Seven years after becoming the first Tata company to make a major global acquisition (Tetley), Tata Tea is now aiming to become a global leader in the $160 billion ‘good for you’ beverage market.
The move makes sense as the world’s second-largest tea company is already present in 40 countries and over 70 per cent of its revenue comes from international operations. But branded tea contributes around 86 per cent to Tata Tea’s consolidated worldwide turnover, and this is what the company wants to correct by making the transition from just a tea and coffee major to a beverage giant.
No surprise, therefore, that the Himalayan water brand is part of the four “global focus brands” that the company has identified, the other three being Tetley, Tata Tea and Good Earth. These three tea and coffee brands have also made a transition to beverage through their significant offerings in fruit and herbal teas. Besides, the company recently launched T!ON, an active drink made from fruit juice, tea extracts and ginseng.
But Tata Tea’s ambitions are now much larger: It wants to take on the Cokes and Pepsis of the world by positioning itself as a global beverage player. John Nicholas, MD, business development & developed markets, The Tetley Group, says “from Unilever, our competition is now changing to Coca Cola and Pepsi.
Not everyone is convinced, though. Technopak Advisors Chairman Arvind Singhal says this is more an ambition than a strategy. “With over 80 per cent of its revenues coming from packaged tea, which is not even a beverage but a commodity, the transition to becoming a beverage company is as logical as it would be for say Tata Steel to become a full-range beverage company,” Singhal says.
That’s the uncomfortable reality , as Tata Tea’s current turnover of about $1 billion just won’t be enough give it the muscle power to take on global giants. For example, when it wanted acquire Glaceau in the US, Coke simply priced it out.
Tetley CEO Peter Unsworth, however, says the company has moved beyond Tetley UK to create a global brand portfolio through acquisitions like Good Earth in the US, Jemca in the Czech Republic, and Vitax and Flosana in Poland. Unsworth also says the company wants to appeal to consumers who want hydration with flavour, who want to be good to themselves without a cost to the planet and who will smile at their choice of a Tata Tea group brand.
That explains the company’s decision, announced last week, to create five regional focus brands as well--Eight O’ Clock Coffee in the US, Poland’s herbal tea Vitax, the leading Czech tea Jemèa and Indian brands such as Chakra Gold and Kanan Devan. Company executives say the move to consolidate the various beverages businesses under a single entity – the Tata Tea Group — is expected to facilitate fund-raising, simplify operational issues, cut costs, ensure efficient global sourcing, bring economies of scale and help the group leverage distribution strength. The group will use brands that are powerful in a region to push other brands in its portfolio. For example, Eight’O Clock will now also sell Tetley in the US.
At the heart of the new strategy is to cover the entire value chain – from the super-premium market that brings in the margins to the bottom of the pyramid segment that brings in the volumes. Example: recently, Tetley set up a new company, Tea Pigs which has a more premium positioning compared to Tetley, a mainstream brand in the UK. It now wants to acquire higher margin brands in Russia, South America, Asia Pacific and Africa.
At the same time, the company is not losing focus on its mass brands like Kanan Devan and Chakra, for which it has launched innovative marketing push such as Gaon Chalo, under which villagers are roped in to sell Tata Tea products to other villagers.
Unsworth says the transformation is not just about growing the bottomline or margins. “It’s about topline creation and about disruptive change in the market place,” he says.
