A STUDY INTO THE

FMCG SECTOR

OF INDIA

(TEA INDUSTRY)

Submitted By

Prashant M Relwani

UNDER THE GUIDANCE OF

A PROJECT SUBMITTED IN FULFILLMENT OF MMS

TO

Vidyalankar Institute of Technology

1

DECLARATION

This is to declare that the study presented by me to Vidyalankar Institute of Technology, in part

competition of the MMS under the title “A Study Into The Fmcg Sector Of India (Tea Industry) ”

has been accomplished under the guidance of.

2

CERTIFICATE

3

ACKNOWLEDGEMENTS

It is my pleasure and honor to present this report and say a few heartfelt words for the people

who were part of this report in numerous ways, people who gave a lot of support right from the

stage of conceiving the project.

I am extremely grateful to my guide Dr. ………………, who has been a motivator and source of

inspiration. His uninhibited guidance and valuable tips have been responsible to put in my best

efforts in working on this project. My special thanks to him for giving me a direction for the

project. I also thank my Co-guide Mr……………..for her constant support.

Date : Prashant M Relwani

4

CONTENTS

Title of the Section Pages Nos.

Objective Of Study 1

Methodology Of Study 2

Chapter 1 : Fast Moving Consumer Goods 3 1.1 : FMCG Industry In India 4 1.2 : Policies 7 1.3 : Key Players In FMCG Industry In India 8

Chapter 2 : Tea Industry 9 2.1: History Of Tea 10 2.2: Global Tea Industry 11 2.3: Types Of Tea 13 2.4: India Tea History 15 2.4.1: Characteristics Of India Tea Industry 20 2.4.2: SWOT Of Indian Tea Industry 22 2.4.3: Porter ‘ s Five Forces 23 2.4.4: Present scenario Of Indian Tea Industry 25 2.4.5: India Vs Other Tea Producing Countries 28 2.4.6: Areas Of Concern 33 2.4.7:Recommendations For improvement 39

Chapter 3 : Top 2 Players In India Tea Industry 3.1: Tata Tea 42 3.1.1: SWOT Analysis Of Tata Tea 44 3.1.2: Internal Environment Analysis 46 3.1.3: Business Level Strategy 47 3.1.4: Marketing & Promotional Strategy 48 3.2: HUL (Tea) 49 3.2.1: SWOT Analysis Of HUL(Tea) 50 3.2.2: Present Strategy 52 3.3: Recommendations To Top 2 Players To Increase Market Share 53

5

6

OBJECTIVES OF THE STUDY

The purpose of this study is to get familiarized with the Indian Tea Industry and its marketing to

International markets. In order to accomplish this objective, the present dissertation covers the

following objectives:

To highlight the present Market Scenario of India Tea Industry.

To examine the prospects of India Tea Industry in the International Market

To identify the problems of India Tea Industry Export to the International Market.

To know the scenario of World Tea Market.

To recommend some corrective measures to resolve the problems

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METHODOLOGY OF THE STUDY

This research is an elaborate study to enable us to understand the whole scenario of India Tea

Industry to the International market. Collected data and information were tabulated, processed

and analyzed critically in order to make the study more informative, fruitful and purposeful.

In preparing this report I have used secondary data and information .Most of the data have been

collected from secondary sources. The secondary information is collected from various books,

financial papers, and documents, articles related with the Tea Plantation, Tea Marketing,

Newspapers, India Tea Board, Web portal, International Tea Boards, EPB, Food and

Agricultural Organization (FAO) etc. Annual report,

Preparing the Dissertation on the India Tea Marketing beyond the boundary, the secondary data

was collected, corrected, organized, analyzed and interpreted to draw some findings and

recommendations.

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CHAPTER 1

FAST MOVING CONSUMER GOODS (FMCG):

We regularly talk about things like tea, butter, potato chips, toothpastes, razors, household care

products, packaged food and beverages, etc. But do we know under which category these things

come? They are called FMCGs. FMCG is an acronym for Fast Moving Consumer Goods, which

refer to things that we buy from local supermarkets on daily basis, the things that have high

turnover and are relatively cheaper and there cost is relatively low.

FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily

deals with the production, distribution and marketing of consumer packaged goods. The Fast

Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the

consumers at a regular interval. Some of the prime activities of FMCG industry are selling,

marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain,

production and general management. This project helps us understand the Tea Markets as part

of the FMCG industry.

Key Segments:

The FMCG sector consists of four product categories, each with its own hosts of products that

have relatively quick turnover and low costs:

Household Care

Personal Care

Food & Beverage

Household Care Personal Care Food & BeverageFabric wash (laundry soaps and synthetic detergents); Household Cleaners(dish/utensilcleaners, floor cleaners, toiletcleaners, air fresheners,insecticides and mosquitorepellents, metal polish andfurniture polish)

Oral care, hair care, skin care, personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; feminine hygiene; paper products.

Health beverages; Tea; soft drinks; products (biscuits, bread, cakes); snack food; chocolates; ice cream; coffee; soft drinks; processed fruits, vegetables; dairy products; bottled water; branded

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FMCG INDUSTRY IN INDIA:

The Indian FMCG sector is an important contributor to the country's GDP. It is the fourth largest

sector in the economy The US$ 21.1 billion FMCG (fast moving consumer goods) sector in

India is running full throttle and is expected to have a lot of action in 2010. As the fourth largest

sector in the Indian economy, it is distinguished by a good distribution network and a strong

competition between organized and unorganized segment. According to Financial Express, the

sector will witness a growth of 15 per cent in 2010, compared to last year. The industry also

creates employment for 3 million people in downstream activities, much of which is disbursed in

small towns and rural India.

This industry has witnessed strong growth in the past decade. This has been due to liberalization,

urbanization, increase in the disposable incomes and altered lifestyle. Furthermore, the boom has

also been fuelled by the reduction in excise duties, de-reservation from the small-scale sector and

the concerted efforts of personal care companies to attract the burgeoning affluent segment in the

middle-class through product and packaging innovations.

Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in

reality, the sector meets the everyday needs of the masses. The lower-middle income group

accounts for over 60% of the sector's sales. Rural markets account for 56% of the total domestic

FMCG demand. Many of the global FMCG majors have been present in the country for many

decades. But in the last ten years, many of the smaller run Indian FMCG companies have gained

in scale. As a result, the unorganized and regional players have witnessed erosion in market

share.

The Indian FMCG market has been divided for a long time between the organized sector and the

unorganized sector. While the latter has been crowded by a large number of local players,

competing on margins, the former has varied between a two-player –scenario to a multi- player

one.

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Unlike the U.S market for fast moving consumer goods (FMCG), which is dominated by a

handful of global players, India’s US$ 21.1 billion FMCG market remains highly fragmented

with roughly half the market going to unbranded, unpackaged home made products This presents

a tremendous opportunity for makers of branded products who can convert consumers to branded

products.

At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power,

and river linking) are likely to enhance the living standard across India. Till date, India’s per

capita consumption of most FMCG product is much bellow world averages. This is the latent

potential that most FMCG companies are looking at. Even in the much penetrated categories like

soaps/detergents companies are focusing on getting the consumer up the value chain. Going

forward, much of the battle will be fought on sophisticated distribution strengths.

Growth Potential:………////////…………………………………………………………

Most of India’s population still lives in villages and hence, it is one area that can’t be

overlooked. As an agricultural economy, which is gaining a lot of focus, rural income is bound to

increase. That will definitely provide a better growth prospect for the FMCG companies. The

growing demand in the market will also support the sector in an effective manner. Per capita

consumption of various products is very low in India and hence it will have varied growth

possibility. The new generation customer is brand savvy. However, now the companies need to

focus on rural customer to make them more aware of the kind of new products and services that

the FMCG basket can offer. The purchasing power of the people also plays an important role.

The urban area will continue to dominate the market share of the FMCG products, what with

increasing incomes and new categories. Currently urban populace has a 66 per cent share in

terms of consumption.

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Indian FMCG Market Progress…………………………………………………………….

India will continue to be a major FMCG player because of reasons like abundance of raw

material, labour costs and an effective value chain. The climatic conditions across India is varied

which gives it a huge raw material base for food processing industries. It is coming up as major

coffee market. For a long time it has been the largest producer of milk, spices cashew and

livestock. The production of caustic soda and soda ash also gives it a local advantage, since they

are the basic ingredients in soaps and detergents.

India’s FMCG Market Size (In USD Billion)

Sources: Naukri Hub, IBEF, Chennai Online

Competition:

Significant presence of unorganized sector –Factors that enable small, unorganized players

with local presence to flourish include the following:

1. Basic technology for most products is fairly simple and easily available.

2. The small scale sector in India enjoys exemption/lower rates of excise duty, sales tax etc.

This makes the more price competitive vis-à-vis the organized sector.

