#130. Cha Cha Matcha is a beverage brand with five retail locations and a recently-released line of canned drinks. We talk with founders Matthew Morton and Conrad Sandelman about how they played a role in popularizing matcha. The Loose Threads Podcast features in-depth discussions with leaders across the rapidly changing consumer economy.

Check out the full transcript below. 

Matthew: [00:00:01] The normal food and beverage concept is really constrained by the drive to just sell more matcha or more drinks or more food. We’re not focused on that. We’re focused on building a better and better and better experience.

Richie: [00:00:18] That’s Matthew Morton, co-founder of Cha Cha Matcha, a beverage brand with five retail locations and a recently released line of canned drinks. Matthew started the brand with co-founder Conrad Sandelman after discovering the benefits of matcha on a trip to Japan. They set out to turn the beverage into its own category.

Richie: [00:00:39] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next-generation consumer companies, and FaceLift by Loose Threads, a retail incubator and accelerator for leading brands and retailers. For our latest analysis and insights, check out our free weekly newsletter at LooseThreads.com.

Richie: [00:00:52] I started the Loose Threads Podcast to spark engaging discussions with leaders across the consumer economy. That’s why I was excited to talk with Matthew and Conrad about their retail learning curve early on, and why they’re now expanding their brand to live outside of their owned and operated retail locations. Here’s how it all began.

Matthew: [00:01:15] I used to be really addicted to energy drinks and my energy levels were always out of sync. Mind not mentally clear, super jittery, unbalanced energy levels. Conrad introduced me to matcha on the way to a workout, and he’s like, “You have to try this crazy thing. Supposedly it gives you a shit ton of energy and helps you focus on all these things.” And I was like, “Sign me up.” So, we both had it, had a crazy workout and, after that, we went on a 30-day challenge. He got off coffee, I got off energy drinks and it really just changed the way we energized. We were so mentally clear, so focused, so calm doing our schoolwork and we kind of realized that there was something there at that point.

Conrad: [00:02:02] But I would say, at the very beginning, it wasn’t necessarily, “Let’s drink matcha to figure out a business plan.” So, when we did this 30-day matcha cleanse, basically, I really had no expectations that [a business] would come out of it, but I thought like, maybe it would help him a lot and I think it was really groundbreaking for both of us. And after that I think that’s when we became really passionate about matcha, and really tried to learn and try as much as we could.

Richie: [00:02:28] Where do you go from, “I feel good” to “This could be a business?”

Matthew: [00:02:31] At the same time, coincidentally, in business school, I had this case study about Starbucks and Howard Schultz—and we’re 90s kids, so we have never lived in an America without cafes and coffee shops, and it was really interesting to learn that there was no coffee from exotic places. There [were] no cafes and baristas like I’ve seen today, and how Howard Schultz took that from Milan and brought it to America. It was really in that moment. I was like, “Hey can we do this?” And energy drinks were marketed at nightclubs and the X Games and extreme events, and around this idea of like, getting up to this extreme level. We wanted to create a cafe that gave you this really feel-good feeling, feel-good energy, and then embody that spirit and ethos into a product and kind of sell it everywhere when people were really excited about matcha.

Conrad: [00:03:28] The vibe of the coffee shop kind of goes with the feeling that coffee gives you. You go in at 9 am, they’re playing loud death metal music, which kind of gives you anxiety to start your day. The barista is like, trained to be snobby and give you attitude, and I think that kind of goes with the feeling that coffee gives you. I think matcha gives the exact opposite, so we wanted a space that was really light, really fun. A place where the barista was going to be insanely nice to you. There’s going to be music that was catered to like, that part of the day and just make you feel really good when you walk in [and] when you walk out.

Richie: [00:03:57] How long did it take you to land on the idea of like, matcha as a business, first as a store? And then talk about I guess, opening and getting to the first one.

Matthew: [00:04:06] Around the time that we graduated, went to Japan, really wanted to get inspired there, learn more about matcha, learn about the ways that it’s drunk there. And while we’re there, we really got inspired, started working on the store. We looked at so many different locations when we went back to New York—we looked at probably 75 different stores. Took us like eight months to work on the business plan. We thought we would be able to open the store in March, come in one day—literally straight out of college, don’t know a thing about construction—the contractor tells us, after we built the ceiling and the walls of the store, that the floor is not structurally sound. So, we literally have to go through this process of demoing the floor, replacing it, putting all new structural beams and, meanwhile, we’re trying to recruit a manager to come work at the store.

Conrad: [00:04:58] We had this manager come in, we’re standing outside the store, and it’s obviously a little weird because this person wants to see the inside of the store. But he and I are avoiding at all costs, because there’s no floor, so we’re kind of just like, keep on dragging the conversation, driving the conversation, and at a certain point she was just [like], “I need to see the store. Like, you guys are talking about it, I would love to see the design, it sounds so cool.” So it was kind of like, “Here goes.” And we open the front door and you can see straight down into the basement. If you took one step you’d fall into the basement. And the look of horror on her face was insane.

Matthew: [00:05:27] Yeah. But she ended up working for us.

