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the tea in India
- 30 Mar 2004
Author: Hope Lee
India produced 826 million kg of tea in 2002, representing
approximately 30% of the world’s tea supply. However,
the Indian tea industry faces considerable difficulties. Domestically,
the retail price of tea is depressed by oversupply, as reflected
in the sharp disparity in growth between volume (+28%) and
value (-10%) in the retail market between 1998 and 2003.
This
problem was exacerbated by the government lifting quota restrictions
on commodity imports in 2001, resulting in an increase in
cheap, low-quality tea from neighbouring countries such as
Nepal, Vietnam and Indonesia. As is frequently the case with
staple products, the resultant drop in the price of tea has
not equated to a rise in consumption.
Furthermore
in its export markets India is threatened by newcomers, such
as Indonesia and Vietnam, as well as old rivals such as Sri
Lanka and Kenya.
The
combination of these factors is squeezing margins and leading
to a large accumulation of excess stock within the industry.
Consequently major Indian tea manufacturers are now looking
at international expansion into new markets with the aim of
increasing sales and raising the profile of their brands.
India:
the largest tea consumer
India
consumes the largest quantity of tea in the world, accounting
for nearly 14% of global retail volume sales. Geographically,
tea is widely consumed in the North, East and West of India,
and is popular with a wide variety of social classes and consumer
age groups.
However,
it ranks 7th in value terms, due to relatively low unit prices.
Black standard tea constitutes nearly 80% of value sales,
although green tea has seen its popularity rise.
Still
heavily promoted to defend from alternatives
Despite,
and probably because, tea is the most traditional and affordable
beverage in India, it is perceived as being old fashioned
and less functional than some substitute products.
For
instance, malt-based beverages such as Horlicks (GlaxoSmithKline)
and Bournvita (Cadbury Schweppes), are the favourite type
of hot drink in the South, and are also the fastest growing.
This drink is consumed as a substitute for milk in this milk-deficient
region, and is favoured for its functional benefits.
Furthermore,
in the south, coffee is bigger as a proportion of total hot
drinks than in the rest of the country. Local preferences
are different in the south, India's main coffee-producing
region.
Soft
drinks such as carbonates also represent a significant threat
to the ongoing dominance of tea in the longer-term, with aggressive
marketing campaigns from leading multinationals successfully
persuading many young consumers to migrate from tea to soft
drinks for various drink occasions.
The
industry has therefore launched a series of campaigns to promote
tea as a health drink, with celebrities and scientists invited
to endorse the health benefits of tea, while the Tea Board
and leading players such as Unilever and Tata Tea have set
up a fund of Rs 200 million to promote tea drinking. The recent
pesticide controversy of carbonated drinks provided a good
opportunity for tea marketers to promote the natural aspects
of the drink.
Unilever:
the clear market leader
The
packaged tea market is highly consolidated in India, with
Unilever and Tata Tea accounting for almost half of retail
value sales. Unilever (Brooke Bond and Lipton) is the clear
leader, holding over 30% of the market share, while Tata Tea
(Tata) trails it with almost 20%. The remainder of the market
is far more fragmented and shared between numerous small players
Both
Unilever and Tata Tea saw a fall in retail sales as a direct
result of the drop in the price of tea between 2000 and 2003.
These mainstream players also saw their margin squeezed in
the face of increased advertising spends and competition from
unpackaged tea.
Tata
Tea: ambitions in international markets
Tata
Tea is the largest vertically integrated tea firm in the world,
from its plantation activity through to its packaging and
marketing initiatives. Although Tata Tea is overshadowed by
Unilever in its domestic market, the company has been the
star performer in the global tea industry in recent years.
Its
high profile acquisition of the global Tetley brand in 2000
effectively consolidated its position in the international
tea market. The company is now seeking to leverage the brand
as a springboard to new markets. In 2003, Tata Tea started
retailing its flagship brand Tata Tea in the US.
The
company closed a factory in Australia in the same year in
order to increase the capacity of its Sri Lankan joint venture
packaging company, which serves the Australian, Polish and
Russian tea markets. It is currently looking into marketing
Tetley in the Chinese market.
Cha
bars: premium tea as a lifestyle choice
Retail
value sales of tea in India are expected to show positive
growth of 2.5% during 2003-2008. Euromonitor anticipates the
future development of the industry is will be impacted by
out-of-home consumption. A new development has been the opening
up of the vending machine sector. The total number of vending
machines in the country was estimated at 45,000 in 2003, which
included a large number of unbranded machines. Vending machines
sell coffee, tea and soft drinks, however, so for the tea
players it could be a double-edged sword.
In
addition to vending, the development of cha bars and coffee
shops will encourage out-of-home consumption. Cha bars offer
a wide selection of teas at premium prices and are considered
fashionable among a certain Indian demographic. Hoping to
emulate the success of coffee shops witnessed in many major
cities, including in emerging markets, they mainly target
expatriates, the corporate entertainment market, or high income
locals keen to show individual tastes.
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