54036995 tea industry sec c group11 copy

8/6/2019 54036995 Tea Industry Sec C Group11 Copy

1/28

1

PGP1-Term III- AY 2010 11STRATEGIC MANAGEMENT II

Tea Industry Analysis

Instructor

Prof. Saroj Kumar Pani

Submitted by

GROUP 11Section: C

Arul SoodK S Santosh

Pooja Agarw al Priyanja liVash ishtRishabh Agarw al Sunee lNand uri YogeshYadav


2/28

2

TEA INDUSTRY ......................................................................................................................................... 4

Indian Tea Ind ust ry Feat ures ............................. ....................... ................................ ...................... ...... 4

Market Trends ..................................................................................................................................... 4Spec ial Feat ur es of Ind ia Tea Ind ust ry: ................................................................................................. 5

Indust ry Size ........................................................................................................................................ 6

Market Growth Rate ............................................................................................................................ 6

Supp ly Dete rmi nants........................................................................................................................ 8

Majo r Tea G rowing Regions : ................................................................................................................ 8

Characte rist ics of Ind ian Tea Ind ust ry .................................................................................................. 9

Compet itive Stru ctur e .............................. ....................... ................................ ...................... ............. 10

SWOTAna lysis of Ind ian Tea Ind ust ry ................................................................................................ 11

PORTER'S 5 Forces Ana lysis of Ind ian Tea Ind ust ry ............................................................................. 12

Majo r Events ..................................................................................................................................... 13

TATA TEA LTD ........................................................................................................................................ 14

Globa l Footp rints ............................................................................................................................... 15

Majo r Acquitions ............................................................................................................................... 15

Value Cha in Ana lysis of Tata Tea ............................ ........................ ................................ .................... 16

Prof itab ility Ana lysis of Tata Tea ........................................................................................................ 16SWOTAna lysis of Tata Tea : ................................................................................................................ 18

Present B usiness St rate gy of Tata Tea ............................. ........................ ................................ ........... 19

Prob lem s at hand fo r Tata Tea ........................................................................................................... 20

Sugg ested B usiness St rate gies fo r Tata Tea to fo llow ......................................................................... 20

Tata Tea s ne w Business St rate gy ....................................................................................................... 20

Tata Tea Co re Competenc y ................................................................................................................ 21

HINDUSTAN UNILEVER LIMITED............................................................................................................. 21

Majo r events fo r HUL ................................ ...................... ................................ ...................... ............. 21

Brands of H UL .................................................................................................................................... 22

HUL Segm entat ion of Ind ian Tea Ma rket ............................. ....................... ................................ ........ 22

Prof itab ility Ana lysis of HUL ............................................................................................................... 23

SWOTAna lysis for HUL: ..................................................................................................................... 24


3/28

3

Present B usiness St rate gy of HUL ................................ ...................... ................................ ................. 25

Core Competenc y of HUL .............................. ...................... ................................ ....................... ........ 26

Recomm endat ions : ............................................................................................................................ 26

Compa ring the c urr ent market pos ition of Tata Tea and H UL ............................. ...................... .............. 27

References : ........................................................................................................................................... 28


4/28

4

TEA INDUSTRY Tea p lays a v ita l role in the lives of millions of Ind ians. The y ta ke it as a ref resh ing drink as pa rt of da ily ritual. Tea offe rs live lihood to millions of peop le who a re assoc iated with th is indust ry. Ind ia p roducessome of the world s f inest q uality and a lso the largest va riet y of tea. Among the fa mous spec ialtyf lavo rsare Dar jee ling tea, Assam tea and Nilgiri tea, which a re grown in the Ben gal, Assam and Ta mil Nadu . Teais no rm ally class if ied based on the p rocess ing, leaf s ize and grade. Fe rm entat ion c reates t wo majo r class if icat ions, b lack and green tea. B lack tea is f ur the r class if ied into CTC (cu t, tea r and c url) andorthodox tea.

Indian Tea Industry Featuresy India is one of the largest p roducer and cons um er of tea in the world, acco unt ing for around

23% of world de mandy Tea is curr ent ly the second b iggest in beve rage cate gory afte r the ca rbonated soft d rink markety Tota l tur nove r of pac kage tea was app roximate ly Rs 10,000 c rores in 2009-10y In the pac kaged tea cate gory, the uno rgan ized secto r acco unted fo r ove r Rs 1500 c rorey The labo r intens ive tea indust ry direct ly employs ove r 1.1 million workers and gene rates income

for anothe r 10 million peop le app roximate ly. Wo men const itute 50% of the workforce.y Maximum production has been d uring July-Oct a lmost eve ry yea r and lowest p roduction d uri ng

Jan-Feby Tea is an a gro-based co mm od ity and is subjected to va garies of nat urey Tea t rad ing in the do mest ic market is done in t wo ways - auction and p rivate se lling

M arket TrendsThe tea market in Ind ia is witness ing a sea chan ge in recent t imes. Chan ges in the life st yle of Ind ianshave inf luenced tea cons um pt ion patte rn. In pa rticular, it has ca used the growth of the so-ca lledbranded o r pac kaged tea cate gory. Earlier, tea was most ly so ld in a co mm od ity form . Howeve r, no w-a-days the b randed fo rm has gained pop ularity and led to the ent ry of pac kaged tea and tea ba gs. Ou t of the 750 million kg of tea cons um ed in Ind ia, a round 300 million kgwas so ld in the b randed fo rm . Thebranded tea is no w est imated to acco unt fo r 60% of the ann ual tur nove r of the tea indust ry, va lued atRs 6400 c rores.