Richie: [00:05:29] So talk about the location. You said you looked at 50, 60, 70, etc. What were you looking for? Why/where/size, all those things.

Conrad: [00:05:37] At that point, and still, we really like to hang out, and have a lot of our friends who like to hang out in the SoHo and Nolita and Lower East Side area, so we knew it had to be somewhere there. We were first-time operators with a business that a lot of people didn’t believe in, so we knew that—

Richie: [00:05:52] Why?

Conrad: [00:05:52] I think at that time where matcha was added as a category, people didn’t really know what it was at all. And they thought, “Oh, two people opening a tea shop. Who knows what will happen?” So we knew we had to get the rent pretty low at this point, so that really limits your options in New York. And he and I are super picky, the specifications of the store, we don’t like narrow-bowling-alley-style places. Like, the spaces that are almost like, wider than they are long, to help create the vibe and atmosphere we like. So we just kept going and going and going and we couldn’t find one. And there must have been like a six-week period where we didn’t hear back from any brokers, because they were just fed up with us. And, awesome, you get like, one phone call of someone that said, “Hey, come check out this space on Broome Street.” And we looked at it and we just knew, and we hopped right on it and took it.

Matthew: [00:06:40] Design is really important to us. First came from coffee shops, coffee’s brown, so there are a lot of wood tones and browns, but like, matcha’s green. Let’s do a store with some green, but who wants to sit in like, an all-green store? We looked up, complementary color to green is pink, and we wanted the store to emulate the exact feeling that people have when they drink matcha, which is this like, really good, feel-good vibe. And also we wanted to embody like—the way that our baristas spoke to people was, we want people to feel good and smile and have fun. So we wanted the store to not be serious like other tea places or coffee places, be really fun, really enjoyable and kind of transport you to a tropical place.

Richie: [00:07:24] What was it like, I guess, translating that to like, architecture and a physical space and construction. And, did it get it right the first time, or were you in that process like, fixing a lot of stuff?

Matthew: [00:07:35] We’re always fixing things, and we’ve been bootstrapping things for a long time. Like, our West Hollywood store, all the stuff, we bought it on Etsy, literally. We found like, a random Hawaiian fabric company and that’s where we made the fabric from. We found cool old Cha-Cha albums that said “Cha-Cha” all over them on eBay, and we went to a few record stores and found cool random posters and like, a cool vintage couch, and some plants, and then like some white paint and a pink awning and that’s like—

Conrad: [00:08:04] Yeah, I would say, in Broome Street, our first store, it was all about finding random things we thought were just cool. And then, kind of as the stores have progressed, we’ve added just some more custom elements to it. If you go into our newest store which is on Abbot Kinney in Venice, every piece of equipment in there is custom-shaped for Cha Cha to be like what a matcha cafe like, needs to have. And we use all custom stone that’s only made for us, and we pick the color, everything, so it’s kind of just been an evolution of that.

Matthew: [00:08:36] One of the things we set out to do was change the stigma around tea. And I think when you think of tea you think of a stuffy place where your grandparents are drinking it, or like—

Richie: [00:08:49] You’re British.

Matthew: [00:08:50] Yeah, British, or like, just making it at home. Or like, when you think iced tea you think like, Lipton or Arizona Iced Tea or something, and Cha Cha Matcha is completely different. And that’s what we set out to do, we were like, trying to tell people about this thing they’re looking at us like we’re crazy. We’re like, “It’s tea but like—”

Conrad: [00:09:05] “It’s fun.”

Matthew: [00:09:06] Yeah, it’s fun, but it makes you feel better than coffee. Not really like an energy drink.

Richie: [00:09:11] Well it’s funny now, because I guess I don’t even think of matcha as tea.

Matthew: [00:09:13] Not at all. Yeah.

Conrad: [00:09:14] It has its own category.

Richie: [00:09:15] Yeah.

Matthew: [00:09:15] When we first opened Cha Cha, for at least the first year, over 50 percent of people that would walk in would say, “What is matcha?” And the line would move slowly like, partly because the barista would have to sit there and the cashier would have to sit there. And with every single person you’d have to go over what matcha was. And then, even at that point, people would pretend to know what matcha was but they didn’t. I was once cashiering in the beginning and there was a man there with his kid, his kid must have been five years old. And the kid like grabs at his shorts and is like, “Dad, what’s matcha?” And the dad’s response was that it’s ground up vegetables, which is so not what matcha is. And they were just like, playing it off. So people had no idea.

Richie: [00:10:00] So, I guess working up to the launch of the first store. Like, what were your expectations for it and then how did it actually go?

Matthew: [00:10:04] No expectation.

Richie: [00:10:06] Really?

Conrad: [00:10:06] We had, actually zero. We had no PR, we only hired a PR company about a month ago. We had no expectation. We thought we’d probably have one store for three years. And the first day, honestly, our goal was to do ten or 20 customers so we could get our feet under us and kind of figure it out from there. And we opened our doors day-one and, how many customers did we do?

Matthew: [00:10:27] I think like, 450.

