 "Tata brews new beverages plan")
The import was clear: the company is looking for rapid expansion through acquisitions. To be sure, there has been plenty of action at the company in the last few years. Tata Global Beverages, called Tata Tea then, had made a giant leap into the big league of beverage companies with its acquisition of UK-based tea maker Tetley in 2000. The Rs 1,870-crore deal, billed as the largest overseas buyout at that time by an Indian company, set the ball rolling for more acquisitions in subsequent years-almost 10. The audacious Tetley bid prompted a host of other buyouts by Indian companies, including from Tata-group firms Tata Motors (acquired Jaguar Land Rover) and Tata Steel (acquired Corus).
Between 2000 and 2010, Tata Global Beverages spent over Rs 5,000 crore on buying companies in the United States, Russia, East Europe and South Africa, snapping up companies such as Good Earth, Jemca, Joekels Tea, Vitax, Grand and Eight O'Clock Coffees, among a host of others, including Mount Everest Mineral Water Company in India, the owner of the Himalayan packaged water brand. Of these, the firm cashed out of only one transaction-its 30 per cent stake in US-based Energy Brands, the maker of Glaceau vitamin water, in 2007. But the Tata group company found its way right back into the category with the acquisition of a minority stake in US-based bottled water maker Activate in 2010.
New target
Tata Global Beverages has grown enormously through these acquisitions, and now it wants to become even larger. Its goal is to achieve a turnover of $5 billion, or Rs 30,000 crore, in three years. That-four-fold growth-is a tall order by any standard. To achieve this target, analysts say, the only option before the company is to acquire, acquire and acquire.
However, that's not the only thing the company is banking on. "The emphasis for us at the moment will be on consolidating our presence and looking at product innovations in the markets we operate in," Tata Global Beverages Managing Director & Chief Executive Officer Harish Bhat told Business Standard in a recent interview.
The company derives nearly 70 per cent of its revenues from tea, 20 per cent from coffee and 5 per cent from water. Bhat had indicated that the game plan was to raise the contribution of coffee to 25 per cent and of water to about 10 per cent in the next three years. Tea would proportionately come down to about 60 per cent.
This strategy, Bhat had explained, was in line with Tata Global Beverages' objective of becoming a well-rounded player in the market. While tea has long been a dominant vertical for the company, it is now keen to move beyond tea into other beverages, coffee and water being the key areas.
Alongside acquisitions, forging new alliances will be just as important. The company has three partnerships at the moment: NourishCo, a joint venture with PepsiCo, Tata Starbucks, and Activate, where it has an investment along with other partners in the US. Company executives maintain that alliances with like-minded partners make sense at a time when valuations in the food & beverage space, especially in India, have been peaking. Tata Beverages has rolled out 18 stores under its joint venture with Starbucks in Mumbai and Delhi in the last ten months. More stores are likely to be launched in the coming months as the joint venture attempts to play catch-up in a market where local and international companies such as Cafe Coffee Day and Lavazza (owner of Barista, a chain where the Tatas once had an investment) have had a head start over it.
Bangalore-headquartered Cafe Coffee Day, the largest coffee chain in India, has about 1,200 outlets and proposes to add another 1,000 by 2014. Lavazza, which has 154 outlets in India, plans to turn aggressive with its flagship format Expression. Dunkin' Donuts, Starbucks' archrival in the US, has already set up 14 stores in Delhi-NCR since launching operations last financial year. Ajay Kaul, chief executive officer, Jubilant Foodworks, franchisee for Dunkin' Donuts in India, says the plan is to open at least 18 more stores this fiscal.
To keep pace with its counterparts, Tata Starbucks is believed to be contemplating rapid expansion as well. It plans to open outlets in hospitals, educational institutes, offices, gyms and health stores even as it launches stores in malls, commercial buildings and at airports, railway stations and Tata-owned properties. A Tata Starbucks spokesperson says: "We are focussed on disciplined growth and are confident in our ability to build and grow the Starbucks brand here. We will continue to work thoughtfully to open stores quickly to ensure we exceed the expectations of our customers and build a strong presence in the market."
When announcing the joint venture last year, Krishna Kumar had indicated that Tata Starbucks proposed to open 50 stores in the first year of operation. While that is still some way off, the speed with which it has moved in the last ten months has caught many by surprise. Tata Starbucks will shortly step into cities such as Bangalore in its drive to ramp up operations in the country. It is believed to be looking at multiple retail formats there given that the coffee culture is well-entrenched in the city.
Its other alliance, NourishCo, recently relaunched its fortified water brand -Tata Water Plus - and added a mango variant to the lemon and orange flavours of Tata Gluco Plus, a flavoured water brand. "Tata Water Plus has seen higher growth than Himalayan packaged water (in the quarter ended June 2013). But this is in Tamil Nadu and Andhra Pradesh, where the brand is currently present. The plan will be to take it to other markets in the country," Bhat said. Tata Gluco Plus will also be taken to new markets across the country.
What Nourishco proposes to ride on in India are the twin platforms of taste and affordability. Tata Water Plus, for instance, is available in pouches of Rs 2 and one-litre PET bottles of Rs 20 in the two markets where it currently retails. Tata Gluco Plus, on the other hand, is priced at Rs 8 for 200 ml.
Company executives say that NourishCo's portfolio will be beefed up with more products and variants in the coming months as the joint venture eyes a pan-India presence. Alluding to it, Krishna Kumar had said at the AGM that "a new pipeline of products is now ready".
The company has been experimenting with flavours and formats in mature markets such as the UK, US and Canada. In markets such as India, the game plan has been to improve the reach of its flagship, mass-market brands (such as Tata Tea Agni) in rural areas and introduce high-end, innovative products in urban areas. Tata Beverages, for instance, has a portfolio of over six green teas in India and plans to increase this number going forward.
This rush to launch green teas is not without reason. Of the 800-million-kilogram tea market in India, green tea accounts for five per cent, or 40 million kg, experts say. In the next few years, its share is estimated to touch 160 million kg, accounting for up to 20 per cent of the market.
No wonder, Tata Global Beverages as well as competitors such as Twinings and Taj Mahal from Hindustan Unilever (HUL) are launching new and exotic variants quickly in a bid to tap into the growing preference for green tea among urban Indian consumers.
The competition between the three, especially Twinings and Tetley, is already fierce in the green tea space. In black tea, Tata Tea and HUL's Brooke Bond (Red Label, Taaza) are fierce competitors.
Given the pace at which the company is launching new products and marking its presence across verticals be it tea, coffee or water, it may not be far off its $5-billion revenue target in three years.