3. A highly scattered market and poorly transport infrastructure limits the ability of MNCs

and national players to reach out to remote rural areas and small towns.

4. Low brand awareness enables local players to market their spurious look-alike brands.

5. Lower overheads due to limited geography, family management, focused product lines and

minimal expenditure on marketing.

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POLICIES:

India has enacted policies aimed at attaining international competitiveness through lifting of the

quantitative restrictions, reduced excise duties, automatic foreign investment and food laws

resulting in an environment that fosters growth. 100 per cent export oriented units can be set up

by government approval and use of foreign brand names is now freely permitted.

Food laws:

Consumer protection against adulterated food has been brought to the fore by "The Prevention of

Food Adulteration Act (PFA), 1954", which applies to domestic and imported food commodities,

encompassing food colour and preservatives, pesticide residues, packaging, labeling and

regulation of sales.

13

KEY PLAYERS IN THE INDIAN FMCG INDUSTRY IN INDIA:

Name Of Company1. Hindustan Unilever Ltd.2. ITC (Indian Tobacco Company)3. Nestlé India4. GCMMF (AMUL)5. Dabur India Ltd6. Asian Paints (India)7. Cadbury India8. Britannia Industries Ltd.9. Procter & Gamble Hygiene and Health Care10. Marico Industries Ltd.

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CHAPTER 2

HISTORY OF TEA:

Little did Chinese Emperor Shen Nung realize that in 2737 B.C., when dried leaves blew into

his cup of hot water, the beverage he discovered would cause sensations around the world.

During this time, water was always boiled for hygienic reasons. The pleasant aroma and

refreshing taste enchanted him and soon everyone in the realm was drinking tea.

Japan was introduced to tea by Yensei, a returning Buddhist priest residing in China at the time

of the discovery. Tea was immediately embraced by Japanese society and resulted in the creation

of the intricate Japanese Tea Ceremony, elevating tea to an art form.

Tea continued to travel throughout the Orient and it was during the time of the European

explorers tea made its cultural broad jump. The East India Tea Company brought tea into

Holland but its prohibitive cost of $100 per pound kept tea as a rich man's beverage until so

much was imported that tea prices fell and was sold in small food shops.

In 1650, Peter Stuyvesant brought tea to the American colonists in New Amsterdam, later called

New York. Soon the colonists were drinking more tea than all England.

In England, tea gardens, ornate outdoor events with fancy food and tea, fireworks and gambling,

seemed to sprout up overnight as entertainment centers of the day and many British enjoyed the

festivities offered there.

Russia discovered tea when ornate chests of the dried leaves were sent to Czar Alexis by the

Chinese Embassy in Moscow in 1618. It became Russian custom to sip heavily sweetened tea

from a glass in a silver holder. Russians also enjoyed honey or strawberry jam stirred into tea as

their ethnic contribution. Even today, vodka and tea are the national beverages of Russia.

To recover extensive expenses from the French and Indian War, England levied a huge tax on tea

imported to the colonies, mistakenly believing the colonists were so hooked on it they'd pay

15

anything to keep their supply coming in. One night the men of Boston dressed as Indians,

reminiscent of the French and Indian War stole aboard the ships docked in the Boston harbor and

threw the expensive tea cargo overboard and into the harbor. England reacted by having a raging

fit, closing Boston's port and sending Royal troops into occupation of Boston. Because of this,

colonists met to discuss these events and declared a revolution.

At one point, England even gave The John Company the power to not only import tea but to coin

its own money, make peace, declare war and other privileges previously only held by countries.

In the 1880's, America came to the forefront as the biggest importer of tea due to faster clipper

ships and the ability to pay its debts in gold.

A tea plantation owner introduced iced tea to the St. Louis World's Fair in 1904. It was an

extremely warm day and his hot tea booth was being passed up by the crowds in favor of cold

drinks. As desperate measure, since he was out time and money for even coming to the Fair, he

added ice to the vats of liquid hot tea and in the process made it one of the highlights of the 1904

World's Fair.

The tea bag came along as a surprise. Samples of tea at the turn of the twentieth century were

given out in small silk bags and instead of opening the bags, the tea bag in its entirety was being

dropped into hot water by consumers. Quickly, a tea company sprang into action and patented

the tea bag. Thomas J. Lipton was responsible for designing a four-sided tea he dubbed the 'flo-

thru' tea bag, which allowed tea to steep more quickly in the cup than the customary two-sided

bag.

Today tea is grown on tea estates and 70% of the tea we drink is grown in Sri Lanka, India,

Indonesia, Kenya, Argentina and China. The best climates for growing tea are those that are

tropical or semi-tropical and tea can be grown on soil that is not fit for growing much of anything

else. Today there are three basic types of tea: black, oolong and green and from these three types

spring over 3,000 cultivated varieties. The leaves are picked at just the right moment designated

by the tea estate manager, then crushed to start the oxidation process.

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GLOBAL TEA INDUSTRY:

The global tea industry is largely dominated by India – the second largest producer and the

largest consumer of tea. India is succeeded China and followed by Kenya Sri Lanka, Vietnam

and Indonesia in the production hierarchy of countries.

The tea industry is peculiar, the soil characteristics, the climate and the rainfall determine the

character of the tea and its taste. Tea affects the taste buds; therefore, it is difficult to replace a

particular variety with a substitute. This explains why certain types are favored by certain

countries: for example, the CIS (commonwealth of independent states i.e. Russia) countries favor

Indian and Sri Lankan teas. UK and Pakistan favour Kenyan teas. 

India accounts for 26 per cent of world's production. While Sri Lanka, Kenya and Indonesia are

the other leading producers; their combined production is lower than that of India. What makes

India an interesting object of study is that its size is no millstone around its neck; its production

growth between 1996 and 1998 at 5.63 per cent was way ahead of the increase in world

production of one per cent only.

In 2008, world tea production reached over 4.73 million tones. Producing 1.16 billion kilos (2.56

billion pounds) of tea per year, China is the number one source for tea on the planet. At 980

million kilos (2.16 billion pounds), India stands at number two. Kenya and Sri Lanka follow.

When it comes to exports, China ships out 297 million kilos (654.78 million pounds) of all types

of tea whereas India, with primarily black tea, moves 203 million kilos (429.9 million pounds).

This ranking is fairly recent. Prior to the 1960s, India was the top producer and exporter. For

example, in 1955, India shipped out 165 million kilos (363.77 million pounds) of her total

production of 301 million kilos (663.59 million pounds). The fierce rivalry with Sri Lanka saw

the two jockeying back and forth for top exporter position from the 1960s through the ’80s. But

in 1991, Sri Lanka surpassed India for good with 211 million kilos (465.12 million pounds).

17

China caught up in 1993 with 201 million kilos (443.13 million pounds) to India’s 175 (385.81

million pounds). Kenya’s exports exceeded India’s that same year with 188 million kilos (414.47

million pounds). For total production, India has taken second place to China since 2006. (All

figures come from respective countries' tea boards.)

So, while other sources are ever more aggressive in their outputs, India seems to be lagging. It is

no surprise that China has made fast gains on the rest of the pack, given the increases the country

has made in its other industries. But why is this happening in tea, specifically? What is the

fundamental reason, if there is one, for India’s slip in tea supremacy? In my presentation and

during the lively question-and-answer that followed, I offered a few ideas that seemed to catch

the audience’s attention.

The follow table shows the amount of tea production (in tones) by leading countries in recent

years. Data is generated by the Food and Agriculture Organization (FAO) of the United

Nations as of January 2010.

Country 2006 2007 2008

China 1,047,345 1,183,002 1,257,384 India 928,000 949,220 805,180 Kenya 310,580 369,600 345,800

Sri Lanka 310,800 305,220 318,470 Turkey 201,866 206,160 1,100,257

Vietnam 151,000 164,000 174,900 Indonesia 146,858 150,224 150,851

Japan 91,800 94,100 94,100 Argentina 72,129 76,000 76,000

Iran 59,180 60,000 60,000 Bangladesh 58,000 58,500 59,000

Malawi 45,009 46,000 46,000 Uganda 34,334 44,923 42,808

Other countries 189,551 193,782 205,211Total 3,646,45

23,887,308 4,735,961

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TYPES OF TEAS:

All true tea comes from the Camellia sinensis plant. But the different types of tea stem from the processing. Main varieties: Black, Oolong, Green, White, Loose teas and Tea Bags.