Conrad: [00:10:29] 450. It’s probably one of the most insane days in my life. Like, good and bad. Because everything that like, could have gone wrong went wrong, but everything that also could’ve gone right went right. And it was kind of just a perfect storm.

Richie: [00:10:39] What went wrong? And where did they come from, I guess?

Conrad: [00:10:42] Stuff going wrong is, we bought an ice machine that has 50 pounds of ice, and 450 people need to go through like, 300 pounds of ice. So, I’ve never done more runs to the bodega to buy ice ever in my entire life. Stuff like that. Good problems, good problems.

Matthew: [00:10:55] We put a thermometer behind the bar, and our AC was so insufficient. It was I think—

Conrad: [00:11:01] 98.

Matthew: [00:11:01] 98 degrees behind the bar. And I was like, working back there the whole summer, Conrad working back there in the front talking to everybody. Everything broke, everything needed to be replaced.

Conrad: [00:11:11] We used a contractor that built homes instead of restaurants.

Matthew: [00:11:14] It was a disaster but it was like, a great—

Conrad: [00:11:16] It was fun. And people kept on coming, and I think people loved the way matcha made them feel. People loved the way our drinks tasted, and I also think people just loved the experience, not just from the design and the music but also the way they were treated as soon as they walked in the store with the person behind the bar. Whether it was us or someone that worked for Cha Cha, really treated them as like a friend or family, and I think people really responded to that.

Matthew: [00:11:40] And as for where the people came from, I think sometimes you really get lucky. And we wanted to open up the store in February or March.

Richie: [00:11:50] Is this 2016?

Matthew: [00:11:50] Yeah, 2016. And, down in Nolita, it really picks up around the June time, and I think a lot of people walk through there in the summer. And at that moment, like, that area started to really, really pick up and the foot traffic gets really crazy, and people kind of just discovered us that way.

Richie: [00:12:08] Bring us to the fall, to the end of that year, in terms of, at what point are you going, okay, you said, “We thought it would be one store for a few years.” Where do you start to go, “Okay, this is more than just a place?” And, I guess, what did you learn in the back half of that year with the store open?

Matthew: [00:12:21] I’ve been scared every day since we’ve opened that business will slow down, but I think after the first day, we realized that we really had some like, lightning in a bottle or something. Because we had a line around the corner and people were coming from uptown.

Conrad: [00:12:41] Yeah. I think we knew we had something, but weren’t sure exactly what it was yet. We knew we had one cafe that was doing really well, but I don’t know how much it would translate if we kept on moving forward. So he and I were lightly looking for new spaces. And we were in NoMad and we were walking around that area, and there’s a corner on 27th and Broadway. That area was always changing over, and then it was a wig store, a cell phone store and a perfume store. And we kind of went in one store, “Do you know who your landlord is?” They kind of said, “Get out of the store.” Second person said the same thing. Third Person said she actually owns the store next door.

Conrad: [00:13:16] So we started talking to her, and she basically told us that all three of those stores’ leases were coming up, and like, she wanted to put like, a restaurant tenant in there. So we continued to talk to her and we signed a lease there. Built out that space, so that opened around a year after the first one, July 2017, and still no PR, still all organic growth on Instagram. Kind of just opened the doors there, and within three days it was doubling the business of our first one, and it still is insanely busy. And I think at that moment we knew that this could translate to more places.

Richie: [00:13:48] How much, I guess, weight do you put in like location of being in the place where all this foot traffic picks up, versus Instagram or so forth? What’s the equation in your head?

Matthew: [00:13:57] Instagram definitely helps. And social definitely helps. And online really helps. But if you see our NoMad store, we took three small stores where the ceiling was ten feet. We made the storefront huge, the ceilings literally 17 feet there. We have 46 feet of frontage there, and you literally cannot miss us. Like, you can see us from three blocks away, and we’re right on that corner. The foot traffic there is insane. And when you have something like that, you just can’t beat it. Same thing with Abbot Kinney and same thing with our store on Lafayette and Bleecker.

Conrad: [00:14:30] I think there’s a degree of both, though, because Broome Street is kind of in this cool, not-high-trafficked area, but we still do really well there. And it’s funny ’cause if you talk to us now, if Broome Street wasn’t our first store, and we got all the other ones, and we were looking for another one, we probably wouldn’t necessarily go to that location right away, ’cause it doesn’t have the foot traffic of our other stores. So we do have pull, and I think we could pull into kind of more offbeat locations, but if we can find a good location at a good price and a good area we just kind of move on it.

Richie: [00:15:02] When does a store number three, I guess, come?

Conrad: [00:15:04] So, at this point, Matt being from LA, I’m from New York City, we had started talking about opening a store in LA, and this unique opportunity came up for us to build a building from scratch in West Hollywood, and kind of create our dream Cha-Cha box, which is now our 510 North Robertson store.

Matthew: [00:15:22] It took a really long time to build the building, but it was one of the most exciting projects that we’ve worked on, because we’re like, “Let’s build the dream Cha Cha Matcha.” No indoor seating, completely outdoors. All the doors like, open, and it’s like an indoor/outdoor immersive experience. The inside is just a bar, has a perfect area for the grab-and-go. All custom stone, custom equipment. We literally created like, our own setup, because there are like, tons of coffee shops, so there’s all these different espresso machines and steamers and you know, drip coffee and everything, and we’ve had to make that on our own.

