[Music] what if the boring stale and tasteless cup of coffee in your office give you a 100 CR business idea well that's what happened with our guest armanu and his company Sleepy Owl Sleepy Owl is a new generation Indian coffee brand that is known for the most premium authentic cup of coffee without the long process of making one in this episode we dive deep into three core insights into how Arman built a mega d2c coffee brand my is a i AJ and I the three of us are very very big food and beverage Fanatics so at the point in time when we met and we were figuring out what area of business we want to start up in we realized that this is something we're excited and passionate about and we want to explore so we had very different habits around coffee and that was the inkling that actually got us to start researching what's going on in the coffee space right uh we have no background in terms of coffee farming uh we started as users researching what's going on in the coffee space and we just fell in love with what we read and learned about coffee and told ourselves that there seems to be an opportunity here and we just jumped on that opportunity after he shifted to Bombay Arman got his first taste of office coffee and it was not a pleasant experience this was the Inception point of the coffee problem that needed to be solved I had just moved to Bombay and uh after University and working at ntech startup in an office in Bombay I got exposed to what is called office coffee right and I realize that this is not tasty right office coffee is not fun and unfortunately today 2023 is still not fun coffee is the fuel that keeps people in office energized working active caffeinated you know so why not why don't companies invest in great coffee for their employees but I think every time we go back to HR and admin it becomes a question of cost right like I will not spend more than 4 rupees a cup for my employees coffee I mean you're going to get crap in 4 rupees a cup and then the employees also settle with it or what we what I started doing I would go down to the nearby CCD at F Republic mall and have a cup of coffee my co-founder ashit who had quit his job in Delhi and he was living with me in Bombay while we were ideating uh would choose to work out of a Starbucks we had a beautiful Cafe in Andheri and that's where he would sit and work out of and he was sipping his black coffee an Americano or an iced Americano he got me drinking black coffee with him and that's when I discover that there is a world Beyond sugary milky coffee and started enjoying what black coffee tastes like right and said okay why not more of this why AR more people drinking more of this what's going on the next realization was that at home what are people drinking and it was all instant coffee that was made by Nestle and hustan un L which is Nescafe and bral that's what people were consuming at home and they had all of the market share among them uh at for in home consumption the other was understanding that you know and we spent some time in chick mangalur uh which is where all of India's most of India's coffee is grown all of the premium arabica coffee is exported out because in India there weren't enough paying customers for high quality Arabica because no one was drinking that right and given that 2010 to 2020 is when social media exploded I think people in India became more aware of what's going on in the west so we said okay this is that you know where that the cusp of these couple of things happening where we should be able to introduce an interesting in or product within the coffee category that would initially be catering to customers who are willing to explore and those who are aspirational and those who may be able to or are excited to pay a little bit more for a better quality product it'll be small it'll be Niche but we were excited to go after that I think the third thing the startup ecosystem started evolving so as young entrepreneurs you were like yeah this seems to be an opportunity the the world around you is ready to support you to do this that's when we actually discovered cold brew for the first time right and uh we made cold brew for ourselves we tried it and we said okay this really fascinating as a beverage right so as a user we said there is some Gap here there is some problem which needs to be you know solved right one thing led to another and we were convinced that there is some opportunity in this space and then we just jumped into it Hi V fam and now before we get ahead what's super interesting is that a growthx Capstone team literally built a growth strategy for sleepy out that was so realistic that they presented it to the entire startup ecosystem at the growthx demo Day last year this strategy runs literally into hundreds of pages it's super in- depth but because we love you we are giving away a small portion of this exclusive document to our entire YouTube fam in it you'll find insights about sleepy owls users in-depth market research the industry and the user Insight behind their massive growth the link to access it is in the comments and it's free by the way so happy learning cool get getting back to arman's story you were talking about like ourselves as users like like that's where the whole thing came about are your insights what are your insights about Indian coffee users the biggest Insight was that our generation the '90s kids grew up drinking por coffee yes n Cafe made it cppe so cold brew sort of lended itself to that where you keep it in your