The major players in the b randed tea b usiness have been unde rgoing a rest ru cturing process. Not long bac k, 80% of Tata Tea s income used to co me f rom its p lantat ions, b u t no w the e mphas is has a lmostreve rsed. Afte r Tata Tea so ld its tea p lantat ions to its who lly owned s ubsidiaries, p lantat ions cont ributed just 14% to the co mpan y s turnove r. It is a lso making effo rts to st ren gthen its b rands, and its acq uisitionof Tet ley in 2000 has he lped a lot in th is regard. Following a similar step, H UL had q uit p lantat ionsbusiness and concent rated on the b randed se gment a lone. Afte r the sa le of Tea Estates Ind ia Ltd, HULhas tota lly withd rawn f rom the p lantat ion act ivity. Unlike Tata Tea and H UL who so ld off the ir plantat ions, s maller players are st ill ho lding the ir plantat ions b usiness.


5/28

5

TY PES OF T EA

HERBALT EA BLACKT EA GREENT EA

CT C ORT HODOX T EA

Black T eas are ox idized and fe rm ented d uring process ing, to give the m the ir dist inct ive f lavors. Black teahas a f ull, rich taste.

Oolong T ea is tea that fa lls bet ween a b lack and a green tea. It on ly unde rgoes a s mall amount of ferm entat ion d uring process ing

Green T ea unde rgoes less p rocess ing than b lack teas, and have a mu ch lighte r f lavo r. The hea lthbenef its of green tea a re see mingly end less. S ince the leaves a re not fe rm ented, the taste is p leasant ly f resh and he rba l

White T ea comes f rom the Ca me llia s inens is p lant. B u t the leaves a re p icked and ha rvested befo re theleaves open f ully, when the b uds a re st ill cove red b y f ine white ha ir, hence the na me. Wh ite tea isscarcer than the othe r trad itiona l teas, and q uite a b it more expens ive.

Loose T eas are t ypically who le leaves o r at least large p ieces of leaves

T ea bag is a small, po rous pape r, silk or plast ic sea led ba g conta ining tea leaves fo r brewing tea

Special Features of India Tea Industry:

y Production dependent of a gro-climat ic cond itionsy Same p lant and sa me a gro-p ract ices give va riat ions in quality in d ifferent regionsy Product Life is for limi ted pe riody Labor intens ivey High Cost d ue to h igh inpu t costy No priority for Scient if ic Cost Mana gementy Huge p ropo rtion o ld tea & Lo w Product ivity


6/28

6

Industry SizeIndian tea indust ry stood at 979 million kg as of 2009, with the sha re to globa l supp ly acco unt ing for 25%. It is curr ent ly the second largest p roducer of tea in the world, fo llowing China which ove rtoo k it s ince2006. In 2009, the s ize of the Ind ian tea indust ry was est imated at Rs 140 b illion. Tea is a s ignif icantfore ign exchan ge ea rne r and tota l tea expo rts were app roximate ly around Rs 26.2 b illion in 2009.

Demand 2009 volume(Million Kgs)

Domest ic Consum pt ion 844Exports 191.5Tota l 1035.5

Supply

Production 979

Impo rts 28Tota l 1007T otal Market Size 1035.5

India has ove r 13,000 tea estates with a co mbined ac rea ge of abo ut one million, most of it in no rthe rnIndia. The secto r employs close to one and a ha lf million peop le with fo reign pa rticipat ion in themajority of tea p lantat ions at 25-30%

Regist rat ion with the Tea boa rd: 1655 registe red Tea Man ufact ur ers 2008 registe red Tea Expo rte rs

5148 n um be r of registe red tea b uyersNine tea Auction cente rs

M arket Growth Rate

MARKET GROWTH RATE(INDIA)


7/28

7

As can be seen f rom the above graph the market growth rate has been hove ring around the 2% mark since the mid 90 s.

Change in Production(M illion Kgs)

The t rad itiona l tea b usiness has been witness ing sta gnant growth fo r the co mpan y ove r the last th reeyea rs since 2007.


8/28

8

Supply Determinantsy Tea p roduction and yie ld depend on the a ge p rof ile of tea b ushes. A tea p lant is its most

product ive bet ween 11-20 yea rs afte r it is p lanted. Altho ugh the p roductive life of a tea b ushsta rts dec lining afte r a pe riod of 50 yea rs.

Around 45% of the tea b ushes in Ind ia a re above the p roductive a ge of 20-40 yea rs. InKerala and Ka rnata ka, the a ge p rof ile of tea is poo r with a lmost 79% and 77% of thebushes above 40 yea rs.

y Yie ld o r Productivity is the p roduct ion pe r unit of land. It is d irect ly re lated to the a ge of the teabushes and the a ltitude at which the y are grown

In India, the effect ive yie ld pe r hecta re dec lined f rom 1844 kg/ hecta re in 1998 to 1705kg/ hecta re in 2007. Th is has been att ributed to inadeq uate invest ments in re-p lantat ionand rejuvenat ion act ivities, the a ge p rof ile of b ushes, ind iscriminate use of fe rtilizersand p rob lem of pest attac k.

y Climat ic and so il cond itions a re c rucial for the growth of the tea p lant. App rop riate intens ity andquant um of rainfa ll, te mpe rat ur e and h umi dity cond itions a re req uir ed.