Richie: [00:15:55] Obviously, that’s a dream scenario, but were there points where you’re like, “Actually, this might be a terrible idea and like, this is too much.”

Matthew: [00:16:00] A thousand percent.

Conrad: [00:16:00] A hundred times. A hundred times.

Matthew: [00:16:04] Spaces are coming up next to you. We could be opening, we could not be building a building from scratch. Talk to anyone who’s ever done any sort of construction. Supposed to take six months, takes 18 months.

Matthew: [00:16:15] You’re picking materials, you’re dealing with the city, they’re not approving this, they’re not approving that, but they’re approving this. You get in the space, you’re measuring, the building’s two few too narrow. How do we make it bigger? All of these little things, and you just have to keep on pushing through and keep on envisioning your goal. And then when you get there and you kind of like rip that like, Band-Aid off and you kind of see it for the first time, it was all worth it.

Richie: [00:16:38] Talk more about the evolving strategy of this, ’cause I think you can go, “Okay, let’s open a store and see where that goes.” And you can go to two and then so forth. You’re get into building a building going, three-four-five-six. There’s a lot changing now, there’s a lot, I think that, I mean, you effectively have to consent to and intentionally start to create at that point, to do it the right way. What are you thinking this can become as you’re going from two to three to—?

Matthew: [00:17:01] So, what’s really cool about the retail, a normal food and beverage concept is really constrained by the drive to just sell more matcha or more drinks or more food. We’re not focused on that. We’re not focused on bringing more people in every day, we’re focused on building a better and better and better experience. So, every store that we build, we want it to be better. Our motto is, “Better before bigger.” And we want to have the most immersive innovative retail experiences, and our products and our direct-to-consumer business allows us to do that, and that’s always been the goal.

Matthew: [00:17:35] I think it’s been, use retail as profitable billboards and experiences where people can come and try our new products for the first time, also use it as like, a testing ground for our new products and see how they’re working; like, every drink that we’ve created now is based on something that we’ve done in the store, and its success. That’s what we really get excited about, because we don’t want to just build average little shops, we want to build really unique interesting shops.

Richie: [00:18:07] In terms of going from New York to then LA, how do you build differently, create definitely for LA versus New York? Obviously, driving changes a lot of things, versus walking upon the stores. What were some of those considerations that went into that?

Matthew: [00:18:19] Our West Hollywood store has the most seating of any of our stores, first of all. And we changed the menu up. So, we do some food in LA, like some toasts. We bake our own pastries. We have like, some shots that we make. Like, ginger shots. So it’s more about being a one-stop shop versus, kind of like—in New York you could hit three places on your way to work. You know, get something from here and grab something from there and then grab a matcha.

Conrad: [00:18:43] And they’re all specialized. So you could get the best matcha, the best bagel, the best this, the best toast, in a span of five minutes. In LA you can’t do that.

Richie: [00:18:52] That’s like a day.

Matthew: [00:18:53] Yeah. Literally a day, unless you’re on somewhere like Abbot Kinney. So we’re like, “We want people to come in. We want them to like, buy some merch, buy maybe a toast, a drink, and something else, and stay and hang out.”

Conrad: [00:19:05] So we wanted a higher average check, for sure, because you can’t compete with the density of New York if you stand outside of our 27th Street store and you clocked the amount of people that just walked by our store in a day, and then you stand in LA on the busiest intersection. I don’t even want to know what the difference is. So we knew we had to have an average check, and we also knew we had to have more seating so people would feel comfortable hanging out there for longer, because if you drive somewhere for 30 minutes and then you have to stand, I think you’d be pretty let down.

Richie: [00:19:34] Talk about the menu, the drinks, etc., in terms of the evolution of that from what you offered in store number one at the beginning, to a year, year and a half, two years in, how did that start to expand and grow?

Matthew: [00:19:45] Matcha’s not just caffeine. It’s a functional beverage and it has a multitude of different benefits. And going off of that we started with a matcha lemonade, a coconut matcha latte, which we called a drink, but was really just coconut milk and matcha. And then, now we have tons of different drinks, and they’re all functional beverages. So we want to take a functional beverage and make it even better, and be like, “What’s something that you also want to have with your matcha?” We’re like, “Ginger and turmeric.” Easy. Our new canned drinks, one of them is activated charcoal, great for detox. We have the ginger turmeric one as well as the straight up matcha one. And we’re going into a bunch more, and each of them have a purpose, and that’s how we wanted to create it. So we have like, The Purple Drink, which is CBD. We have like, The Beautiful Latte, which has collagen, and so we want to just like, double the effect. Be like, beauty, inflammatory, chill, different feelings.

Richie: [00:20:42] Talk about price point. Who did you want this to be for in terms of mass accessibility? How do you kind of figure that out?