Black teas are oxidized and fermented during processing, to give them their distinctive flavors’. Black tea has a full, rich taste.This particular variety of black tea is called Keemun

Oolong Tea is tea that falls between a black and a green tea. It only undergoes a small amount of fermentation during processing. The variety of oolong tea in this photo is infused with jasmine

Green teas have undergone less processing than black teas, and have a much lighter flavour. The health benefits of green tea are seemingly endless. Since the leaves are not fermented, the taste is pleasantly fresh and herbal.

White Tea comes from the Camellia sinensis plant. But the leaves are picked and harvested before the leaves open fully, when the buds are still covered by fine white hair. Hence the name. White tea is scarcer than the other traditional teas, and quite a bit more expensive.This variety of white tea is called Silver Needle

19

Loose teas are typically whole leaves or at least large pieces of leaves

A tea bag is a small, porous paper, silk or plastic sealed bag containing tea leaves for brewing tea

20

INDIA TEA HISTORY:

Tea is an agro-based commodity and is subjected to vagaries of nature. Despite adverse agro

climatic condition experienced in tea growing areas in many years, Indian Tea Plantation

Industry is able to maintain substantial growth in relation to volume of Indian tea production

during the last one decade.

Tea is an essential item of domestic consumption and is the major beverage in India. Tea is also

considered as the cheapest beverage amongst the beverages available in India. Tea Industry

provides gainful direct employment to more than a million workers mainly drawn from the

backward and socially weaker section of the society. It is also a substantial foreign exchange

earner and provides sizeable amount of revenue to the State and Central Exchequer. The total

turnover of the Indian tea industry is in the vicinity of Rs.9000 Crs. Presently, Indian tea industry

is having (as on 18.12.2009 )

• 1692 registered Tea Manufacturers,

• 2200 registered Tea Exporters,

• 5848 number of registered tea buyers,

• Nine tea Auction centers.

The tea industry in India is about 172 years old. It occupies an important place and plays a very

useful part in the national economy. Robert Bruce in 1823 discovered tea plants growing wild in

upper Brahmaputra Valley. In 1838 the first Indian tea from Assam was sent to United Kingdom

for public sale. Thereafter, it was extended to other parts of the country between 50's and 60's of

the last century. However, owing to certain specific soil and climatic requirements its cultivation

was confined to only certain parts of the country.

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Market Growth Rates

1990-91 - 1996-97 1.30%1996-97 - 2001-02 2.70%2001-02 - 2006-07 2.20%2004-05 - 2009-10 1.80%2009-10 - 2014-15 2.00%

MARKET GROWTH RATE

1990-91 - 1996-97

1996-97 - 2001-02

2001-02 - 2006-07

2004-05 - 2009-10

2009-10 - 2014-15

Series1 0.013 0.0270000000000003

0.0220000000000003

0.0180000000000001

0.0200000000000001

0.25%

0.75%

1.25%

1.75%

2.25%

2.75%

Market Growth Rate(India)

As can be seen from the above graph the market growth rate has been hovering around the 2%

mark since the mid 90’s.

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Major Tea Growing Regions:

Tea plantations in India are mainly located in rural hills and backward areas of North-eastern and

Southern States. Major tea growing areas of the country are concentrated in Assam, West

Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are

Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim,

Nagaland, Meghalaya, Mizoram, Bihar and Orissa.

Unlike most other tea producing and exporting countries, India has dual manufacturing base.

India produces both CTC (Crush, Tear, Curl) and Orthodox teas in addition to green tea. The

weightage lies with the former due to domestic consumer’s preference. Orthodox tea production

is balanced basically with the export demand. Production of green tea in India is small. The

competitors to India in tea export are Sri Lanka, Kenya, China, Indonesia and Vietnam.

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Consumption Trends:

There has been a dramatic tilt in tea consumption in favor of domestic market since fifties. While

at the time of Independence only 79 M.Kgs or about 31% of total production of 255 M.Kgs of

tea was retained for internal consumption, in 2009 as much as 812 M.Kgs or about 82% of total

production of 991 M.Kgs of tea went for domestic consumption. Such a massive increase in

domestic consumption has been due to increase in population, greater urbanization, increase in

income and standard of living etc. Indian tea export has been an important foreign exchange

earner for the country. There was an inherent growth in export earnings from tea over the years.

Till 70s’, UK was the major buyer of Indian tea Since 80s’ USSR became the largest buyer of

Indian tea due to existence of the trade agreement between India and erstwhile USSR. USSR

happened to be the major buyer of Indian tea accounting for more than 50% of the total Indian

export till 1991. However, with the disintegration of USSR and abolition of Central Buying

Mechanism, Indian tea exports suffered a setback from 1992-93. However, Indian Tea exports to

Russia/CIS countries recovered from the setback since 1993 under Rupee Debt Repayment

Route facilities as also due to long term agreement on tea entered into between Russia and India.

Depressed scenario again started since 2001 due to change in consumption pattern, i.e. switch

over from CTC to Orthodox as per consumer preference and thus India has lost the Russian

market. Another reason for decline in export of Indian tea to Russia is offering of teas at lower

prices by China, South Asian countries like Indonesia and Vietnam.

Global competition:

The major competitive countries in tea in the world are Sri Lanka, Kenya, China and Indonesia.

China is the major producer of green tea while Sri Lanka and Indonesia are producing mainly

orthodox varieties of tea. Kenya is basically a CTC tea producing country. While India is facing

competition from Sri Lanka and Indonesia with regard to export of orthodox teas and from China

with regard to green tea export, it is facing competition from Kenya and from other African

countries in exporting CTC teas.

Because of absence of large domestic base and due to comparatively small range of exportable

items, Sri Lanka and Kenya have an edge over India to offload their teas in any international

24

markets. This is one of the reasons of higher volume of export by Sri Lanka and Kenya

compared to India. Another important point is that, U.K has substantial interest in tea cultivation

in Kenya. Most of the sterling companies, after Indianisation due to implementation of FERA

Act started tea cultivation in Kenya. So, it makes business sense for U.K. to buy tea from

Kenya and Kenya became the largest supplier of tea to U.K.

India's share in world production

31

269

9

4

44

21

11

8China India

Sri Lanka Kenya

Turkey Indonesia

Vietnam Bangladesh

Malawi Uganda

Tanzania Others

India is the second largest producer of Tea in the world second only to China who overtook

India as the largest producer of tea in 2006.

25

CHARACTERISTICS OF THE INDIA TEA INDUSTRY:

1) Productivity and quality:

The art of plucking, fine-tuned over the last 200 years, requires two fresh leaves and a bud to

be plucked manually. Tea productivity can be measured as per unit of labor (man year) and

per unit of land (hectare). Mechanized plucking (when labor is in short supply or expensive)

enhances productivity, but with compromise on quality, as coarse leaves also get plucked.

When tea is in short supply, some producers increase productivity by allowing plucking of

coarse leaves with fresh ones. When premium for quality rises, producers improve the quality

by compromising on productivity. The productivity also depends on the age of tea bushes,

genetic material, irrigation, fertilizer, cultivation techniques, etc. Replantation (typically 2%

of crop pa) to replace old bushes is done to improve productivity.

2) Labor intensity:

This industry is very labor intensive. Labor cost is generally fixed and therefore lower

production would result in higher unit cost of production. The proportion of variable elements

in labor cost depends on labor legislation and extent of casual and temporary workers

employed. If the production suffers on account of bad weather or pests, the per unit cost of

production goes up significantly

.

3) Long gestation:

Tea bushes mature for commercial exploitation in 5-7 years and remain productive for an

average 50 to 60 years. Major part of capital expenditure is to be incurred in first five years,

which then yields return over the next 100 years.

4)Commodity nature:

Tea prices fluctuate widely with demand supply imbalances. The commodity is perishable

and demand is relatively inelastic to price. While demand has a secular growth rate, supply

can vary depending on climatic conditions in the major tea growing countries. Unlike other

commodities, tea price cycles have no linkage with the general economic cycles, but with

agro-climatic conditions.

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5)Inconvenient but healthy drink:

Tea is a very inconvenient drink to brew. The tendency to form a creamy layer of caffeine -

tannin adds to the inconvenience. Tea besides having properties of fatigue amelioration has

chemicals, which help in maintaining cholesterol levels and in preventing cancer. However,

research work on the subject is not conclusive.

6) Organized industry:

Tea industry is an organized agro industry. This implies that labor laws exists and since the

dominant mode of tea trade is through auctions, a large number of small producers get fair

prices.