M ajor Tea Growing Regions:

Tea p lantat ions in Ind ia a re mainly located in rur al hills and bac kward a reas of North-easte rn and

Southe rn States. Majo r tea growing areas of the co unt ry are concent rated in Assa m , West Ben gal, Tamil Nad u and Ke rala. The othe r areas whe re tea is grown to a s mall extent a re Karnata ka, Tripur a, Himacha l

Pradesh, Utta rancha l, Arunacha l Pradesh, Man ipur , Sikkim , Nagaland, Me gha laya, M izoram , Biha r and

Orissa. Unlike most othe r tea p roducing and expo rting count ries, Ind ia has d ual manufact uring base.

India p roduces both CTC (Cut, Tea r, Curl) and O rthodox teas in add ition to green tea. The we ighta ge lies

with the fo rm er due to do mest ic cons um er s prefe rence. O rthodox tea p roduction is ba lanced bas ically

with the expo rt de mand. P roduction of green tea in Ind ia is small. The co mpet ito rs to Ind ia in tea expo rt

are Sri Lanka, Kenya, China, Indones ia and Vietna m .


9/28

9

C haracteristics of Indian Tea Industry

1 ) Productivity and quality:The a rt of p lucking req uires t wo f resh leaves and a b ud to be p lucked manually. Teaproduct ivity can be meas ur ed as pe r unit of labo r and pe r unit of land (hecta re). Mechan izedplucking enhances p roductivity, bu t with co mpromise on q uality, as coa rse leaves a lsogetplucked. When p remium for quality rises, p roducers improve the q uality by compromising onproduct ivity. The p roductivity also depends on the a ge of tea b ushes, genet ic mate rial,irrigat ion, fe rtilizer, cultivat ion techn iques, etc. Rep lantat ion to rep lace o ld b ushes is done toimprove p roductivity.

2 ) Labor intensity:This indust ry is ve ry labo r intens ive. Labo r cost is gene rally f ixed and the refo re lower product ion would res ult in h ighe r unit cost of p roduct ion. The p ropo rtion of va riab le e lementsin labo r cost depends on labo r legislat ion and extent of cas ual and te mpo rary workersemployed.

3 ) Commodity nature:Tea p rices f luctuate wide ly with de mand s upp ly imba lances. The co mm od ity is pe rishab leandde mand is relat ively ine last ic to p rice. Wh ile de mand has a sec ular growth rate, s upp lycan va ry depend ing on c limat ic cond itions in the major tea growing count ries. Unlike othe rcomm od ities,tea p rice cycles have no linkage with the gene ral econo mic cycles, b ut witha gro-climat iccond itions.


10/28

10

4 ) Long gestation:Tea b ushes mat ure fo r comm ercial exp loitat ion in 5-7 yea rs and remain p roductive fo r anave rage 50 to 60 yea rs. Majo r pa rt of cap ita l expend itur e is to be incurr ed in f irst f ive yea rs,which then yie lds ret ur n ove r the next 100 yea rs.

5 ) Domestic Competition:The majo r sha re of tea market is do minated b y uno rgan ized p layers. The re a re abo u t 1000 of tea b rands in Ind ia, of which 90% of the b rands a re rep resented b y regiona l players while theba lance of the 10% is do minated b y Tata Tea, H UL, Wag Bakri Chai, Duncans, Good ricke andothe rs. With the growing shift f rom loose to b randed tea, regiona l players a re no w expand ing the ir reach and a lso gett ing premium with the ir offe rings.

C ompetitive Structure

Tea indust ry is h ighly f ragmented with a large n um be r of s mall compan ies. The b randed tea market inIndia is do minated b y two major players Hindustan Unileve r Ltd (HUL) and Tata Tea with a co mbinedmarket sha re of more than 50%. Othe r players include Duncans Tea, Good ricke and so me well-knownregiona l players like Jivaraj and Wa ghBakri

TATA TEA HUL DUNC A NS GRO UP

GOODRI CK EGRO UP

OT HER S

MAJOR TEAPLAYER S

Tata TeaAgni Tata Tet ley Chakra Gold

Red Labe l TajMaha l TaazaLipton G reen

Sargam DoubleDiamondShakti

Good rickeZaba rdastCast letonCaddy

Wa ghBakri Tez Jay Shree Tea


11/28

11

SWOT Analysis of Indian Tea Industry

Strength:

Demand fo r tea has been growing at so me 2% pe r ann um

Techn ical & Manpo wer Skill: Due to a h uge pop ulat ion base in Ind ia Techn ical & Manpo wer Skill is ava ilab le in ab undant

Good Resea rch Suppo rt by tea growers has will he lp indust ry grow f ur the r

Weaknesses:

Labor intens ive indust ry: The second gene rat ion labo rs a re re luctant to jo in th is indust ry henceit could pose a p rob lem of skilled labo r in the nea r f u tur e

No Effect ive Cost Mana gement s yste m adopted b y compan ies and othe r regulato ry bod ies

