The right flavour

The company is focussed on becoming a global branded beverages player.

It sure wants to sell garden fresh tea. But Tata Tea's (IS) not willing to grow the tea any longer. With many of its plantations not making money, the company has decided it would rather focus on building brands in the home market and becoming a global player in the beverages space.

Having sold off the South India Plantation Operations in late 2005 and five of its plantations in the Coorg region to its subsidiary Tata Coffee soon (SHORTLY) thereafter, it's now hawked the North India Plantation Operations into an independent company, Amalgamated Plantations, retaining just 20 per cent of the equity. And it's working on a similar arrangement for its two plantations in Kerala.

Says Percy Siganporia, managing director, Tata Tea, "We realised that by trying to focus on both the plantation (S) and the brand business, we were not doing justice to either. The competencies and skill sets required for the two are vastly different," True enough, despite having a presence through several brands"�Tata Tea Premium, Agni, Kanan Devan, Tata Gold and the Tetley range of flavoured tea bags, ("�) the company was still (A) small player in the beverages market.

All the brands were repositioned and a couple of new campaigns were launched. The results were encouraging. In FY06, almost all its domestic brands grew in double digits"�around 12 per cent in value"� driven by higher spends on advertising and promotions. And the company's market share in teas grew to nearly 21 per cent, up 200 basis points in two years.

In a bid to move away from the traditional black tea market which has been stagnating worldwide, Tata Tea has been acquiring companies that are into herbal or flavoured teas. It bought out Good Earth Teas in the US and in early 2006 it picked up the Czech brand Jemca.

Both these acquisitions helped Tata Tea strengthen its product offering in the herbal and fruit teas market. In late 2006, it has also picked up a 33 per cent stake in South African brand Joekels. Analysts believe that the company is on the right track."

Globally, consumption of black tea is declining whereas other non-black tea categories have been growing at a fairly good rate. So, Tata Tea's strategy of entering these categories, where it traditionally has not been present, is a sound one" says a Mumbai based analyst.

Moreover, in keeping with its aim of becoming a full-fledged beverages player, it bought the US-based Eight O' Clock Coffee for $220 million, through its subsidiary Tata Coffee. That gave it access to the world's largest coffee market"�estimated at around $21 billion.

Says Barbara Roth, CEO, Eight O' Clock Coffee, "There are synergies between Tetley and Eight O' Clock that can be exploited and adds that the companies are exploring ways to cash in on each other's networks."

According to H. Ashraff, managing director, Tata Coffee, the Eight O'clock brand may be used by the company to sell coffee in markets like Russia.

"So far, we have been selling only unbranded coffee in these markets but we may start selling branded coffee soon," he says. Tata Coffee is setting up fresh capacities for making frieze dried coffee and plans to export almost the entire quantity.

In a major diversification of its portfolio, Tata Tea bought a 30 per cent stake in enhanced water brand Glaceau in the US in August last year, for $670 million. "We decided that we needed to grow the beverage business, both organically and through acquisitions," says Siganporia.

While there are no plans to market the flavoured water in India, Tata Tea is hoping to be able to leverage Glaceau's distribution network.

"Being present across beverage categories gives the company the ability to deal with changing consumption patterns without getting adversely affected in the process," say analysts. We'll drink to that.