7) Domestic Competition:

The major share of tea market is dominated by unorganized players. There are about 1000 of tea

brands in India, of which 90% of the brands are represented by regional players while the

balance of the 10% is dominated by Tata Tea, Hul, Wag Bakri Chai, Godrej, Sapat International

and others. With the growing shift from loose to branded tea, regional players are now expanding

their reach and also getting premium with their offerings

Special Features of India Tea Industry:

Production dependent of agro-climatic conditions

Same plant and same agro-practices give variations in quality in different regions

Product Life is for limited period

Labour intensive

High Cost due to high input cost

No priority for Scientific Cost Management

Huge proportion old tea & Low Productivity

Low investment in Development Programme

27

SWOT ANALYSIS OF TEA INDUSTRY OF INDIA:

Strength:

Demand for tea has been growing at some 2% per annum and should accelerate further 

Technical & Manpower Skill: Due to a huge population base in India Technical &

Manpower Skill is available in abundant.

Good Research Support by tea growers has will help industry grow further.

Weaknesses:

Labor intensive industry: The second generation labors are reluctant to join this industry

hence it could pose a problem of skilled labour in the near future.

No Effective Cost Management system adopted by companies and other regulatory

bodies.

Supply from more efficient players like Kenya, China, Sri lanka 

Declining Export of India over the years.

Opportunities:

Export Potential if India can increase its production capacity

To make tea more acceptable and fashionable like coffee 

To come up with new flavors/formulation of the tea, tea houses etc to popularize the

concept of tea in India.

Large untapped rural market for branded tea companies lile Hul and Tata Tea

Threats:

Global competition

Low Cost in some countries like China, Sri Lanka and Kenya.

Import of Tea from other countries.

Cost escalation on account of increase in the cost of production

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PORTER'S FIVE FORCES:

Industry Rivalry (High):

There are approximately 700 tea companies in India hence there is intense rivalry

amongst them.

Market is dominated by a large number of unorganized players

Industry growth is slow.

There are low switching costs.

Bargaining Power of Buyers (High):

There is a large numbers of buyers purchasing the product

The bargaining power of buyers is extremely high as the buyers have many options

available.

Not much product differentiation in terms of taste also low switching cost.

Buyers purchase a large proportion of the industry’s total output

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Bargaining Power of Suppliers (Low)

There are a large number of produces of tea in India.

There are substitutes like coffee available

Supplier’s product creates low switching cost.

Threat of Substitutes (Moderate)

Substitutes – Coffee, Cold drinks, juice (young generation new to tea)

Existing consumers are loyal

Substitute’s price may be lower. As there are so many players in the industry a price war

is unavoidable.

The substitute products quality & performance may be better.

Threat of new Entrants (High)

Large untapped rural market for branded tea segment in rural India and Indian tea in

global markets

Encouraging government policies like food and beverage act.

30

PRESENT MARKET SCENARIO OF INDIAN TEA INDUSTRY:

The tea industry occupies a place of considerable importance in the Indian economy, producing

a fourth of the world’s annual tea output—among them some gardens producing high quality

teas - and employing around 1.26 million people at tea plantations and 10 million persons derive

their livelihood from tea. In Northeast India alone, the tea industry employs around 900,000

persons on permanent rolls.

With domestic demand at an estimated 825 million kg (MKg) as of 2009, India is one of the

largest consumers of tea globally. However, as domestic demand accounts for over 86% of the

country’s tea output and since tea imports are permitted only for re-export, India’s share of the

global tea trade is on the lower side. Nevertheless, exports have a critical role to play in

maintaining the demand-supply balance in the domestic market. Although tea is produced in 14

States in India, five of them—Assam and West Bengal in North India, and Tamil Nadu, Kerala

and Karnataka in South India account for over 98% of India’s tea production. Within that, North

India alone accounts for around 75% of India’s total tea production, of which 85-90% is

consumed in the domestic market. The balance, much of it of high quality, is exported. Tea is

among the most labour-intensive of all plantation crops. On an average, around 65% of the cost

of production is incurred on labour.

The recent buoyancy in tea prices, which started from 2006, has come as a relief for bulk tea

players, who have had to cope with depressed prices for almost a decade since 1999. Tea prices,

after reaching a peak in 1998, went into a steady decline thereafter, with average domestic prices

dwindling from around Rs. 76.43 per kg in 1998 to a low of around Rs. 58.05 per kg in 2005

(Refer Chart for trend in tea prices over the period 1998-2008). Although global tea prices also

declined 1999 onwards, driven primarily by oversupply, the decline in average prices was

sharper and of a longer duration for Indian teas vis-à-vis the teas from Kenya and Sri Lanka,

India’s two main rivals in the exports market. This was on account of a number of factors: lack

of marketing initiative by the Indian players to look for export markets beyond the CIS1

countries; proliferation of small growers and bought-out leaf factories (which led to a decline in

the quality of tea produced), and failure to check spurious varieties of tea from being traded as

premium tea (which affected the image of Indian teas in the export market); higher cost of

31

production of tea in India (as compared with that in Sri Lanka and Kenya) on account of the

higher social costs here; and existence of certain non-tariff barriers like residual-pesticide (in

tea) specifications imposed by a number of importing countries. All these factors led to the loss

of key export markets, which in turn increased supplies in the domestic market, thereby bringing

a downward pressure on prices. This apart, tea prices also came to be affected by the quality

factor, which came into play during the early part of the current decade when the delay of re-

plantation activities in the latter half of the 1990s began to tell on quality and hence on prices.

Most players had deferred re-plantation during the latter half of the 1990s to cash in on the

buoyancy in tea prices during 1997-98, but when the sharp price decline happened subsequently,

their financial position got so weakened that they were unable to make the required investments

in their tea estates.

Trend in Domestic Tea Prices

Source: ICRA research

Increasing domestic consumption, and exports to an extent, behind current buoyancy in prices

The gradual depletion in pipeline stock since 2003, following a secular increase in domestic

consumption on the one hand and muted increase in production on the other, has been the main

32

factor supporting the increase in tea prices from 2006 onwards. According to ICRA’s estimates,

while the average growth in production during the period 2003-08 was just 2.0% or so, domestic

consumption would have increased annually at around 3.5% during the same period. The steady

increase in domestic demand, range-bound export volumes and low growth in production

absorbed the pipeline stock over the years and left virtually no carry-forward stock at the end of

the 2008 season. Chart presents the trend in India’s production, consumption and export of tea

over the period 2003-08.

Trend in India’s Production, Consumption and Exports of Tea

Source: ICRA research

Climatic conditions taking there toll on Tea Industry

Unfavorable weather conditions for tea plantations coupled with global slowdown have badly

affected tea exports of Assam. Statistics say that India, the second-largest tea producer in the

world experienced a slump by 25 per cent in January 2009. The tea industry is going through a

rough patch for last three years due to rain deficiency’s a result. This along with several other

problems is the major reason why the Indian Tea industry is growing at a snail’s place. Let us

have a look at the various problems faced by the Industry in India.

33

INDIA Vs OTHER TOP TEA PRODUCING COUNTRIES:

Major tea exporting countries of the world are Kenya, Sri Lanka, China, India and Indonesia.

However, prior to evaluation of export performance of major tea exporting countries of the

world, it is necessary to analyze the production and domestic demand of tea in these countries.

On the production front India is the second major producer of the tea in the world .Other major

producing countries include China, Sri Lanka, Kenya and Indonesia. During 1951-60, India was

producing around 40 percent of world production, declined to 26 per cent in 2008.The declining

trend can be observed in case of Sri Lanka as well. Only China and Kenya are able to increase

their share in world production considerably. The share of China and Kenya during 1951-60 was

13.59 per cent and 2.67 per cent respectively, increased to 31 per cent and 9 per cent in 2008.In

recent years China emerged as major tea producer in the world. Fig-1 shows, during 2004 and

2005, China became number one tea producer in the world pushing India into number two

position. India had doubted China’s emergence as a top raking producer, citing limitations in

field level statistics and under reporting of the tea production in India. Tea board of India was

then engaged in revising the production.

Since 1985, even though China’s area under tea cultivation is lower than earlier period due to

improvement in yield, production increased by 3.28 per cent per annum during 1984-94, further

increased by 4.13 per cent per annum during 1995-05.In India production increased by 1.83 per

cent per annum and 1.07 per cent per annum respectively during the same period. In Kenya,

production increased by 5.53 per cent per annum and 3.12 per cent per annum respectively

during the same period. Production in Sri Lanka and Indonesia also increased during this period

with improvement in supply conditions in Kenya, China and Indonesia, India’s share in world

production declined even though its total production increased.