Supp ly f rom more eff icient p layers like Kenya, China, Sri Lanka

Dec lining Export of Ind ia ove r the yea rs

Opportunities:

Export Potent ial if India can increase its p roduction capac ity

To make tea more acceptab le and fash ionab le like coffee

To co me up with ne w f lavo rs/ formul at ion of the tea, tea ho uses etc. to pop ularize the conceptof tea in Ind ia

Large untapped rur al market fo r branded tea co mpan ies like HUL and Tata Tea

T hreats:

Globa l compet ition

Low Cost in so me co unt ries like China, Sri Lanka and Ken ya

Impo rt of Tea f rom othe r count ries

Cost esca lat ion on acco unt of increase in the cost of p roduction


12/28

12

P ORTER'S 5 Forces Analysis of Indian Tea IndustryIndustry Rivalry (High):

There a re app roximate ly700 tea co mpan ies in Ind ia hence the re is intense rivalry amongst the m

Market is do minated b y a large num be r of uno rgan ized p layers

Indust ry growth is slow

Bargaining Power of Buyers (High):

There a re a large n um be rs of b uyers pur chas ing the p roduct

The ba rgaining power of buyers is ext remely high as the b uyers have many opt ions ava ilab le

Not mu ch product d ifferent iat ion in te rm s of taste a lso low switch ing cost

Buyers pur chase a large p ropo rtion of the indust ry s total outp u t

Bargaining Power of Suppliers (Low):

There a re a large no of p roducers of tea in Ind ia

Supp lier s product creates low switch ing cost

T hreat of Substitutes (Moderate):

Subst itutes ava ilab le a re coffee, j uice, co ld drinks

Exist ing custo mers are loyal

Subst itute s price may be lower. As the re a re so man y players a p rice war is unavo idab le

The subst itu te p roducts q uality & perform ance may be bette r

T hreat of new Entrants (High):

Large untapped rur al market fo r branded tea se gm ent in rur al India

Encour aging gove rnment po licies like food and beve rage act


13/28

13

M ajor Eventsy The do mest ic tea indust ry is gove rned b y the Tea Act, 1953. And Tea Boa rd is the apex bod y in

cha rge of the deve lopment of the tea indust ry.y Gove rnment po licies in the fo rm of the Land Ce iling Act, 1956 and the Nat iona l Forest Po licy

have affected growth in the a rea unde r the c ultivat ion of tea. In the past decade, s ignif icantexpans ions were made in Ind ia

o During 1994, 7000 hecta res were addedo During 1998-2000, 70000 hecta res were addedo Following a st rong price t rend in 2004, 35000 hecta res were added in 2005

y In the 1960s, Ind ia was p redo minant ly an o rthodox tea p roducing count ry. Due to the do mest icde mand, s ince the mid 70s most tea p roducers have sh ifted to CTC tea man ufact uring

o Given the const raint on increas ing the land a rea unde r cultivat ion, CTC cultivat iontur ned o ut to be more lucrat ive due to its low cost of p roduction

o Howeve r, th is sh ift to CTC cultivat ion has ne gat ive impact on expo rts, as R ussia (Ind ia slargest expo rt dest inat ion ) has s lowly reve rted bac k to the cons um pt ion of the o rthodoxvariet y.

y India s tea impo rts a re minimal, meant ch ief ly for re-expo rt. Impo rts fo r domest ic cons um pt ionare ins ignif icant beca use of the 100% impo rt du ty lev ied on tea.

y In 1994, the Co mm erce M inist ry Promulg ated the Tea Ma king Cont rol Orde r (TMCO), whichreq uired tea p roduce rs to se ll 75% of the ir outp ut th rough seven a uction cente rs located atGuw ahat i, Siliguri, Cochin, Calcu tta, C unoo r, Coimbato re and Amritsa r. Howeve r, in 2003 a ne w TMCO orde r was fo rmul ated in o rde r to regulate the market and improve the p rice d iscove ry mechan ism .

y In 2001, tea has been sh ifted f rom the rest ricted ite m s cate gory on the ne gat ive list of impo rts

to the f ree list in line with Ind ia s commi tments to the WTO. As a result, a ll the q uant itat iverest rict ions on the impo rts of tea have been removed.

y In 2002, the Ind ian Gove rnment has a llowed FDI up to 100% in tea secto r.y EXIM Policy: In orde r to safe guard the do mest ic tea indust ry, Ind ia s tea impo rt po licy has been

ref ramed and ta riff rates have been p rogress ively hiked f rom 19.6% in 1989-99 to 100%curr ent ly (2004-05 )

y Tea co mpan ies a re req uired to pa y Corpo rate Tax on a spec if ied pe rcenta ge of p rof its, while theba lance p rof its a re subject to the state a gricultur al tax.

o Tamil Nadu has abo lished a gricultural income tax recent ly.o Howeve r, in Assam , compan ies pa y corpo rate tax on 40% of p rof its and state

agricultur al income tax of 30% on the ba lance 60% p rof itsy In case of expo rt of tea, the expo rte r is e ligible fo r a ref und of VAT paid in the state of expo rt.


