Tata Tea Executive Director Sangeeta Talwar calls it a defining moment in her company’s history and something that is all about “disruptive innovation”. There are many reasons why her colleagues and she at India’s second-largest branded tea company (Tata Tea says it is the largest by volumes) are so excited by the foray into India’s fledgling non-carbonated drinks market.
First, T!ON, a tea- and fruit-based cold beverage that was launched on Friday, marks the company’s entry into a Rs 4,000 crore segment that is growing at 35 to 40 per cent annually. That’s a substantial growth compared to the relatively modest 10 to 12 per cent growth of the carbonated drinks (mainly cola) market.
Second, it is the first— though modest — step towards making up for the loss of its stake in Energy Brands of the US, owners of the Glaceau beverage brand, which could have powered its growth in the $5 billion global market for vitamin-enriched or health beverages. Tata Tea already had a market leader in Tetley in the UK and Canada, but was not yet a force to reckon within the US.
Third, the beverages market size is almost double that of branded tea, in which Tata Tea currently operates. Tea contributed close to 80 per cent of the Rs 4,366 crore company’s sales in the last financial year and the company is conscious of the warning signals. Said Nikhil Vora, partner at brokerage firm SSKI, “The global black tea market growth is almost stagnant. Even in India the black tea market is growing in single digits, whereas the market for specialty and herbal teas is growing in double digits.”
Fourth, T!ON is yet another step by Tata Tea to transform itself from a tea giant to a beverage company focusing on the health and wellness platform. All its multinational competitors have already jumped onto that bandwagon.
Analysts said the foray into the non-carbonated segment would not be smooth. In the cold tea segment alone, Nestle’s Nestea is already an established player with a huge market share. But Talwar said T!ON’s positioning goes beyond that of cold tea, as its ingredients include fruit, ginseng, a stress reliever, besides tea. She acknowledged that the company “has a lot of learning to do, as we are creating a new market here for the product.”
Although some competitors like Ramesh Chauhan, chairman of Parle Bisleri, said Tata Tea was creating a niche market since there were no packaged cold tea beverages available, others think the organised non-carbonated drinks market is already crowded and is seeing a lot of innovation. Earlier this year, cola giants PepsiCo and Parle Agro, makers of Frooti and Appy, announced the launch of packaged nimbu pani.
Phiruz Khambatta, chairman and managing director, Rasna International, pointed out it is mango-based drinks like Frooti, Maaza and Slice that dominate this market, followed by orange-based drinks like Minute Maid and Tropicana. Other fruit-based drinks like apple, guava and others come much later.
While T!ON’s success is yet to be seen, Tata Tea has been firmly on course to being a brand-centric beverage company for some time now. It has in the past made acquisitions like Tetley, Good Earth (herbal, medicinal and traditional teas), Eight O’ Clock Coffee and Himalayan Water to diversify its range.
The last acquisition was critical, as India’s packaged drinking water market is growing at 25 per cent a year, and Tata Tea might position the brand similar to Danone’s Evian on a health platform.
While the company is doing much better in the home market, gaining market share and giving Unilever a run for its money, the overseas market has been a cause for worry, leading to a fall in the operating profit margin of over 100 basis points to 16.2 per cent , on revenues that grew at 8.6 per cent in March 2008.
The company has not been able to grow in the US, where its equity is not as strong as it was in Canada or the UK, where it has a 30 per cent market share. It will eliminate large chunks of operations in the US to save costs. Analysts said it’s just a matter of time before Tata Tea acquires a health and wellness brand in the US. That’s the only way out. So, watch this space.
