Mumbai: In February, Tata Global Beverages Ltd (formerly Tata Tea Ltd) announced a partnership with PepsiCo India Holdings Pvt. Ltd called NourishCo for marketing and manufacturing water and other health and wellness beverages. In October, Tata Global launched its first Starbucks Cafe in a joint venture with Starbucks Corp.
Such alliances will be driving the growth for the company, says Harish Bhat, managing director and chief executive officer, Tata Global Beverages, a day after the company announced its second quarter earnings. Edited excerpts:
The volume growth has slowed from 9% in the June quarter to 5-6% in the September quarter. Are consumers cutting back on spends on tea?
Tea and coffee are everyday items. Whether the economy grows at 9% or 6%, I don’t think it makes any difference to the number of cups you or I or the consumer consume in a day. It’s the last thing that they will touch. They will use toothpaste every morning. I am confident that tea and coffee, essentially everyday items, will be demand inelastic. Discretionary items that require fairly large outlays of cash will be impacted.
What is driving growth for you?
There will be innovative products in tea, coffee and water and all those product innovations will continue. But an interesting point here is that all the innovations that we are going to offer consumers will come through strategic alliances and partnerships.
Look at Eight O’ Clock coffee in the US. We have entered into a partnership with Keurig and is in the process of supplying Eight O’ Clock pods which will be used in Keurig machines in millions of homes. There is a similar alliance developing in Canada between Tetley brand and Tassimo, a maker of tea and coffee there.
In India, there is Tata Starbucks Alliance which has got Starbucks into the country with use of Indian roasted coffee and then our alliance joint venture with PepsiCo—NourishCo— markets the Himalayan, Tata Plus and Tata Gluco brands. So, a lot of growth at Tata Global Beverages will come from two powerful partners coming together to the table and creating innovations to benefit the consumers.
Are you looking at forming more such new alliances?
It is very much on the cards.
Does it mean more mergers and acquisitions as well?
We grow through several means. We have done several acquisitions in the past. At this point in time, we would like to nurture and grow our existing brands and alliances.
What is the potential of these alliances?
These alliances can contribute several hundreds of crores to the topline of the company by 2015. For instance, NourishCo can grow from tens of crores in revenues now to Rs.400 crore or Rs.500 crore by 2014.
What will drive growth at NourishCo?
In the next two-three months, the venture will launch Tata Water Plus chromium. We are also developing a calcium variant under the brand. In Himalayan, we will launch a sparkling variant in two-three months. Himalayan has a pan India presence.
Over the next two years Tata Gluco and Tata Plus will have an all-India presence.
So is penetration-led growth over?
Penetration is still important. Roughly 50% of the tea sold in this country is unbranded or loose tea and we have to make an effort to convert this loose tea to branded and that is an opportunity for us.
Is there a structural shift in the growth drivers compared with the last decade?
There is modern retail now which contributes about 10% of our overall revenues. This channel was not there in the last decade. It could double its contribution to our topline in the next five years with the foreign direct investment coming into the country. It’s tough to really make a prediction but the channel will grow.
Another new driver of growth is premium products. These contribute close to 30% of our overall revenues now. Half of this portfolio which consists of Tetley, Tata Tea Gold and such other brands was not there a few years ago. The premium products portfolio is growing at double the rate of the overall company. For instance, green tea grew at 100% over last year, but on a small base.
What is the road map for the expansion of Starbucks?
In the next two years there will be 100 cafes in India.
There have been long queues outside the recently opened Starbucks Cafes in Mumbai.
It is not a good thing. It is a challenge. But we can’t curtail the experience of people who would like to sit in the store and have a coffee.
Is the café experience an emerging country phenomenon?
Yes, it is. It reached a tipping point in the US two decades back; it is happening in India now. What is feeding that trend is the increasing incomes. Also the cafes have become a bit more accessible as the starting point of a coffee at the Tata Starbucks is Rs.85-Rs.90 for a cup. For consumers it is not just drinking beverage—coming here is an experience as there is wi-fi, service, novelty of offering.