Domestic consumption is calculated by deducting export from production. In case of India, there

is continuous increase in share of domestic consumption in production, it increased from 32.06

per cent during 1951-60 to 66.92 per cent in 1981-90, further increased to 78.26 per cent in

2001-04. We can observe that, whatever additional production is taking place, it is almost

34

entirely consumed internally leaving export surplus to remain stagnant and sometimes export

even shows declining trend. In contrast, Kenya’s domestic consumption share in production is

very low and declined over a period of time shows that except for a few years, the increase in

production of tea in Kenya is almost entirely used for export

In Sri Lanka, domestic consumption in production is very low and is declining. In 2001-04,

around 94 per cent of tea production in Sri Lanka is used for export. In recent years, tea export

and production are almost same in Sri Lanka .In china, share of export in production of tea

increased over a period of time. From Fig .1 one can observe that in China, production, export

and consumption shown increasing trend. In Indonesia, share of consumption in production

increased, but it is lower than India.

Major Tea Exporting Countries

Country 2003 2004 2005 2006 2007 2008 % Change ShareKenya 269.3 332.5 348.3 312.2 343.7 383.4 11.55 23.3

Sri Lanka 290.6 290.6 298.8 314.9 294.3 298.8 1.53 18.2China 260 280.2 286.6 286.6 289.4 296.9 2.59 18India 173.7 197.6 199.1 218.7 178.8 196 9.62 11.9

Vietnam 60.3 99.4 87.9 105.1 110.9 115 3.7 7Indonesia 88.2 98.6 102.3 95.3 83.7 95 13.5 6Argentina 58.2 66.4 66.4 70.7 74.2 75.5 1.75 4.6

Uganda 34.1 29.7 33.1 32.7 43.6 42.4 -2.75 2.6Malawi 42 46.6 43 42 46.6 40.1 -13.95 2.4

Tanzania 20.4 24.2 22.5 24.1 29.1 24.8 -14.78 1.5Bangladesh 12.2 13.4 9 4.8 10.6 8.4 -20.75 0.5Zimbabwe 17.1 14.9 8.5 11.4 7.6 5.5 -27.63 0.3Sub-Total 1326.1 1494.1 1505.5 1518.5 1512.5 1581.8 4.58 96.1

Others 72.2 68.7 64.6 62.5 62.5 64.4 3.06 3.9World 1398.3 1562.8 1570.1 1581 1575 1646.2 4.52 100

Source: Global Tea Brokers Fig.2

35

India’s share in world exports

23

18

18

12

7

65

22 21 0.003000000000000013.997

% share in world exports

KenyaSri LankaChinaIndiaVietnamIndonesiaArgentinaMalawiUgandaTanzaniaBangladeshZimbabweOthers

Over the years India has been slipping on productivity and quality parameters. Industry is

sensitive to productivity and quality which matters most for the survival of tea companies.

Evident that during 2000-2002, although total land under cultivation improved marginally by 2.5

percent, tea production actually dropped by 1.3 percent due to ageing life of plantations. Even,

yield showed a sharp drop of 3.9 percent from 1679 Kg/Hectare to 1614 Kg/Hectare.

36

Reasons for decline in exports:

1) Fall of Soviet Union, main trading partner of India. Tea exports have come down by 70

percent from 44 Mn/Kg in 2000 to 12.5 Mn/Kg in 2003.

2) Exports to trading ally Iraq, Iran and Afghanistan was affected during the same period due to

tension and war in middle-east. Exports came down by roughly 70 percent between 2000 and

2003.

3) Quality has always been the biggest consideration in tea exports. Other emerging countries

like Sri Lanka and Kenya are scoring high due to modern methods of production and branding.

Whereas, India is on continuous slippage in terms of quality and branding thereby giving away

its share of exports.

4) Concern over quality has resulted in exports of high margins value added tea (Tea Bags and

Branded Tea) come down from 45 percent of total tea exports in 1999 to 33 percent in 2003

(value terms). In volume terms, came down from 86.8 Mn/Kg in 1999 to 39.8 Mn/Kg in 2003.

Global tea industry has witnessed a paradigm shift with emergence of stronger countries like Sri

Lanka and Kenya. These countries captured large shares in global tea exports at the cost of older

players like India. Infact, these countries are eating away the premium grade tea export market

and value added tea export market on platform of superior quality and aggressive branding.

Impact on India is evident from Sri Lanka’s tea exports which increased from 262.9 Mn/Kg in

1999 to 298.8 Mn / Kg in 2008 whereas India’s reduced from 191.7 Mn/Kg to 196 Mn/Kg

during the same period.

Sri Lanka and Kenya are able to increase their productivity at constant pace which helped it

divert higher produce in the export markets. Higher exports were achieved by these economies as

a result of persistent efforts towards quality betterment and brand building. This exercise actually

helped economies towards driving high margin value-added tea exports.

37

It is witnessed, Indian tea is increasingly been displaced by tea of other Asian and African

countries. Trend indicates that although land under cultivation in India has increased at CAGR of

1 percent in last 3 years, yield has actually come down from 1679 Kg/Hectare in 206 to 1614

Kg/Hectare in 2009. Sri Lanka witnessed a complete reversal to India with yield increasing by 40

Kg/Hectare between 2006 and 2009 with no increase in land under cultivation. Even in Kenya

yield increased more than 10 percent or 242 Kg/Hectare in the same time period. Although, India

is regarded as ‘Goliath’ of tea industry its position is slipping to smaller countries like Sri Lanka

and Kenya on quality and productivity parameters.

Middle-east countries like Iran, Iraq, Afghanistan and UAE were India’s main trading ally and

contributed 35 percent (volume-based) of total Indian tea exports. But, 9/11 terrorist attacks and

war in Afghanistan and Iraq led to sharp decline in tea exports to these nations.

38

AREAS OF CONCERN:

Despite India’s historical success with the tea industry, in recent years, the industry has faced

serious competition in the international and national market which has lead to the present crisis.

Many factors have been cited as causing the crisis in the Indian tea sector–since the late 1990’s.

Analysts agree that the dramatic fall in prices is one of the most significant causes of the crisis.

The worst affected are plantation workers and small growers; many estates failed to withstand

the downward slide of price and hence moved out of business leading to the closure of tea

estates that employ thousands of workers and of factories (BLF) to which small growers might

sell their products. Tea prices in India are being driven down by many factors:

a) Decline in demand for Indian tea in the global market

b) Defects in auction system

c) Poor price realization

d) Defective market structure

e) Increase in cost of production

a) Decline in demand for Indian tea in the global market:

The decade of 90’s has been quite depressing for the Tea Industry in India. The major cause of

depression in the industry was the decline in the international demand of Indian tea. The

traditional markets of Indian tea like USSR and UK have drastically reduced the import of tea

from India. Changed global situations like disintegration of USSR, WTO agreement,

globalization of markets across the nations, etc. have proved to be adverse to India. In the year

2004, India lost its eminent position of the largest producer of tea to China. Kenya has already

taken over Sri Lanka in export pushing India to third position (Table 1). There is a fierce

competition abroad. Indian tea has lost its competitive advantage to other countries on account of

high cost and poor quality. However, one new development, i.e., India becoming the largest

consumer of tea next to UK, has provided a lifeline to the tea industry. While tea production of

39

India grew by about 250 percent since 1947 but the rate of growth of export remained

insignificant .It appears that, India grows tea mainly for Indians. However, the exports of all

other leading tea exporting countries have grown rapidly over the same period. The fact remains

that whatever the size of the domestic demand, there is still sizeable surplus amounting between

180 and 200 million kg that needs to be sold.

(b) Defects in auction system:

India’s tea market is facing yet another paradox which could be explained in terms of glaring

gulf between the price charged by dealers and retailers. A report for the International Labour

Organization (ILO) notes that the large tea companies are benefiting from fall in auction prices

and rise in retail prices for tea. This widening gap between consumer and auction prices is

cutting into the margins realized by the tea producers but is not being passed on to the consumer

in the form of lowered tea prices. Similarly a report by the Government of Assam found it

“unfathomable that the retail price of tea has not come down with the fall of auction price.

Certainly, the margins of intermediaries are far too high. Price paid to plantation and small tea

growers has fallen since 1998; retail prices for tea have increased . Average price for medium

quality tea sold in Indian market increased from Rs.85-90 per kg in 1999 to Rs.123.05 in 2009.

In 2008, a kg of tea used to fetch Rs 105.12 of tea and it continues to rise.

In India, nearly 55 percent of total tea produce is sold through auction houses, with the rest sold

through private sales. Even after the abolition of compulsory auction in 2001, the auction houses

are very important constituent of tea marketing structure. The important feature of tea auction

sale is that the producers/growers do not take part in the selling process directly. The brokers in

the market sell tea on behalf of producers. Brokers generally do not accept bid from unknown

buyers.

The large buying companies use their market power (as they have their own network of sales and

marketing all over the country and export tea after blending) to push down price and take the

advantage of depressed market to pay low prices; they are clearly benefiting from the current

40

situation. Hindustan Lever, Tata Tea, Wagh Bakri Chai, etc. are such powerful buyers having

enormous influence on the market and price of tea in India in general and Assam tea in

particular.