fridge and you can make you know any form of cold coffee using cold blue and it tastes delicious it was clearly a me problem like yeah I'm facing this problem I want a solution to it and the problem was twofold one is lack of Education right there was no no one was educating users about coffee so what we discovered by going to Chick Mangalore was that quick snapshot coffee is a fruit uh the MU the Cherry is removed as a green color Bean that bean is roasted it's ground it's brewed and there are different ways to brew coffee for different grind sizes whereas it's complicated it's not easy for an average user to up most people right and don't go through this process it is just the enthusiasts to go go through this process those who don't go through this process end up drinking instant coffee which is coming from the same players in the same tast and you know not of the best ingredients or quality because they're not using that's say Arab Arman discovered that Arabica is the most premium coffee bean and Indian brands have mostly been using robusta beans with this inside they had one Mission get Indians to upgrade to a better cup of coffee the second big problem they wanted to solve was convenience they realized that selling beans or ground coffee to Indians would not make sense which is where their innovation of a new cold brew packaging came in you could just put a bag in the water put it in the fridge overnight and enjoy a freshly brewed cup of Premium 100% arabica coffee without putting in any work so these couple of things fell together and we essentially launched as a 1 SKU cold grw company like we were called Sleepy out cold group Cofe specific but it it was restricted to this you know I would say you know Peak India one India 1 0.1% right of people who already had some taste for black coffee who were very well traveled who early users of uber early users of Netflix Airbnb so I think people who were early adopters or early users for any of these other apps were quite early to adopt Sleepy Owl as well right so the first 18 months you managed to get there obviously over the course of the the last 7 years we've launched in products in a lot of other categories within coffee as well right so to give you an example we went from launching a black C Brew to a ready to drink C Brew right and that ready to drink C Brew when we when we designed it and it launched in about 2018 it's very little milk very little sugar made with cold brew so it's actually very light it's PL in its consistency so in this beautiful glass bottle within the RS of Delhi and Mumbai at the time and now Bangalore as well uh there is that audience that absolutely loves it the way it is right where they say listen this is exactly what I want it's a black coffee with a dash of milk and sugar it's cold brw they appreciate it but as we scaled it to Punjab and to uh you know other markets right where we started using a different audience most people pick it up expecting a cold coffee so for them it was a shock and he started getting a lot of feedback around it so so we took that feedback and we recently launched uh I think 2022 summer we launched cold coffee in its traditional forms it's creamy it's sugary it's you know it's thick it's doing very very well and it has a consumer so we went back to the cold brew right and uh most people don't know this and I've never spoken about it before actually we took that cold brew and we changed the formulation we made it slightly thicker slightly milkier in the hope that even the odd person who picks it up thinking it's a cold coffee still likes it other we got brick bats and complaints from the core user of the cold brew saying what have you changed and why have you changed yeah right and we went back to the old formulation so we have both in the portfolio now right and both coexist and they both do well and they're two different things with a solid gold Brew product in place Sleepy Owl started to nail category expansion and increase their range of products what started from making instant coffee the villain now became their top selling product but over the years we realized that and this happened through lots of user interviews that even our core consumer s owl's core cold brew consumer almost all households have instant coffee in their Pantry yes and we realize that this is a segment and a space that a we can get into from a business sense and they may be scoped to do a better instant coffee how about we say Okay 100% araba freeze dried coffee and then give it like you know some fantastic flavors and flavorize it and premiumize it and you know make it a better overall experience and uh you know we've seen Fair bit of success even in that product range right today you know inant coffee is our largest selling segment we are in the business of premiumize we are in the business of getting people to upgrade because we're serving a better quality product so I think the the intention is to get consumers to switch from what they're currently having to something better of higher quality what does it take to scale in India like at a d2c brand as an FB player like what does it take is 25 24 25 year old non fmcg non food and beverage uh non business Founders we had a very different journey of starting and scaling our organization and our company right as I mentioned step by step product by product de so there was no way to start but online gradually we went to let's say marketplaces which is Amazon card so on and so forth and then now quick Commerce spaces