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The tie-up between Nestle and Green Mountain Coffee Roasters, owners of Keurig, the largest single-serve coffee machine operator in the US, could compel rival Tata Global Beverages to look at alliances and acquisitions in the world's largest coffee market, analysts tracking the company said.
The shares of Tata Global Beverages have declined 11 per cent on the Bombay Stock Exchange in the last five days following Nestle's move to sign a multi-year deal with the single-serve brewer last week.
The Rs 7,738 crore beverage arm of the Tata Group, which has an alliance with Green Mountain, derives 18 per cent of its coffee revenues from the US. The Keurig tie-up plays an important role because in-home coffee consumption, pegged at Rs 72,000 crore of the Rs 1.8 lakh crore coffee market in the US , is where much of the action is centred.
In comparison to the 5 per cent growth the overall coffee market in the US, in-home coffee consumption was growing in the double digits, sector analysts said. Since tying up with Green Mountain two years ago, Tata Global Beverages had gained over seven per cent of the US in-home coffee market through Eight O'Clock branded coffee pods for Keurig machines (popularly called K-cups), according to analysts.
Tata Global Beverages' MD and CEO Ajoy Misra had alluded to growing competition when announcing the company's fourth quarter results at the end of May. He admitted increased competition was exerting pressure on brands such as Eight O' Clock, which were counting on the new channel for growth.
Misra had indicated the company was open to acquisitions in segments such as coffee, herbal teas and water in its attempt to bring down dependence on black tea. The statement came following the acquisition of Australian coffee company Earth Rules in May by Tata Global Beverages' UK subsidiary.
Nearly 70 per cent of Tata Global Beverages' revenues come from tea, of which 15 per cent are from speciality teas. Coffee gives Tata Global Beverages 25 per cent of its revenues, while another 2 per cent comes from water. In five years, Tata Global Beverages is looking to increase revenues from speciality teas to 30 per cent, coffee 35 per cent, and water 10 per cent.
The US is expected to be a key market for acquisitions for Tata Global Beverages following its exit from Rising Beverages, the maker of the Activate brand of functional water, in 2013.
