Price push for Tata Tea
Tata Tea’s decision to drop prices of its economy brand is a bold attempt to grow volumes. Large branded tea companies have shied short of making it big in the economy segment.
By Ravi Parwan & Ravi Ananthanarayanan, TNN |
Tata Tea’s decision to drop prices of its economy brand is a bold attempt to grow volumes. Large branded tea companies have shied short of making it big in the economy segment.
That has changed in recent times, with the economy segment getting its due recognition, being the largest by volume compared to the premium segment. The economy segment has characteristics that do not endear it to companies.
Customers tend to be extremely price conscious, and brand loyalty is there but does not override the price consideration. That makes it difficult to retain customers since tea prices fluctuate throughout the year. Many brands in the economy segment are local or regional ones whose prices vary, depending on auction rates.
Branded tea companies, however, maintain a stable price trend. In their opinion, being held hostage to the underlying commodity price affects the brand’s value. Thus, during periods of declining prices, large companies find their sales of economy brands under pressure.
Tata Tea’s decision to cut prices is possibly owing to a few reasons. One, by exiting plantations in the South, its operating cost structures have come down. That gives it breathing space. It can also buy from auctions to lock into lower prices. While tea prices may be currently higher, Tata Tea may have locked into tea at lower prices, and may also be bargaining on the rise in growth to take care of margins.
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In FY’06, too, it was pushing Agni aggressively, and compared to an overall branded tea growth of 8%, Agni grew by 14%. Either way, in a mass consumption category like tea, growing the economy segment is a must. Large tea companies have allowed a host of smaller players to mushroom by not doing so.Tata Tea’s success in this segment can have other consequences. At present, it is second in the tea market with a 21% market share compared with HLL’s 30% share. Agni has a 5% share, and a substantial increase in its sales will bring Tata Tea closer to its objective of becoming number one in the domestic tea market.
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