14/28

14

TATA TEA LTD

Tata Tea L imi ted, a lso known as Tata-Tet ley, is the world's second largest manufact ur er and d ist ribu to r of tea. O wned b y India's Tata G roup, the Tata Tea L imited markets tea unde r the majo r brands Tata Teaand Tet ley. Inco rpo rated in 1964 as a jo int vent ur e with UK-based Ja mes Finlay, it has p roduct and b rand

presence in 40 co unt ries. P lantat ion act ivity is in Ind ia and S ri Lanka. Its 86% p rof it co mes f rom brandedtea sa le, while rest co mes f rom bulk tea, coffee and invest ment income. It o wns 27 tea estates in Assam ,West Ben gal and Ke rala. It is acco rded Supe r Brand reco gnition in the co unt ry. It boosts of 38 C&Fagents, 2500 stoc kiest and ove r 1.7 million reta il ou tlets. It is compet ing prim arily on taste andasp irat ion bas is.

It has a c urr ent market sha re of 21.4% in the b randed pac ket tea se gm ent and had ann ual sa les of Rs16.9 b illion in2010. TTL is a market leade r in te rm s of both va lue and vo lum e and has been a ggress ive ly expand ing globa lly th rough M&A. Recent ly, rech ristened itse lf as Tata G loba l Beve rages in conject ure toits st rate gy of beco ming a world leade r in globa l beve rage market.

Tata Tea L imi ted, to gethe r with its s ubs idiaries, en gages in p rocess ing, producing, market ing, anddist ributing tea p roducts p rim arily in Ind ia. It a lso invo lves in the c ultivat ion and manufact ur e of b lack tea and instant tea, tea b uying/ blend ing, and sa le of tea in bulk or value added fo rm .

The co mpan y has f ive majo r brands in the Ind ian market :

y T ata T ea Premium Flagsh ip b rand, sta rted in 1987 Promise of f reshness Created p roduct redef inition b y int roducing po lypac kaging

y T etley Founded in 1837 in England, acq uir ed b y Tata Tea in 2000 Flavo red teaba gs and green tea Premium brand, the face of innovat ion fo r the co mpan y

y KananDevan Started in the late 19th cent ury and acq uired b y Tata in 1976 Owing to its unique taste p refe rred in the So u the rn Ind ia Principa l markets- Ta mil Nadu, Kerala, Karnata ka and Goa Market sha re in the so u th zone 9.8%

y Chakra Gold High quality Assam Dust tea Tea with `golden taste' that acts as a cata lyst in creat ing golden moments Laminated pac k with inne r gold fo il, which mainta ins the a roma

y Agni Packaging with a deep rich red connot ing st ren gth and an affo rdab le p rice To ta ke on the loose tea market p rominent in the v illages


15/28

15

Compet itive pricing and att ract ive pac kaging ab le to att ract p rice-sens itivecusto mer

Global Footprints

M ajor Acquitions

y Form ed an expo rt jo int vent ur e with Brita in's Tet ley Tea in 1992

y Acquir ed Tet ley for 271 million in 2000

y Good Ea rth, a US maker of green and he rba l teas in 2005

y US f irm Eight O Clock Coffee fo r $220 million in 2006

y Bought a th ird of Joe ke ls, South Af rican tea p roducer for 0.9 million, in 2006

y Czech-based tea co mpan y Jemca fo r 12.4 million, in 2006


16/28

16

V alue C hain Analysis of Tata Tea

P rofitability Analysis of Tata Tea

Profitability Analysis 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Profit margin (%) 12.36 9.59 9.53 11.86 14.53 19.26 29.03

27.57 11.68 23.05

Bas ic earning power (%) 13.83 9.35 10.28 11.34 14.12 17.52 16.59 17.47 11.84 21.27

ROA (%) 8.82 6.09 5.86 7.82 10.39 13.33 12.98 12.21 6.23 15.19

EPS (Rs) 17.82 12.80 12.55 16.28 22.93 33.25 51.93 50.59 25.72 63.30

T eagrowers

(Supplier)

Blended cost (85%) T ransportation (2%) Warehousing (1%)

T ransportation (5%)Wholesaler Margin (2%)Purchased byT ata Tea

Packaging, S&D, othercosts (13%)

Sold to retailer Retailer margin (7% )


17/28

17

Ana lyzing the p rof itab ility of Tata Tea Ltd fo r past 10 yea rs, we obse rve that the p rof it margins a resuffe ring for last fe w yea rs, a long with the othe r prof itab ility rat ios.

If we p lot the ope rat ing prof it margins and net p rof it margins, we can infe r these va lues a re do wnwardslop ing since FY 2007.


18/28

18

SWOT Analysis of Tata Tea:

Strengths:

y Market Leader: With a va lue sha re of 21.4% in 2010, Tata Tea is no w the market leade r in the

Rs7,000-c rore b randed teas market, hav ing ove rta ken pee r Hindustan Unileve r (HUL)

y Resources & Capabilities: Tata Tea L imi ted o wns app roximate ly 51 tea estates in the states of Assa m , West Ben gal, and Ke rala in Ind ia. Hav ing plantat ions in va ried a gro-climat ic zonesenab les Tata Tea to c ultivate d ist inct tea leaves. In add ition, it a lso have a b ig R&D inf rast ru cture

y Brand Name: Tata tea B rand is ranked the second most t ru sted beve rage b rand in b rand eq uity.The co mpan y's best-se lling brand is Agni which cate rs to the mass se gm ent and othe r brandsinclude Tata Tea Go ld, Cha kra, Ge mini and Kanan Devan

y Experience: Tata Tea has been one of the o ldest co m pan ies in Ind ia and has the advanta ge of skill and expe rience on the ir side

y Strong Management: Tata tea has the access to h ighly eff icient mana gement poo l f rom Tatagroup

