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All 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. | 