These big tea companies which are in monopolistic competition in consuming countries always

try to stabilize prices.

The longer transaction time and higher transaction cost (like warehousing charges, transportation

cost, brokerage charges etc.) are some other problems with the auction system. It takes about 35

days for the entire transaction processes to complete.

(c) Poor Price realizations

The price of tea has been on long term decline while production costs have been rising, putting

pressure on tea growers and working condition of laborers. The decline in prices has been

primarily due to growth in production in the face of sluggish demand. Low prices for tea are

generally passed on to the plantation workers in the form of low wages and withdrawal of basic

facilities like food, health, education, etc. given that it is easier to cut cost by reducing labour

cost (as the labour has weak bargaining power) than raising the price of tea (difficult in the

competitive market economy) and in most of the cases producers have to remain competitive by

lowering wages. Major causes of poor price realization are due to following reason:

Competition between producing countries for a share of the world market was one of

the major causes of falling price of Indian tea. World production of tea is fairly

diversified and not concentrated in a particular area. Presently 36 countries of the

world produce tea and many of them are big producers. They prevent the establishment

of a monopolistic leader in the world tea market to ultimately allow fair and free

competition in the market.

Demand for tea is rising very slowly (1.5-2 per cent), therefore the only way to increase

market share of export by a country is at the expense of the competitors.

41

Because of the dominance of auction system as a day–to–day intermediary between

producers and buyers, the actual producers have been unable to maintain direct contact

with the ultimate customer of tea and thereby creating a long term relationship.

Tea is a perishable product. Its quality and flavor deteriorates very quickly. Therefore it

is frequently necessary to cut prices to clear stocks.

Tea producers have to stay in market despite cut in prices of their produces as they have

invested a huge sum of money; many people are dependent on it and lack of

alternatives for them.

It is forecasted that tea production will increase over next few years, despite a slower

growth in demand, a trend that can only undermine price of tea in the long run. The

present decline in prices was on the back of a 0.6 percent annual increase in production

during 1984–2008 is estimated at 2.8 percent .

There is a major shift in the consumption and thereby composition of demand for tea in

the developed (importing) countries which has had unfavorable effect on aggregate

export earnings from tea. The increasing use of tea bags and soluble instant tea

effectively reduces the quantity of tea needed per cup and also raise the demand for

plain cheaper tea. The tea bags accounts for 10 percent of the volume of world

consumption–and it is still increasing. Factors which help to motivate consumption of

instant tea include its ease of use as a cold dink and introduction of vending machines.

These changes in the consumption patterns of tea have also significantly contributed to

the decline in tea prices.

(d) Defective market structure:

The tea value chain comprises all the stages from green leaf production from the bushes to

finished product and sale to the customers. Value is added to the tea leaves at each stages of the

supply chain, each with associated cost. This includes the cost of plucking and sorting, factory

42

packing, internal transportation, ware housing, sales changes (auction or direct sale), freight,

insurance, interest, blending, packaging and retailers sales cost etc. In general most of the

agricultural produces, value addition is done at the downstream in the higher processing and

retail stages of supply chain–this is also true with tea. While tea is ready to drink item, the

downstream stages such as blending, packing and ultimate marketing are the most profitable one.

This part of the value chain is controlled by a handful multinational tea packers and brokers.

Concentration is extremely high in the downstream of tea supply chain where 90 percent of

western tea trade is controlled by 7 (seven) MNC’s, 85 percent of world production is sold by

these MNC’s.

As a result, these MNCs can considerably influence world retail price. These are the indications

that big companies have been influential in keeping world market price low, which affect the

sustainability of tea industry.

(e) Increase in cost of production:

While market prices for tea have been falling, the cost of production has been on the rise in

India, putting downward pressure on profitability and income.

One factor which is closely related to the cost of production is, of course, productivity in terms

of volume per hectare which is affected by change in climate, soil fertility, age of the tea bush,

high over-head cost, poor agricultural practices etc. The stagnation in productivity in many big

estates is compounded by high land labour ratio. Productivity declined in India from 1996 to

2008 in the large garden.

Labour cost accounts for around 60% of the unit cost of production and approximately 55 to 75

percent of that labour cost is on plucking. High fuel cost, dilapidated infrastructure including

transportation and unstable law and order situation in and around garden area etc. result in high

cost of production. Field and factory workers’ productivity is also considered low in India. The

impact of social cost (health, food, housing, water etc.) in the large estates in percentage terms

works out to about 5-8 percent of the total costs. It implies an additional Rs.4.12 per kilo for

manufactured tea in NE Region of India and Rs. 3.44 per kilo in South India. Therefore it is

assumed that around 80 percent of the cost of production goes towards fixed expenses like fuel,

43

power and labour .Inflationary pressures are now pushing up these fixed costs further. Labour

unrest is another major problem faced by planter/estates. Looking into the profitability of the

industry at the current price, does not provide the way to meet these costs. Rising costs and low

productivity can have negative consequences on social and environmental aspects of production

(sustainability problem), if these costs cannot be passed on to the ultimate buyer.

Table 1: MAJOR COUNTRY WISE EXPORTS OF TEA FROM INDIA

Name of 2006-2007 2007-2008 2008-2009Country Qty Value Qty Value Qty Value

  (M.Kgs.) (Rs.Crs) (M.Kgs.) (Rs.Crs) (M.Kgs.) (Rs.Crs)

Russia 39.36 322.21 42.02 355.29 36.75 392.65

Kazakhstan 9.69 104.67 9.57 96.92 9.76 131.49

Ukraine 1.15 8.75 1.54 11.49 1.58 15.31

Uzbekistan 0.22 1.65 0.03 0.33 0.06 0.71

Other CIS 0.21 3.06 0.27 5.6 0.55 8.5

Total CIS 50.63 440.34 53.43 469.63 48.7 548.66

UK 22.86 214.09 17.88 165.43 18.64 212.64

Netherlands 3.12 48 2.73 45.43 2.53 57.19

Germany 4.51 89.02 5.83 96.53 4.28 90.79

Ireland 2.37 46.73 2.01 36.85 1.49 33.58

Poland 3.94 35 4.4 35.97 2.99 38.33

U.S.A. 8.76 138.99 9.55 132.42 8.89 153.4

Canada 0.92 12.5 1.04 12.81 1.7 30.71

U.A.E. 22.77 231.22 24.55 243.75 21.66 275.85

Iran 9.91 105.79 13.14 145.7 13.92 196.22

Iraq 34.92 180.76 2.54 13.38 6.61 80.17

Saudi Arabia 1.12 11.04 1.56 13.64 3.11 35.93

A.R.E. 3.4 25.32 5.14 33.17 12.73 99.1

Turkey 0.2 1.27 0.14 1.13 0.08 1.05

Afghanistan 9.44 51.76 8.26 43.15 12.81 92.91

Singapore 0.47 7.22 0.41 6.91 0.3 7.03

Sri Lanka 3.08 29.14 3.93 32.48 4.37 48.28

Kenya 8.37 46.45 3.26 15.51 1.84 11.52

Japan 2.6 61.83 2.4 49.23 2.78 69.52

Pakistan 14.06 90.67 5.48 28.51 7.91 60.38

Australia 4.49 89.05 4.87 95.63 4.86 114.55

Other Countries 6.21 89.53 6.2 92.85 8.44 123.98

TOTAL 218.15 2045.72 178.75 1810.11 190.64 2381.79

Source : Tea Board of India

44

RECOMMENDATIONS FOR IMPROVEMENT:

The fact which emerges from the present crisis is that Indian tea has not been globally

competitive. It has concentrated more on building up its large estates what it should do is

it should given less attention to processing and improving the quality by proper blending

and marketing–for higher price realization of their products.

Unlike its key competitors, India does not have any powerful brand to support its

promotion drive in the international market. To win back the confidence of lost foreign

markets, Indian tea producers have to identify the need to revitalize the image of Indian

tea in that international market. A vigorous campaign which include Indian tea logos and

making Indian brands acceptable in those most major markets.

Further, an inspection agency should be appointed to keep a quality check on the tea that

is exported, and the major thrust should be made to improve quality for the long term

sustainability of tea industry of India.

There is an urgent need for reducing the unit cost of production through productivity

gains, capacity building of small growers, streamlining marketing channels, improving

infrastructure, tailoring marketing activities to individual country’s demand, propagating

health benefits of tea and promotion of organic tea using the tea mark. This is exactly

what the domestic tea companies should do for their long term survival.