Conrad: [00:20:48] So we definitely wanted to be as successful as possible, so we kind of took our approach to our drinks that we wanted to have a drink for everyone. So, if you wanted to come in[to] our store and get an iced matcha, it’d be around $3.75, $4.00. And if you wanted to go up the ladder and add drinks that had more layered health benefits, the price was kind of going to float with that. So if you wanted just matcha and water, that was going to be very accessible, but then if you wanted to add matcha, milk, ashwagandha, collagen, the price was also going to go up.

Matthew: [00:21:21] Another thing that’s been tough for us: the environment’s really important to us. We’re a 1% for the planet company, meaning we donate 1% of our sales to the environment and everything in our store is compostable. We use cans, which are aluminum, which is infinitely recyclable, and by far the most sustainable consumer packaged material. And consumers aren’t really willing to pay more for that, so our straws are made from plant material, cups, everything, and the cost of that tripled on our side.

Conrad: [00:21:57] More.

Matthew: [00:21:57] We didn’t and, yeah, we didn’t increase our prices. And, obviously, a business needs to make financial sense, but we’re interested in starting a new wave of businesses that are green and sustainable and not just like, delivering a product that makes people happy but also that creates a better world.

Conrad: [00:22:15] We also know that not every consumer is educated on that, or necessarily cares right away. So, as we were saying, yes, like, the cost of all of our packaging and everything went up, but we think it’s a necessary sacrifice, and as more businesses continue to care and as more customers continue to care, hopefully then they’ll be willing to like, pick up more of the cost of it. But, for now we’re happy to do it.

Richie: [00:22:37] Bring us to the end of 2017 into early 2018. Like, what wasn’t working?

Conrad: [00:22:41] Our operations have always been a mess. Not a mess on the customer side of life—I think if you came in as a customer, you’d be like “Oh, these people really know what they’re doing.” But as the actual operator of it, and dealing with the personalities, non-standardization of the stores, the quality control, your waste percentage, all of that, that was all things now we needed to figure out. Because when you’re running one store and your menu is smaller, waste isn’t really a concern. The store is running the way you want to run it because you’re sitting in there watching it every day. But then, as you go to one store, two stores, three stores, as you get spread thin, every manager has their own take, every barista has their own take on how they think the store should run and how the music [should] sound. So being able to systemize that and control it was kind of difficult. Operations is a never ending battle and you kind of just have to tackle it one thing at a time.

Matthew: [00:23:30] And we’ve been expanding it. So, we started just with the drinks, and then we started making bites because we wanted to create a universe where we have all the perfect pairings with matcha. You can come in, breakfast, lunch, afternoon, early evening. So we make like, banana oats, chia pudding, coconut parfait. We have these like, energy balls made of cacao, and then now we bake all gluten-free and vegan pastries in LA. So, we’re always expanding it which then makes it harder.

Richie: [00:24:02] You mentioned the direct-to-consumer business before. I guess, talk about that evolution.

Conrad: [00:24:07] Yeah. So, I would say, we always knew on the onset that we wanted to go into products but, as we were just talking about earlier, we knew that we had to build a community through our retail stores first. So as that community continued to grow—and it’s been super-loyal and we’re super-appreciative towards everyone that’s a Cha Cha customer—we started working on some products. So that’s when we started the R&D of our canned drinks, which took over two years. And, at the same time, being a matcha company, we thought it would be a good idea to start selling our matcha powder that people love so much.

Conrad: [00:24:41] So at this point we’ve built out a website, and we launched that in 2018 and just started selling one product on the website, just matcha powder, and we had really great results with it. But, being retailers, we hadn’t yet had the experience to be kind of e-comm entrepreneurs. So we looked into our rolodex and started talking to people that have a lot of e-comm experience and worked on redefining what the Cha Cha e-comm experience would be. So we actually started working on a new website which launched on Tuesday, and the products that are gonna come out of that are, right now, our canned drinks, and then we’re going to launch merch and then other pretty exciting products on it.

Richie: [00:25:22] Take us through that two-year process of developing a can. In terms of like, what you went in with and why it took two years.

Matthew: [00:25:28] Matcha’s super hard to work with.

Richie: [00:25:30] Because?

Matthew: [00:25:32] It’s a powder, so you need to have a lot of it. So, it settles. For whatever reason, the pasteurizing process really changes the flavor. So, coffee, they usually use a retort process which actually doesn’t really change the flavor, whereas it changed the flavor a lot for matcha. So we do like, a really short UHP, which is ultra-heat-pasteurization. It’s like, super short, and then we’re doing some tetra packs which hits it with a really high temperature only for three seconds. So, [we] worked with a bunch of different formulators, finally found one that we loved that really knew about matcha. Another thing is, a lot of people haven’t really worked with it before. So many different iterations. And—

Conrad: [00:26:15] It was never ending. Tasting after tasting after tasting.

Richie: [00:26:18] How many do you think you made, if you were to guess, like—

Conrad: [00:26:20] Different versions?

Richie: [00:26:20] Yeah.

Matthew: [00:26:20] Four hundred?