you know so essentially all digital channels right yeah that was our journey of scale today we are Omni channel so we're not d2c in any way or form we have a website it contributes 25% of our business but that's it right there is Amazon there is quick Commerce there is modern trade there is General trade less than 25 now to be honest so let's talk numbers like I'm so curious like I want to really like unfold all let's talk about AOE I think eovs and this is this would only apply for the website you know your eov is directly connected to your customer acquisition cost and customer acquisition cost unfortunately is not in your control as much today it is high right it is upwards of 200 250 300 350 400 depending on the category depending on your marketing efficiency depending on your spends right so given that your customer acquisition cost for the firsttime consumer you're looking at minimum eovs of 900 plus right 1,000 plus and to be honest the higher the aov the better it is for you to make money on that first order right because if you're if you're not making money on that first order where you acquire a customer then you're highly dependent on making money if they repeat now if you're dependent on making money when they repeat the couple of issues there one is they may love your product but start going to another channel to buy it which mean they may not come to the website again and again now why may they not come back to your website right You' acquired them and you not made money on the first order let's assume because you're selling something worth 3 400 rupees they've come they've tried it uh you're not making money on that because of your Logistics cost your shipping cost your payment Gateway your cood charges thean right you're not making money on the first order so you're hoping they keep coming back and you start making money why may they not come back your product is not good enough they didn't like your product they didn't like your offering so they don't want to come back second is slightly not within your control which is logistics right it took too long to come from your website or the experience wasn't smooth enough so that leads to friction right where that customer may debate even if they want to order your product again they may debate saying my website are they available anywhere else and once that starts if they have to start searching for you other places they and they don't find you easily which is the usual case for young startups because you're not available very widely they look for Alternatives right and then you lose a customer so I think that is where the major issue is so not to say that you need to be first order ideally you should be first order profitable after all costs the other thing you can do to increase aob right uh and my glass jar today is 500 rupees let's say an acquisition cost of 250 I'm technically not making money right on first order but what you do is you increase aov you do bundling right where you say okay buy two buy three and get better prices for it or something like what you have done which is very interesting and I was going to bring it up merchandise yeah I saw very interesting that you know for a coffee company yeah there is somewhere on your website says that you know get a cup or monk sorry get a coffee free get a coffee free I shouldn't we get coffee and get the mar free it's very interesting how there's a reason for that right the reason for that is because uh We've set this is two mugs which are 12200 rupees together and so customer is already spending they're seeing an ad they say okay these two beautiful mugs good quality everything checks out it's a branded mug which means they promote the brand every time they drink out of that or remember it right for 1200 so it's way above your a even if I'm acquiring for 250 with 1200 the unit economics on that work Works uh but the free coffee is the hook which actually gets a customer for us it's important that they try it if they try it they could come back and buy it right so that is the reason why we do it that while all of this sounds good like any other startup Sleepy Owl has had turbulent times they constant supply chain niggles you know our raw material is out of stock I mean packaging material is out of stock you have the coffee you R nothing to pack it in our dark roast cold brew packaging not come on time so we ran out of dark roast cold brew the darkr coffee was there the boxes were there but the pouch in which it goes was not there we said okay right in Co we done jards where we took the original packaging and we put a sticker on it and we could have done it again but I said it's a matter of few days let's not go down the stickering route again again so just for anyone who's again thinking FNB painful when it comes to compliance and you know the the laws and the things around food in is not easy I mean a few U near-death experiences in terms of uh you know cuz U you you are you are a company that where we have raised funds and we are on a growth path and you know it is a cycle where you're sometimes on the edge when it comes to Capital that you're trying to raise and it coming to the bank so we've had a you know near-death experience there which we've bounced back from sleepy all today has become a household name in India they have recently launched new packaging for their premium instant coffee they are present across 7500 stores they valued at more than 100es and with that they are on route to tremendous growth [Music] h