International brands like Liptons, Brooke Bond of HUL and Tetley tea of Tata Tea; and

Wagh Bakri Chai etc are the market leaders and have great power in price determination

in both domestic and international market. This needs to be stopped and proper

investigation is needed to curb the wrong practices in the tea market by introducing new

laws to regulate the price movements.

45

Improvement of supply chain management inside the country and global tea marketing

network is absolutely essential to compete with countries such as China and Sri Lanka

who are India’s biggest competitors.

The tea industry in India has a legacy of corporate farming right from the day of British

rule. The current situation in the sector has given ample reason for a rethink on whether

corporate farming can really boost agriculture. Time has come when tea companies

should sell out their large estates to farmers for cultivation, for ensuring more

competitiveness and make the industry viable. This will reduce production costs also. In

return big companies should enter into contract with tea growers by giving them technical

and marketing support and all that is needed for backward and forward linkages. Indian

farmers have done wonders by ushering in the green revolution and ensuring food

security in this country. They will replicate the same in the tea sector also.

As it is observed, retail price of tea have not declined when prices at the local auction

centers have fallen so dramatically since 1990’s, noting the larger profit by the

packers/retailers who are mostly at the end of the value chain. The issue here is the role

played by these companies in their own plantation, implications of direct purchases by

them from other growers and their relationship with brokers at the tea auctions, where

price manipulation is widely suspected. These defects at the auction centers should be

investigated and remedial measures like – bringing more transparency at the auction

market; introduction of online auction practices for tea, etc. should be taken which will

lead to changes in the structure of tea auctions to limit the manipulation by the big

players in the industry.

Despite being the largest producer and consumer of tea, the Indian plantation sector lacks

appropriate mapping of production and consumption levels. Due to absence of accurate

estimates the formulation of long term industry wide action plans have been affected.

Hence in order to rectify this an the Tea board of India must set up a committee to keep a

check on this issue.

46

It has been observed that the actual producer of tea has no direct link with the ultimate

consumer. Tea producers sell their products to the bulk purchaser through direct sale or

through auction to big buyers. Therefore, the producers do not understand the market

demand choice of the customer, it is very important in today’s market economy for long

term sustainability of the industry. With the withdrawal of sales restriction, the growers

can directly go to the market by building their own brand. As the margin of profit is very

high at the present domestic retail market, Indian tea growers should invest and take this

opportunity for the promotion of their brand at the retail market and also by reducing the

prices of tea and passing on this benefit to the customers.

Fresh capital inflow is needed right at this moment for the tea industry of India.

Investment in new plantations and production machineries must come immediately to

compete in the international market. Since tea industry has to compete globally, it is

necessary that they should have access to global capital at competitive rate. This can

bring life to the industry and those who live on it, especially workers

Recognizing the fact that the tea industry’s crisis in India has multiple causes, which

require a variety of solutions–one of the most important steps from the government part

shall be to introduce a stronger competition law to curb the misuse of corporate buying

power and promote social objectives at the garden level. I believe that focusing on the

role of the larger tea companies, which hold a great deal of power in Indian tea market

can have a significant influence over conditions for workers on plantations and small

growers.

47

CHAPTER 3

TOP 2 PLAYERS IN INDIAN TEA

INDUSTRY:

TATA TEA:

Company Profile:

Tata Tea Limited, also known as Tata-Tetley, is the world's second largest manufacturer and

distributor of tea. Tata Tea is the largest vertically integrated tea firm in the world, from its

plantation activity through to its packaging and marketing initiatives.

Tata Tea Limited, together with its subsidiaries, engages in processing, producing, marketing,

and distributing tea products primarily in India. It also involves in the cultivation and

manufacture of black tea and instant tea, tea buying/blending, and sale of tea in bulk or value

added form. It offers tea primarily under the following brand names:

TATA TEA

Tata Tea Tata Tea Tata Tea Tetley Kanan Chakra Gold Premium Gold Agni Devan

48

Tata Tea Limited owns approximately 51 tea estates in the states of Assam, West Bengal, and

Kerala in India. It also has operations in Australia, the Middle East, west Asia, North Africa,

Poland, Russia, and Kazakhstan. The company was founded in 1964 and is headquartered in

Kolkata, India.

Set up in 1964 as a joint venture with UK based James Finlay and Company to develop value-

added tea, the Tata Tea Group has now product and brand presence in 40 countries. It is one of

India's first multinational companies. The operations of Tata Tea and its subsidiaries focus on

branded product offerings in tea, but with a significant presence in plantation activity in India

and Sri Lanka.

The consolidated worldwide branded tea business of the Tata Tea Group contributes to around

86 per cent profit from branded tea sales while the remaining 14 per cent coming from bulk tea,

coffee and investment income. Tata tea Brand is ranked the second most trusted beverage brand

in brand equity.

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SWOT Analysis Tata Tea:

Strengths:

Market Leader: With a value share of 22.6% in November, Tata Tea is now the market

leader in the Rs 7,000-crore branded teas market, having overtaken peer Hindustan

Unilever (HUL) which has a value share of 21.3% (Source: AC Nielsen).

Resources & Capabilities: Tata Tea Limited owns approximately 51 tea estates in the

states of Assam, West Bengal, and Kerala in India.. The crop at each of these plantations

imbibes the characteristics of the region where it grows. In that respect, tea is much like

wine. Having plantations in varied agro-climatic zones enables Tata Tea to cultivate

distinct tealeaves.

Brand Name: Tata tea Brand is ranked the second most trusted beverage brand in brand

equity. The company's best-selling brand is Agni which caters to the mass segment and

other brands include Tata Tea Gold, Chakra, Gemini and Kanan Devan.

Experience: Tata Tea has been one of the oldest companies in India and has the

advantage of skill and experience on their side.

Weakness:

No product differentiation: One of the major problems Tata Tea faces is the lack of

much product differentiation hence loyalty of consumers is a major area of concern.

Branding: Due to lack of branding activitied my the organized palyers amd low

switching cost of consumers retaining consumers becomes a challenge as they switch

over to cheaper brands.

Distribution Network: The distribution network of Tata Tea comprises on 1.25 lakh

distributers this is not much when you compare to HUL who have the strongest dealer

network in the country.

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Opportunities:

New Product Development: The Company can integrate into fruit & herbal teas. This

segment has not yet been tapped by any of the tea companies yet and this could give Tata

tea the first mover’s advantage if they decide to enter this segment.

Rural Market: There is a large untapped rural market which needs to be exploited.

Although Tata Tea has made it s presence felt in the rural markets this sectors is

characterized by a large un organized sector and local players rule the rusts of the day in

these markets.

Export Potential: Tata tea is present in 40 countries around the world. There are a lot

more opportunities it can exploit if they can increase their production capacity to exploit

these untapped world markets all over the world.

Mergers and Acquisitions: There are more than 1000 tea companies in India. Tata tea

can increase its market share and penetration by acquiring these small companies and

also forming mergers with other big MNC’s like it did for Tetley Tea, Good Earth etc

Threats:

Low Barriers: There are not too many entry barriers put by policy makers this makes

the Indian Tea market extremely fragmented and unorganized. There are many regional

players who hold small chunks of markets. By imposing Entry barriers the existing

players will be in a better position to exploit the existing situation.

Globalization: India is opening it s doors to MNC s and with that comes the threat of

globalization of the economy. The small and regional players will face intense

competitions from big MNC s.

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INTERNAL ENVIORNMENT ANALYSIS:

1) Resources:

• 51 tea estates in states of Assam, West Bengal, Tamil Nadu, Kerela.

• Area of 26,500 hectares under tea cultivation.

• Produces about 60 million kg of black tea annually.

• Subsidiaries & Associated companies

• Overseas business

2) Capabilities

• Distribution system.

• Strong and trusted management.

• Research and development.

• Marketing.

3) Core competencies.

• Brand name

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BUSINESS LEVEL STRATEGIES:

Bought leaf factories & co-operatives to change the structure of green leaf production

Identified branded tea as its thrust area

To exit the beverage retailing business to focus on branded products

Tata Coffee sold off its stake in Barista, no plans of re-entering the business

Introducing drinks like TiON, all over India

‘Jaago Re’ campaign followed by the 'Aaj Se Khilana Bandh, Pilana Shuru' campaign to

target the youth for voting and work against corruption

Focus on brands like Chakra Gold, Gemini and Kanan Devan in regions where they are

strong.

MARKETING STRATEGY:

In spite of a global presence, the brands are distributed differently depending on the location. As

Tata tea is far better known in India and a powerful brand there, it is pushed on this market and

countries with a large Indian population. Therefore Tetley is the company's global face and the

largest markets focus on the Tetley brand. Where both brands co-exist in one market, Tetley is

positioned as the premium brand.

