Faced with declining tea consumption in the UK, a country where the evening tea is more than just another meal, Tata Tea, the world’s second-largest branded tea company, is repositioning itself on the health-and-wellness platform.
In the process, it hopes to touch the $1 billion (Rs4,400 crore) mark in revenue in 2007-08. The Tetley Group, Tata Tea’s subsidiary which operates in the UK, accounts for almost two-thirds of the parent’s revenue. A large portion of the remainder comes from India, where the tea industry has been growing in the low single digits.
Tata Tea’s decision to reposition itself comes after the company successfully sold green, fruit and herbal tea in markets such as the UK—these helped it grow faster than the single-digit rate at which the industry grew in that country.
Meanwhile, US-based Energy Brands Inc., in which the Tata group has a 30% stake, has sharply grown sales of its Vitaminwater, Fruitwater, and Smartwater, largely on account of higher demand from consumers for products that are natural or come with the promise of good health, or both. What works with water, the thinking in the Tata group goes, should also work with tea.
“We have seen sales at Glaceau grow from around $125 million to over $300 million in two to three years. We are now taking its expertise in this repositioning to help us perk up our tea and beverage growth rates too,” said Percy T. Siganporia, managing director, Tata Tea.
Tata Tea vice-chairman R.K. Krishna Kumar and Tata group chairman Ratan Tata are on the board of Energy Brands (which owns Glaceau). “We are repositioning ourselves as a wellness and natural-beverages company and will look at organic and inorganic means to satisfy our hunger for growth,” added Siganporia.
Tata Tea is no stranger to acquisitions. It acquired Tetley for £271 million (Rs2,330.6 crore) in 2000, and acquired the 30% stake in Energy Brands for $677 million last year.
The Tata group feels the need to reposition Tata Tea—the company posted revenue of Rs3,124 crore and net profit of Rs301 crore in 2005-06—because consumption of black tea in the UK is declining. “We have been able to grow our market share in this declining market, but we needed to develop new businesses. Through Glaceau, we now have a growth engine which is racing along at triple-digit rates,” said Siganporia. Glaceau is yet to launch its offerings in Europe and Asia.
The company has already tasted success with fruit and herbal teas, which are sold at a premium. “The Indian tea industry has been growing at a compound rate of 3.3% per annum, while the tea industry in the UK was declining and has just begun to stabilize at lower levels. At best, we can get low double-digit growth if we keep ourselves restricted to this market,” says Siganporia.
Tata Tea ended the first nine months of 2006-07 with a revenue of Rs2,885 crore and a net profit of Rs398 crore.