Weakness:

y No product differentiation: One of the major prob lems Tata Tea faces is the lack of mu chproduct d ifferent iat ion hence loyalty of cons um ers is a majo r area of conce rn

y

Distribution Network: The d ist ribution net work of Tata Tea co mprises on 1.25 lakh d ist ribute rsth is is not mu ch when you compa re to H UL who have the st rongest dea ler net work in thecount ry

Opportunities:

y New Product Development: The Compan y can move into ene rgy drinks. This se gment has notyet been tapped b y any of the tea co mpan ies yet and th is co uld give Tata tea the f irst move r sadvanta ge if the y dec ide to ente r th is se gm ent

y Rural Market: There is a large untapped rur al market which needs to be exp loited. Altho ughTata Tea has made its p resence fe lt in the rur al markets th is secto rs is cha racte rized b y a largeuno rgan ized secto r and loca l players are st ill rules the market

y Export Potential: Tata tea is present in 40 co unt ries a round the world and can exp loit theuntapped markets a ll ove r the world

y Mergers and Acquisitions: There a re more than 1000 tea co mpan ies in Ind ia. Tata tea canincrease its market sha re and penet rat ion b y acq uiring these s mall compan ies and a lso fo rmi ng mergers with othe r big MNC slike it d id for Tet ley Tea, Good Ea rth etc.


19/28

19

T hreats:

y Low Barriers: There a re not many ent ry ba rriers b y po licy makers and th is makes the Ind ian teamarket ext reme ly f ragm ented and uno rgan ized. The re a re many regiona l players who ho ld small chunks of markets

y Globalization: Poss ibility of a b ig player ente ring into the Ind ian market is h igh d ue togloba lizat ion

P ORTER 5 Forces M odel Analysis

Porter 5 Forces ModelBargaining Power of Buyers (High) Low switch ing costs fo r buyers

Large no of b randed and loca l playerswith man y brands

Bargaining Power of Supp liers (Low) Large poo l of supp liers in the market Have its o wn p lantat ion in Ind ia &

SriLankaIndust ry Rivalry (High) Players like HUL are b ig compet ito r

Local Players a re a lso eat ing up themarket sha re

Threats of ne w Entrants (Mode rate ) Not eas y to match Tata Tea sinvest ments and reso ur ces

Threat of S ubst itu tes (H igh) Threat f rom f unct iona l drinks andnutrient d rinks is high

Brand Loyalty is high for Tata Tea

P resent Business Strategy of Tata Tea

y Segm ent Tea market on seve ral pa ramete rs taste , pe rcept ion, locat ion

y Strong focus on Urban & Rural Markets b y int roducing brands on

y Use of Emot iona l-Moral appea l like Jaago Re campa ign as pa rt of p romot ion st rate gy to ta rget you th

y In India & co unt ries with large Ind ian pop ulat ion, Tata Tea is the face

y Tet ley is the co mpan y's globa l face

y In case of co-ex istence in one market, Tet ley is pos itioned as the p remium brand

y Moving f rom domest ic Indian tea p lantat ion b usiness to globa l branded beve ragebusiness. Ente ring into the ene rgy drink market.


20/28

20

y Leveraging the b rand va lue and st rong inf rast ru ctur e like R&D and d ist ribution net work

P roblems at hand for Tata Tea

y Ope rat ing profitability has been declining for the co mpan y for ove r last 3 yea rs since2007 d ue to low prod uctivity and lower expo rts

y Stiff competition f rom local players due to the ir low se lling ove rheads andestab lishment costs. The rat io of se lling costs is highe r for branded p layers like Tata Tea

y Changing cons um er prof iles. Mo re n um be r of cons um ers a re going for f unct iona l drinkslike ene rgy drinks or spo rts d rinks

y Low Product ivity of Ind ian tea he rbs

y

Falling export leve ls due to st rong compet ition f rom count ries like China & Sri Lanka

Suggested Business Strategies for Tata Tea to follow

Invest ments in hea lth & we llness beve rages i.e. ene rgy drinks and enhanced wate r

Globa l f unct iona l drinks market growing at a co mpound ann ual growth rate of 9.7% bet ween2005 and 2009

Energy drink sa les p roved the most lucrat ive fo r the globa l f unct iona l drinks market in 2009,gene rat ing tota l reven ues of $23.3 b illion

Estimated to be abo ut $53.4 b illion b y 2014, an increase of 32.9% s ince 2009

Present market offe rs on ly a fe w rea l compet ito rs

Tata Tea s new Business Strategy

Tata Tea is moving on the sa me path and is p lanned to move into b randed beve rages like f unct iona l drinks and n utrition d rinks, in add ition to the ir tea and coffee b usiness. The ir latest goa l is to be thegloba l leade r in b randed good fo r you beverages. In June 2010, the y have rech ristened the mse lvesinto T AT A GLOBAL BEVERAGE f rom T AT A T EA to ref lect the chan ge in b usiness of thecompan y.They have ta ken the fo llowing steps to wards the ir ne w st rate gy:

y Launch of a T!on b rand - A niche product in the new good for you ready-to-drink cold beveragesector in India.