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PROMOTIONAL STRATEGY:

The new campaign “Jaago Re” will migrate Tata Tea from being a physically and emotionally

revitalizing tea experience to one that will challenge the consumer’s intellect to “awaken” to

what is around them. It will motivate people to internalize the tea experience and externalize

their social awakening. It is probably the first time that any brand is taking on the mantle of

social responsibility in such a manner. The campaign will also provide a poignant platform for

connection with the youth.” 

The campaign in keeping with the magnitude of the strategy also plans to deploy a mega

approach to connect with the consumer at all possible touch points. Television will be the

lynchpin of the campaign. There will be one main commercial and six short duration

commercials. Each of the commercials will touch upon one relevant social issue. As part of the

campaign Tata Tea brand has also tied up with the Jaago India foundation. The foundation and

Tata Tea have launched a website that each month will cover a socially relevant issue. The site

will provide all the required information on the issue, will allow consumers to interact and

provide solutions. To generate interest and create empathy the site will feature four short film on

the topic of the month. Other than television and the website the campaign will also use radio,

press, shop level visibility and the new outdoor medium of malls and multiplexes to drive home

the message of Jaago Re. Many of the communication tools being planned at the malls and

multiplexes will be used for the first time in the country. 

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HINDUSTAN UNILEVER LIMITED:

Company Profile:

Unilever owns two of the most widely recognized product lines Lipton and Brooke Bond. The

major competition facing Lever at present is from Wagh Bakri Chai Tea, who is truly a market

challenger.

Lipton comprises of Yellow Label which is designed for upper middle, upper lower and upper

middle class, which is a market leader in the industry, it comes in all the packages including hard

packs, jars, and teabags. Lipton yellow label although the direct competitor of Brooke Bond

Supreme comes in the family of Unilever so it is prone to its competing attacks. Lipton follows a

massive promotion scheme to hold its share. Richbru is designed for middle and lower upper

classes, and Pearl dust is designed for rural areas, mostly districts of Sindh where consumption

of dust is extensive.

Brooke Bond comprises of:

Brooke Bond

Supreme Taj Mahel 3 Roses Red Label A1 Karak Tea

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SWOT Analysis for (HUL):

Strength:

Brand Name: According to Brand Equity, HUL has the largest number of brands in the Most

Trusted Brands List.HUL has a very strong Brand name in the Indian market. Its brands are

strength for the company.

Strong Distribution Network: Hindustan Unilever's distribution covers over 1 million

retails outlets across India directly and its products are available in over 6.3 million outlets in

India, i.e., nearly 80% of the retail outlets in India. It has 39 factories in the country. Two out

of three Indians use the company’s products and HUL products have the largest consumer

reach being available in over 80 per cent of consumer homes across India.

Unique sizes have been introduced for various segments including teabags, stir ready.

Product Range: Wider product range with technological superiority, e.g. Brooke Bond’s

hot tea can

Weakness:

It is a product being introduced in an already existing tea market with established brands.

No competitive advantage can be brought in this industry. Only massive advertising and

promotional activities may entice consumer for trial.

Brand Dilution: Having too many brand extensions can dilute and confuse consumer

perception and give fresh and new competitors to seize market share.

Opportunities:

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Alliance with Pepsi to access massive distribution network. Presence of big, well known

partners drives demand further.

Declining markets for other beverages such as soft drinks

Rural Market: There is a large untapped rural market which needs to be exploited.

Although Tata Tea has made it s presence felt in the rural markets this sectors is

characterized by a large un organized sector and local players rule the rusts of the day in

these markets.

Greater awareness of health benefits of tea.

Threats:

A rigorous threat is the increasing number of branded and unbranded tea in the market

with ample price difference. For that, established companies need to increase their

advertising and promotional budget. There is a need to get a better shelf space and more

retailer patronization for the company's brand.

Unilever presently pays 80% as taxes on imported tea. This rise in import duty on tea by

government is intended to discourage it's consumption, which possess to be a threat as it

has resulted in higher prices for the consumers.

Low Barriers: There are not too many entry barriers put my policy makers this makes

the Indian Tea market extremely fragmented and unorganized. There are many regional

players who hold small chunks of markets. By imposing Entry barriers the existing

players will be in a better position to exploit the existing situation.

Presence of other major players such as Coca-Cola and Nestle leading to tough

competition

PRESENT STRATEGY:57

Ownership:

The owner of the premium Brooke Bond and Lipton tea brands in India, Hindustan Unilever Ltd

(HUL), has taken a decisive step towards regaining absolute market leadership from Tata Tea

Ltd by entering the so-called economy segment of the market as well.

Value Leadership:

HUL already leads the domestic tea market in terms of value and has been narrowing the gap in

volume sales, where Tata Tea's economy brand Agni, priced at around Rsl50 per kg, gives it the

edge.

New Variants:

HUL launched its Brooke Bond Sehatmand tea in Madhya Pradesh, Chhattisgarh and Bihar in

late January, using non-governmental organizations among other channels in a low-profile

promotional campaign.

The new tea, priced at Rs.l70-180 per kg, includes folic acid, calcium and other vitamins as part

of its ingredients.

HUL expects Brooke Bond Sehatmand to create a new segment in the 850 million tonnes (mt) a

year tea industry. Of this, packaged tea accounts for less than 350mt.

RECOMMENDATIONS TO TOP 2 PLAYERS TO INCREASE MARKET SHARE:

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Increase number of service outlets: In recent times there have been numerous coffee

shops springing up in Tier A cities like Mumbai, Delhi, Bangalore etc Tea house shpul be

set up in a smililar fashion and premium quality tea’s should be served at these outlets.

Strategic alliance: Tie up with their own range of five star hotels to supply premium

quality tea and coffee as also with lower end three star hotel n also local eateries(Udipi

joints etc). Tie-up with airlines, rajdhani, shatabdi, caterers etc to promote their tea coffee

n also mineral water brands

Own Depots: To start own depots of Tata Tea and HUL tea so that they can sell loose tea

thus reducing cost of packing which will also reduce the Vat & additional charges. Thus

masses from lower income group would be effectively targeted.

Penetration: Deeper penetration in rural markets by using self help women groups for

door to door selling.

Profit margins for retailers: Increase profit margins for retailers to achieve higher sales

volume as they are the main influencing factors in lower income group people.

Promotional activities: More number of ads which are equally effective as middle class

people from towns get influenced by ads to a large extent g) Jago Re campaign.

Product Innovation: Enter new market segment with product innovation like tea

flavored ice-creams, tea wine, tea chewing gums etc

Flavors: Launching of flavored teas bamboo cups in china bring it to India too.

Launching of more flavors in India (lemon tea, black tea).

Related Diversification: Future strategy of entering children’s drinks like Complan,

Bournvita, Horlicks.

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Bundling: Providing a bundle pack like a small tea sachet free with 100 Gms pack of

biscuits.

New Markets: Explore new and untapped markets not only in India but also in different

countries.

Branding: The top 2 players i.e. Tata Tea & HUL should focus their attention on proper

branding of their products and should try to create a brand loyalty among the consumers

of their products.

BIBLIOGRAPHY

Books

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The Marketing white book,2009-2010,Statistics for FMCG sector

4 P s ,December issue,2009, Living the “GLOCAL” life (Pg.72,73)

ReferencesArticles (online):

Mr. Daipayan Lodh, Motilala Oswal,2008,A Equity Research on FMCG Sector.

Mr Gaurav Kumar,2008,An Industrial Analysis Report On Growth & Prospects Of Tea Industry In India

Mr. Shashank.Chauhan ,2008, Benchmarking Of FMCG Industries In India

Mr.Muhammed Alee Mansur, 2006, Bangladeshi Tea In The International Market”- Problems And Prospects

A report by PricewaterhouseCoopers for IBEF, 2004, Fast Moving Consumer Goods.

Mr. Sunil Bhat,2008,Managerial Microeconomics FMCG Sector At Crossroads

Federation of Chambers of Commerce and Industry(FCCI),2008 FMCG-The Road Ahead

India Business Information & Consulting Service,2009, FMCG Sector Report

ICRA,2009, Indian Tea Industry: Outlook Positive For The Short To Medium Term

Mr.Nirmal. Pandey,2008, Tea Report

Mr.Jayanta Roy,2009, Tata Tea Limited

Mr.Ritwik.Raje,2009,Tata Tea Limited

Dr. V.N. Asopa,2007, Tea Industry of India The Cup That Cheers has Tears

Mr. Mandeep Saini,2008,The Integrated Excellence

Mr.Ashim Kr. Das, 2009, Sustainability In Tea Industry: An Indian Perspective

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http://www1.american.edu/TED/indiatea.htm

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