Tata Tea's strategies for that global cup of tea
In a series of exclusive interviews with CD, Tata Tea’s global managers talk of their strategy for building the beverage business. High-end whiskies from highlands
By Priyanka Sangani, TNN |
A pot of green tea before Percy Siganporia, he idly checks the teabag label. It’s not Tetley. In fact, it appears to be Chinese. “We still don’t own this brand,” says the bemused managing director of Tata Tea. “Which goes to show, there is so much more we are yet to do internationally.”
A decade ago, one might have thought Siganporia was making a little joke. No longer. Tata Tea, though among the smaller Tata companies, has been the most active , internationally. The world sat up and took notice when it acquired Tetley, a company then nearly twice its size, in an audacious leveraged buyout in 2000.
The second major milestone was when it acquired enhanced water maker Energy Brands Inc, USA (Glaceau) in 2006 which at that time, was the largest overseas acquisition by an Indian company. Nine months later, it sold its stake to The Coca-Cola Company for almost double of what it had paid netting a cool profit of over $ 500 million, effectively silencing all its critics . “Being a small company made us nimble and agile,” says Siganporia. “We weren’t carrying excess baggage, so it’s easier for us to move.”
Tata Tea may be relatively small, but it’s always been at the vanguard of the Tata globalisation saga. Even today , the most globalised company in the Tata portfolio is not Tata Steel or Tata Motors or even TCS, it’s Tata Tea. Consider this: Tata Steel made the its Corus acquisition only in 2007, seven years after Tata Tea’s acquisition of Tetley, which was the first major international acquisition for the Tata Group as a whole.
Today, 18% of Tata Motors’ revenues and 20% of Indian Hotel’s revenues comes from international operations, for Tata Tea, it’s 70%. And of course, far more people around the world drink Tata Tea products than TCS products.
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Tata Tea is now the second largest player in the branded tea segment globally and has a presence in 40 countries. The international expansion has all been through Tetley, which is a Tata Tea subsidiary. Peter Unsworth, the London-based chief operating officer of The Tetley Group says, “We have now moved beyond Tetley UK, to create a global brand portfolio. “This has been through acquisitions like Good Earth(USA), Jemca (Czech Republic) and Vitax and Flosana (Poland). This gives the company a presence in both the emerging and developed markets, along with reducing dependency on any one geography. According to Unsworth, the evolution of Tetley and Tata Tea has been somewhat parallel, with Tetley too changing focus from packed tea to brands and now to beverages. The company has reinvented itself over the years, from being a predominantly black tea business when it was acquired to having a significant presence in fruit and herbal teas.
John Nicholas, MD - business development & developed markets, The Tetley Group says, “As we expand into newer geographies, we are entering predominantly black tea markets but by acquiring companies who are strong in nonblack teas. Thus, we gain distribution and at the same time boost our nonblack tea offerings as well.”
Globally, the trend is gradually shifting towards non-black teas and the acquisitions give Tata Tea a ready product portfolio with which it can enter other markets as well. With ready to drink and iced teas starting to pick up in countries like Canada and Australia, the company is expanding its beverage portfolio globally. Nicholas says, “From Unilever, our competition is now changing to Coca-Cola and Pepsi.”
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 was a team at Tetley that came up with the concept— it isn’t a name Bombay House would approve of,” laughs Siganporia. Tea Pigs has been spun off into a separate company and the entrepreneural funding has been provided by Tetley. “At a later date we we will bring it back into the company,” says Unsworth.
“This method of incubation of new business models is an important way of driving activity.” Tetley has undertaken a similar exercise for its hot beverage vending business, where the management retains some equity in the new company . Nicholas says, “What is important is the models we are using to get into new areas . We are setting up subsidiaries to incubate new business models where the management retains some equity in the company .”
Siganporia is gung-ho about these innovations . “With Glaceau, we have realised that consumers love the ‘garage guy’ ,” he says. “While consumers are supportive of such ventures, it also helps in building in vibrancy and excitement in the workplace.” Not surprising then that the attrition rate at Tata Tea is in low single digits.
If there is one constant in Tata Tea’s approach to the business, it has been change. “We believe that if we are good at something , we should move away from it in twothree years, whether it is business models, marketing and distribution or brand positioning and placement,” says Siganporia.
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Domestically too, Tata Tea has done well for itself. From a market share of just 3% in 1974, compared to Hindustan Unilever’s 80%, the company recently over took its closest rival earlier this year, with a brand share of 19.2 % compared to Hindustan Unilever’s 18.6 % Siganporia says that being the top branded player was a business necessity. “Retailers are willing to bargain more and give you better shelf space, which in turn further boosts sales. More than an ego issue, there are also the econometrics of future growth attached to it,” he says.
Sangeeta Talwar, executive directormarketing, Tata Tea, says, “The marketing function today is very different from what it was when we started out. In terms of our communication too, we have moved from the freshness platform to product attribute led communication and now onto the emotional aspect of the brand.”
Tata Tea recently launched ‘Gaon Chalo’, a rural distribution initiative where villagers were roped in to sell Tata tea products to other people in the village. Not only did this help in boosting rural income, it also solved the company’ problem of tackling the final leg of rural distribution. What’s important once again is that the idea originated not in the corporate headquarters but was the brainchild of a member of the sales team.
Since the late 80s, Tata Tea was a dominant plantation company, with strong plantation brands like Kanan Devan. Over the years it realised that it needed to focus more on the higher margin branded business where it had a relatively smaller presence.
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In 2005 in an innovative move, it spun off its South Indian Plantation Operations (SIPO) into a separate company. While Tata Tea retained a small stake in the business, the rest of it was owned by the people on the estate. The company has since diversified into other areas like tourism and agriculture. Last year, it launched a similar undertaking for the tea gardens in Assam and West Bengal.
A new company, Amalgamated Plantations, has been created, which, along with tea growing will also enter new areas of business like floriculture, horticulture and even corporate farming. “It is important to us that the incumbents are better off without us than with us. We needed a business construct which provided other ways of enhancing the family income.” says Siganporia.
The shift also meant that Tata Tea was now to a large extent protected from the vagaries of the seasonal nature of the agro business. Alongside, it has stepped up activity in the branded business, moving from the plain tea in polypacks to single origin and premium teas under the core Tata Tea brand, as well as flavoured teabags and green tea under the Tetley brand. Says Talwar, “In India, Tetley is positioned as a premium brand, the face of innovation for the company.”
The company already has a presence in coffee through its subsidiary, Tata Coffee which acquired Eight O’Clock Coffee, USA in 2006. Tata Tea is also in the process of completing the acquisition of Mount Everest Mineral Water which owns the Himalaya brand, giving it a presence across various beverage segments.
Siganporia maintains that to do well, it is imperative to do something that has not been done earlier. “We had to modify our operational patterns as we went ahead and redefine business model operations domestically. We keep our Profit and Loss and financial structure agile by keeping all the companies separate. Having managed a leveraged, cash
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