Merger brews for Tetley, Good Earth

Integration is expected to help Tata Tea leverage the synergies offered by both the brands.

To strengthen its US operations, Tata Tea has begun the integration of its tea brands, Tetley and Good Earth. Ken Pringle, executive vice chairman and CEO of the Tetley Group and director, Tata Tea, told Business Standard, "The integration process of Tetley and Good Earth has begun and should be completed over the next couple of months." The Tetley Group is a 77.78 per cent subsidiary of Tata Tea.

The integration is expected to help Tata Tea leverage the synergies offered by both the brands. While Tetley is the second largest player in the tea bags segment and has made inroads into the ready-to-drink iced tea and green tea segments, Good Earth is a speciality tea brand that offers premium herb and tea blends sourced from across the world.

Even in terms of market presence, each brand has its own stronghold in the US. While Tetley has a substantial presence across the east and the southern parts of the US, the Good Earth brand has a strong presence on the West Coast. "The integration would add muscle to both the brands," said Pringle.

The move is important because the company's business in the US and Canada contributes to 29 per cent of Tata Tea's global turnover at Rs 4,045 crore. India, in comparison, only contributes 25 per cent.

Tetley executives added that the integration process had received a shot in the arm after the previous management of Good Earth relinquished complete control of the company in the last financial year. "While Good Earth performed better in the second half of the last financial year, it's still below expectations," said company executives.

The integration would be across administration and distribution operations, said a company executive. He added that in the future, the company could also look at having a single headquarters.

Good Earth, a 35-year-old brand, was acquired by Tetley's US operations in October 2005. Though the brand had a market share of only 3.7 per cent in the US speciality tea market and a turnover in excess of $16 million, Good Earth's strong product portfolio and a fast growing market meant that the group could leverage its potential.

"The experience and skills of Good Earth and Tetley complement each other well and will combine to create a significant new force in the US tea industry," Pringle had mentioned during the acquisition. The Tetley Group's turnover for the financial year 2006-07 was Rs 2297.80 crore, compared to Rs 2033.16 crore in the previous year.

At Rs 1,175 crore, the company's operations in the US and Canada contributed to roughly half of the Tetley Group's turnover.

In the last financial year, around 61 per cent of the increase in consolidated income was attributed to acquired brands like Good Earth in the US, Jemca in the Czech Republic and Eight O'Clock Coffee in the US.