21/28

21

y Acquired mino rity sta ke in US-based beve rage and bott led wate r f irm Activate

y Joint Vent ure with Peps iCo in the a rea of non-ca rbonated read y-to-d rink beve rages, foc used onhea lth and enhanced we llness

Tata Tea Core C ompetency

Resources and capab ilities

Acquitions& Jo int Vent ur es

Deve lop ing peop le s brand

H INDUSTAN UNILE V ER LIM ITED

HUL is a s ubsidiary of Unileve r and is a leade r in FMCG secto r with a st rong presence in more than 100

count ries. HUL have ann ual sa les of abo ut 44.3 b illion in 2010. Unileve r has abo u t 52% sha reho lding in

HUL.Unileve r owns t wo of the most wide ly reco gnized p roduct lines Lipton and B rooke Bond. The major

compet ition fac ing Lever at p resent is f rom Tata Tea, who is a b ig market p layer.HUL have a wide range

of cons um er products :

Food Brands

Persona l Care

Home Care

Wate r, Nutrition

Hea lth, H ygiene & Bea uty

M ajor events for H UL

Unileve r acq uired Brooke Bond in 1984 and L ipton in 1972

1977 inco rpo rat ion of Lipton Tea (Ind ia) inco rpo rated

Backward Inte grat ion 2 p lantat ion co mpan ies of Unileve r merged with Brooke Bond

1994 fo rm at ion of B rooke Bond Lipton Ind ia Limi ted (BBLIL)

Greate r Focus and S yne rgy in Trad itiona l Beverage Business

Toda y the cons um pt ion of Tea in Ind ia stands at 7 mn tones and is large ly driven b y

Brook Bond & Lipton b rands


22/28

22

Lipton co mprises of Ye llow Labe l which is des igned fo r uppe r midd le, uppe r lower and uppe r midd le

class, which is a market leade r in the indust ry, it co mes in a ll the pac kages including ha rd pac ks, ja rs, and

teaba gs. Lipton ye llow labe l altho ugh the d irect co mpet ito r of Brooke Bond S upreme co mes in the

family of Unileve r so it is p rone to its co mpet ing attac ks. Lipton fo llows a mass ive p romot ion sche me to

ho ld its sha re. Richb ru is des igned fo r midd le and lower uppe r classes, and Pea rl dust is des igned fo r

rur al areas, most ly dist ricts of S indh whe re cons um pt ion of d ust is extens ive

Brands of H U

H UL Segmentation of Indian Tea M arket y Premium brands

TajMaha l Lipton Ye llow Labe l

y Popular brands

Brooke Bond 3 Roses Red Labe l Taaza

y Economy brands Brooke Bond Sahet mand


23/28

23

P rofitability Analysis of H ULProf itabilityr ati os Ma r '05 Ma r '06 Ma r '07 Ma r '09 Ma r '10Ope rat ing Prof itMargin (%) 14.14 14.74 14.95 14.46 15.74

Net P rof it Ma rgin(%) 12.42 14.94 12.58 12.09 12.29

ROA (%) 20.91 24.45 6.61 9.45 11.84

EPS (Rs) 6.4 8.41 8.12 11.47 10.09

Ana lyzing the H UL prof itab ility, we can see that ope rat ing prof it margins a re growing.

*Data for FY 2008 is not available / considered (source: www.moneycontrol.com )


24/28

24

SWOT Analysis for H UL:

Strength:

y Brand Name: HUL has the largest n um be r of b rands in the most t ru sted b rands List and th us can

leve rageth is benef it of a ve ry st rong brand na me in the Ind ian market.

y Strong Distribution Network: Hindustan Unileve r 's d ist ribution cove rs ove r 1 million reta ilsoutlets ac ross Ind ia d irect ly and its p roducts a re ava ilab le in ove r 6.3 million o utlets in Ind ia, i.e.,nea rly 80% of the reta il ou tlets in Ind ia. It has 39 facto ries in the co unt ry. HUL products have thelargest cons um er reach be ing ava ilab le in ove r 80 % of cons um er homes ac ross Ind ia.

y Innovative approach: Wide p roduct range with techno logical supe riority and ava ilab ility inmany sizes

y Investment Capacity: Huge cash s urplus for big invest ments

Weakness:

y Huge Marketing Expenses: Large a mount of mone y is be ing spent into market ing andpromot iona l act ivities and th us pu ts HUL into a d isadvanta ge on p rice co mpa red to loca l andregiona l players

y Brand Dilution: Having too man y brand extens ions can d ilute and conf use cons um er pe rcept ionand give f resh and ne w compet ito rs to se ize market sha re

Opportunities:

y Alliance: Alliance with Peps i to access mass ive d ist ribution net work. Presence of b ig, well knownpa rtne rs drives de mand f ur the r

y Rural Market: There is a large untapped rur al market which needs to be exp loited as c urr ent ly on ly regiona l player have market sha re in these markets

T hreats:

y Competition from local players: Large n um be r of b randed and unb randed tea in the marketwith a mple p rice d ifference. H UL need to increase its adve rtising and p romot iona l budget to geta bette r she lf space and more reta iler pat ron izat ion fo r the co mpan y's b rand.

y Govt. Policies to d iscour age tea cons um pt ion : This rise in impo rt d uty on tea b y gove rnment isintended to d iscour age its cons um pt ion, which possess to be a th reat as it has resulted in h ighe r prices fo r the cons um ers.


