brand with emotions.

Uday has also been careful while selecting the franchisees. While 2800 have been selected, some 8000 have been rejected for various reasons such as unsuitable location. Uday appoints a franchisee only after making sure he will get the stocks within 24 hours.

Advice to young entrepreneurs

It is important to understand the business thoroughly: whom we are serving, what we are serving, the gaps which exist, how we will provide value to the customer, how to recover the overheads, etc. We should not be just after volumes and market share. Profitability is also important. It is important to keep learning and upgrading our skills. Uday took the example of Steven Spielberg and how he has embraced technology while making movies.

Concluding notes

Uday is a young entrepreneur who has taken a simple idea but implemented it with passion. As Prasad summed up, this is a disruptive innovation which the bigger players have chosen to ignore. But it is only a matter of time, before Uday’s business scales up and takes over the leadership of the market. He continues to be inspired by the task of serving the country’s customers, the joy of people around him who are earning their livelihood and running a business with a human face. We have many opportunities to make Indian brands global. But we have missed the boat in many cases, including Yoga. Uday is confident that India can “own” tea globally. As Sudhakar mentioned, Uday is well and truly on his way to becoming a unicorn.

We thank Dr. Vedpuriswar for bringing out the highlights in the form of this note