Conrad: [00:26:22] Yeah. Just endless. Because you’d start with one base and you’d take it as far as you could go, which could be 10, 15, 20 iterations. And if 20 didn’t taste good, there’s only so many levers you can pull with like, an ingredient stack. And if you got to the end of that 20 and it wasn’t up to our standards. you’d have to scratch that and then come up with a new way of starting it and then take that one till the end of its line. And that one till the end of its line, until we finally had some breakthroughs which let us kind of where we’re at today.

Matthew: [00:26:50] And also we have so many restrictions with what Conrad and I wanted to bring to market. So, we wanted, without question, one drink that only has matcha and water in it, and has zero calories, zero sugar. It took us so long to create that—the simpler, the harder. And then we didn’t want to use any preservatives, any bad ingredients, any unnatural ingredients, no cane sugar, and we wanted the drinks to all be 35 calories or less for the iced teas. It’s tough to get a really great tasting product that’s super-low calorie and super-clean.

Richie: [00:27:20] How did you know you had it after the four hundredth or whatever?

Conrad: [00:27:24] You just know. You just, a lot of Cha Cha comes down to like, Matt and I’s gut, and there’s probably good ideas that I think are good and he doesn’t think are good, and there’s a lot of ideas that he thinks are good and I don’t think are good. But like, when we finally come together and we’re both like, “Oh, that’s the one.” It’s always very obvious and very clear to both of us, and we kind of just make the decision right there.

Richie: [00:27:43] It was the goal to get it taste like it does in store, or you wanted it to taste like something else?

Matthew: [00:27:47] So, for our first line of drinks, which are iced teas, we wanted the matcha one to be as close to the nitro matcha that we have in our store, which is our matcha infused with nitrogen, super-smooth, and I think we really got close to that. It’s a little bit more mild. And then the half-and-half matcha lemonade is pretty similar to our matcha lemonade that we have in the store, but we added black tea to it. We really like the old school vibe of an Arnold Palmer but super-clean instead, just a little bit of honey and a lot more caffeine than you’d normally have. And then for the other two, they’re newer flavors, but I think that that was a cool experiment for us and people have responded really well to it, to create kind of an extension to what we serve in our stores. And that’s what the activated charcoal and then—we have a ginger turmeric matcha latte, but this one’s different, because it’s water-based. And, in addition to that, we’re working on lattes that are gonna be released December or January, and those are as close or better than what we serve in our store, and we’re really really excited about those as well.

Richie: [00:28:57] In terms of the distribution, the plan is to sell these, one, in the store, two, online, and then in third-party kind of locations as well. Talk about how you figure out the mix and how does that scale, how do you want that to scale across all those different pieces?

Matthew: [00:29:13] The initial focus was to super-serve our communities. So, downtown New York, midtown New York, West Hollywood and Venice. And we’ve targeted all of the places where our customer already is. So whether that’s a hotel, food service, fitness, or even just a cool clothing store, those are the places that we want to be. And we’ve been developing those connections for a long time, and we’re gonna be launching an Air One on Monday at all of their stores. We’re going to be going to a bunch of really awesome places and then taking a much more broad approach to distribution going into, you know, your Westerlies, Brooklyn Fair, Whole Foods, Bristol Farms. We want to be everywhere.

Conrad: [00:29:58] We always thought we could have a really big direct-to-consumer push because we’ve had such a loyal following, and what better way to control the entire customer experience and kind of extend that Cha Cha universe to as many people as possible was through our own website. So I think we did a really good job on the new side of kind of capturing the Cha Cha spirit and image. It’s one thing if you live in New York and LA and you can come to our stores and really feel and experience what Cha Cha is, but it’s another thing to translate that to someone that may never come to our store but wants that full experience. So, right from day one of the new site, we were thinking how do we translate this all the way through. So it starts with all of our touch points, whether that’s Instagram, whether that’s our website, the copy, the design, everything, and then that flows all the way through to the packaging, the letter you get in the box, you know, the actual taste of it, and we thought we did a really great job of it.

Richie: [00:30:48] In terms of the website, we’re on a podcast and no one can see it, but how would you verbally describe how you wanted to build and build that experience?

Conrad: [00:30:56] I think we wanted a really fun and energetic website that had all the information you need in an easily digestible way.

Matthew: [00:31:04] We have like this floating 3D can that rotates the you can move around with your mouse. It’s a really cool feature.

Conrad: [00:31:10] Or like, every website needs to have testimonials on it, but we didn’t just want to have a testimonials page, so how do you do a new take on that? As you’re scrolling through the website, there’s this box and it has these little iMessage pop-up stream through, and that’s kind of our take on the testimonial page. So, just reinventing little things that you have to have, but making them Cha Cha is a very big part of what we do.

Matthew: [00:31:31] And in regards to the combination of direct-to-consumer and distribution, we have a really cool feature. We built a texting platform where you’ll be able to order all of our products via text, or order in the store very soon via text and have a universal reward system. So, we don’t want to inundate people with another app, so we thought, let’s just create a number that has all of our information. You can add the contact button and it literally adds it into your phone and sends us a message that you’re interested in whatever product. And then, if you’re on the way to the store, you can text it. You can ask a question, see something cool, talk to somebody, whatever you want.