25/28

25

y Low Barriers: There a re not too many ent ry ba rriers pu t b y the po licy makers and th is makes theIndian tea market ext remely f ragmented and uno rgan ized. Big players such as Coca-Co la andNest le co uld be potent ial compet ito rs.

P ORTER 5 Forces M odel AnalysisPorter 5 Forces Model

Bargaining Power of Buyers (High) Low switch ing costs fo r buyers Large no of b randed and loca l players

with man y brandsBargaining Power of Supp liers (Low) Large poo l of supp liers in the market

Have access to othe r count ries s upp ly Indust ry Rivalry (High) Players like Tata tea a re b ig compet ito r

Local Players a re a lso eat ing up themarket sha re

Threats of ne w Entrants (Lo w) Not eas y to match H UL dist ributionnet work and market ing know how

Threat of S ubst itu tes (Lo w) Threat is less as H UL has products inmost of the beve rage cate gories

Brand Loyalty is high for HUL

P resent Business Strategy of H UL

Volume Leadership: HUL has ta ken a st rong step to wards atta ining Volum e Leade rship b y ta rget ing mass market. R ising f rom 33% to 100 % cons um er base in te rm s of reach

Diverse Portfolio : A Product line with Vertical as we ll as Ho rizonta l Spread in Beve ragesMarket cate ring to tastes and needs to eve ry cons um e r - Different iated P roduct M ix

Experiential Marketing : Reach ing cons um ers th rough t rains, shops, doo r to doo r campa ignsand inf luenc ing purchase dec isions. Launch of Expe rient ial Kiosks unde r Lipton with Hea lth &We llness as the the me

Nutritional Profiling: Deve lop ing Hea lth ier innovat ive p roducts with minimum impact onenv ironment

Investment in Diverse Categories & Channels: Mode rn Trade & O ut of Ho me Ma rket.

Susta ining leade rship in Tea Ba g segm ent ( more than 39% )

Introduction of Functional T eas

Leveraging the HUL Brand and st ren gthen ing it on Hea lth & We llness p latfo rm

Segm ent Ind ian Tea market on seve ral pa ramete rs Taste & Pe rcept ion


26/28

26

Strong focus on Urban & Rural Markets

Dominance in Supp ly Chain Mana gement with an effective Distribution Network ProjectShakti workers used fo r promot ing Brook Bond Sehat mand in rur al areas

Sustained Raw Material supply: Close co llabo rat ion with key tea p lantat ions and Ra info restAlliance (R A),an inte rnat iona l certif icat ion bod y in the a rea of s usta inab le a griculture. Inadd ition the y have a lso ta ken steps to so ur ce raw mate rials f rom agriculture and fo rest ry in asusta inab lemanne r

C ore C ompetency of H UL

Dist ribu tion Channe l

Effect ive Ma rket ing & Promot iona l Strate gies

Curr ent ly, Hindustan Unileve r Ltd is do ing good and is prof itab le. By leve raging all the above st rate giesHUL has been increas ing its market sha re. Fo llowing st rate gies a re reco mm ended to f ur the r improveits stand ing.

Recommendations:Strategic alliances: Tie-up with a irlines, railways, cate rers etc. to p romote the ir beve rages

Acquire local players: To counte r compet ition f rom cheap regiona l players

T arget Rural Markets: Deepe r penet rat ion in rur al markets to access ne wer markets

Beverage Outlets: Open o u tlets in Tier II cities se rving tea a long with othe r f unct iona l drinks, on a sca lesimilar to se rvice o u tlets in b ig met ros


27/28

27

C omparing the current market position of Tata Tea and H UL

PARAMET ERS T AT A T EA HUL

Profitability Pos itive bu t dec lining Prof itab le

SWO T Analysis High th reat f rom subst itutes.Oppo rtunities in f unct iona l

drink market

Alread y exist in f unct iona l drink market

Porter Analysis Less Prof itab le P rof itab le

Value Chain Analysis Strong Dist ribu tion net work Strong Value Cha in

Core Competency Resour ce and Capab ilities Supp ly cha in including thedist ribu tion net work and

market ing st rate gies

Selling USP Brand Name Price

BCG Matrix Analysis Cash co w moving to wards do g Cash Cow

Comparing the HUL and T ata T ea on a BCG Matrix

Stars ???

CowsDogs

High Market Share Low Market Share

Tata Tea is moving f rom Stars to Cash co ws with red ucing growth while HULis enj

HUL

TTL TT


28/28

References:

h tt p://www .r eportlink er .com/d012116209/Tea-Ma rk et-in-India.h tml

h tt p:// indiaea rning s.moneycontrol .com

www .teab oar d.com

h tt p://www .tataglo ba l beve r ages.com

h tt p://www .teab oar d.com/

h tt p://www .hu l.co.in/

Case Stu dy Series, FM CG Sector Vol. II

Indian Tea I ndu str y: O u tlook Positive F or Th e Sh ort To Med iu m Te r m

54036995 tea industry sec c group11 copy

Documents