Conrad: [00:32:10] So, as the bot continues to learn it will be able to handle more, so you’ll be able to order anything on our website really easily. If you say, “Show me something cool,” it’ll just send you something that Cha Cha thinks is cool right now, and it will be able to answer questions about Cha Cha and questions about our products. But the long term strategy is what Matt was saying, is it will eventually be in-store ordering as well as being able to handle just kind of any type of question.

Richie: [00:32:35] In terms of, I guess, the direct side, how do you think about the economics of shipping water?

Matthew: [00:32:39] Much better than going through a distributor.

Conrad: [00:32:42] Yeah.

Richie: [00:32:42] Really?

Conrad: [00:32:42] Yeah. Yeah. So, when you do it on your own site, you obviously control every aspect of it. Obviously, we go through a third party logistics company, so they have a fee that gets put on per can to ship it out, and then there’s the shipping rates. So, right now, we’re doing a limited time offering of free shipping, but eventually it’ll be like a subsidized shipping cost for the customer. But still, as Matt was referring to, as you start getting into the wholesale distribution game, there’s other players that also have to make their margin. So if you want to get into, for example, Whole Foods, they go through UNFI, the distributor. So UNFI has to take their margin and then Whole Foods has to take their margin on top of that, but they get their margin for sure, and then they just grind you back down the other way.

Matthew: [00:33:30] For a distributor you’re generally paying anywhere from 30% to 40%, then the store takes their 30% to 40% to 50% cut, and you’re actually paying for the freight. Whereas, online, right now we’re paying for the freight, but we’re paying for the freight anyway, so the margins are much better when we get the whole price.

Richie: [00:33:50] In terms of like, store count, you know, do you see this becoming like a Pressed Juicery or something, with 75, 100 locations? Do you see this more as having flagships, almost? How do you think about that piece of where the physical footprint goes?

Matthew: [00:34:03] We want to build a pop-up experience that can go and be replicated anywhere. [We’re] gonna build a truck to do pop ups. We really want to open up a store in Tokyo, I know that, so we want to go international. Conrad and I don’t get really excited about opening up a thousand stores, so in our vision we want to build a really amazing storefront in a place to activate our direct-to-consumer and wholesale channels in different cities. And that’s kind of how we’ll chug away.

Richie: [00:34:37] What does it take, I guess, to go back to the place, as in Tokyo, where the idea started? Like, or free to have the confidence that you can import something known and perfected there, arguably? What does it take to get to that level where you’re like, “Okay, we can bring this home,” so to speak?

Conrad: [00:34:53] Well I think we’ve actually gotten really good reception from, first and foremost, the family farm that we work with. At first, when we first started talking to them, they were kind of unsure and didn’t really understand what we were trying to do. But as we’ve been open for over three years, they’ve come and visited the store multiple times, and they actually think what we’re doing is really cool. And the fact that we care so much about quality, they actually find it fascinating how we’ve had like, our own take on it, and I think they would actually be respected in Japan if we brought our style of matcha back there. So I think we definitely have the confidence to do it but, once again, it’s, do we have the bandwidth to open a store in Tokyo right now? Right at this moment, probably no, but in the future, for sure.

Richie: [00:35:37] Where’s the name from?

Matthew: [00:35:38] “Cha” means “tea” in Japanese, actually. And like, our entire thing is, we don’t want this to be too serious. Doesn’t need to be too serious to be great, so we just wanted a funny name that was fun to say and rhymed, and kind of made you feel good, like “cha-cha.”

Conrad: [00:35:50] And it was actually the first name we ever came up with, was Cha Cha. Then we went on a six-month tailspin of other names and then we went back to Cha Cha.

Richie: [00:35:59] What was it almost gonna be called?

Conrad: [00:36:01] There was no almost.

Matthew: [00:36:02] There was no almost.

Conrad: [00:36:02] There was was six months of, “”Oh my God.”

Richie: [00:36:04] Huh. In terms of what’s on the horizon, I guess, what are you both kind of the most excited about?

Matthew: [00:36:09] I’m so excited about the canned drinks. I love them. I’m drinking one right now. Cha Cha in a can is my favorite thing.

Conrad: [00:36:16] We’re not cafe guys.

Matthew: [00:36:17] Yeah.

Conrad: [00:36:17] We just opened a cafe and now I really like it, but I’ve needed this drink in my life, and now it’s out, so my fridge is stocked with it, his fridge is stocked with it. We made, for offices and accounts that want them, we made these Cha Cha branded fridges, and the prototypes just came in the office, and I’m buying one for my house because I’m that pumped up about it.

Matthew: [00:36:36] Yeah. Normally, for the past three years, we haven’t been able to go and get a matcha before going to work, we have to get one and come in looking tired or tired to work and then get energized. Now I can just drink it. I had one before I left my house.

Richie: [00:36:52] How many a day do you both drink now?

Conrad: [00:36:54] Cans or total matchas?

Richie: [00:36:55] Both.

Matthew: [00:36:55] It’s like a mixed bag of ten for me but—

Conrad: [00:36:59] Yeah. I think around, I think around eight. The cans I like more.

Matthew: [00:37:02] I’ve had three cans today and it’s 12:00 pm.

Conrad: [00:37:05] They’re really good.

Richie: [00:37:05] What keeps both of you up at night, for the business?

Matthew: [00:37:09] So many things.

Conrad: [00:37:10] I think one thing that keeps me up at night is that I’m going to, if I’ve been in LA for a couple [of] days or a week, I’ll come back to New York, and it won’t be the Cha Cha that I left. Whether that means the music is different, or I see a staff member being rude to a customer, or I see a drink being made improperly. That kind of stuff keeps me up at night.

Matthew: [00:37:30] A dented can keeps me up at night. The Cha Cha can that’s not straight on the shelf. A store that’s not clean or a drink that’s too cold or too hot.

Richie: [00:37:41] I guess it’s interesting, as you talk about not wanting to make sacrifices and so forth. Arguably, as you get bigger, stuff is going to happen, basically, and I guess it’s a question of kind of how you correct it or so forth. How have you both, I guess, tried to scale yourselves in that nature? Because you can’t go turn every can on every shelf or, like, at a certain point, I assume it’s happened, that you can’t be everywhere every time and so forth.

Matthew: [00:38:01] Two things. One, I think that it’s a fallacy that food and beverage experiences can’t get better as they get bigger, and that’s something that we’ve tried to defy. We now have the team, the resources and the know-how to build a store better every single time. To build the custom equipment, to hone the recipes, to have a team that understands like, food ideation and creation. And then, same thing with design, and being able to do everything in-house. So I think scaling ourselves is our team. I mean, that’s what makes the magic happen.

Richie: [00:38:34] In terms of the cans, do you see that at some point cannibalizing—maybe not even in a bad way but just objectively—the make-to-order business in a sense? Sort of, if you have access to cans in your fridge, at work, etc., do I need to go in anymore? How do you see the dynamics playing out both, I guess, on the upside, but also maybe in less of an upside case?

Matthew: [00:38:54] We want to sell to the entire world so I think that the cannibalization is small. And, actually, it helps our stores. We’ve noticed people are coming in, they’re buying a made-to-order drink and they’re now buying a can, and that increases our average ticket price. If you want to go and you want to meet a friend and do something social and fun, you’re gonna go to the store. And if you want to just have one at home or in the office or on the go, you’re gonna get the can.

Conrad: [00:39:19] We always talk about this, “Cha Cha Universe”, so as long as the universe keeps expanding, it doesn’t really matter to me which way you’re kind of touching the universe. So if you prefer to come in our cafes, that’s awesome. If you’re the type of person that prefers to send an 8-pack to your office and not be social and come in, that’s also awesome. As long as you’re touching the brand and playing around with it, like, that’s good.

Richie: [00:39:40] And then, you mentioned merch a bit before, I guess—

Conrad: [00:39:42] Yeah, so, people always have been asking for Cha Cha merch, and he and I also love wearing it. So we’re kind of working now to develop a merch plan. Before, as we were saying, we were so previously focused on so many things that we couldn’t put the attention and detail into the merch that we needed to to really make stuff that met the Cha Cha standard. But I think now, like, we have some like, really cool limited-edition merch items that are going to drop in store and on our website, and all limited releases, all only for a short time and always different depending on what store you’re in or on our website.

Richie: [00:40:16] Do you guys wear it every day?

Conrad: [00:40:17] I probably have something Cha Cha on pretty much every day. Whether it’s a hat or a shirt.

Matthew: [00:40:21] Shoes.

Conrad: [00:40:21] We’re gonna make socks, something will always be Cha Cha.

Matthew: [00:40:25] We made some Air Force Ones with Nike. The partnerships and collaboration thing is fun, because we get to work with designers or artists and it just allows us to be creative and expand the Cha Cha ‘verse.

Richie: [00:40:36] Where won’t you go in that? Or like, what boundaries do you put on it, given you have merch, you have food and beverage?

Conrad: [00:40:43] It’s very case by case. If something comes up and it somehow doesn’t work, we’ll just stay away from it, and if something comes up and, “Oh, that’s cool,” we’ll hop right on it.

Matthew: [00:40:52] We like things that don’t work, though. It’s fun. Like, we had a Tokyo mule, which did not work, which is like a matcha Moscow Mule.

Conrad: [00:40:59] Yeah we release stuff all the time. The drinks in our store.

Matthew: [00:41:02] Yeah, I’d love to make something random or crazy that wouldn’t work and it would just be funny. We’re not trying to make money on everything and that’s not really what it’s about for us.

Richie: [00:41:11] Awesome. Thanks so much for talking.

Conrad: [00:41:12] Yeah. I really appreciate it.

Richie: [00:41:18] Thanks for listening to the Loose Threads Podcast. You can read full transcripts of the podcast and join the newsletter at LooseThreads.com. Feel free to leave review view on iTunes, we always appreciate it, and thanks to George Drake, Jr. for editing this episode. We have a great roster of upcoming guests and we hope you tune in next week.