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Mumbai: It’s a homecoming of sorts for Harish Bhat who has returned after 12 years to take over as managing director and chief executive officer at Tata Global Beverages Ltd. Formerly the chief operating officer at Titan Industries Ltd, the Tata group’s watch and jewellery retail company, Bhat was with the tea and beverages company (then known as Tata Tea Ltd) from 1988 to 2000.

The forecast: Harish Bhat says a drought will impact discretionary items first and essential FMCG only later.

In his first interview since taking over, Bhat spoke about the transformation of a tea company to a beverage company, the big bet on fortified water, and the NourishCo joint venture with PepsiCo India Holdings Pvt. Ltd, besides inflation and the impact of the weak monsoon on the company. Edited excerpts:

Your company has registered a 9% volume growth in India during the first quarter of the current fiscal year. Given that we have a drought-like situation, will it be possible to maintain such volumes?

I think the drought will impact discretionary items first. It will impact essential FMCG (fast-moving consumer goods) only later. The first thing consumers will cut out is discretionary items such as restaurant meals, movie outings and so forth. They will not cut back on food and beverage items. We will be very watchful.

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Harish Bhatt talks about the impact of high prices on the market for tea and how his company plans to maintain volume growth.

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Do you see consumers moving away from branded products on account of high inflation?

There is a stickiness to people moving into brands. Once consumers have begun buying branded tea, very few of them shift back to loose tea. They may shift between national and local brands, that is they may go from one brand to another brand. This is a consumer behaviour change that lasts for a long time.

Are consumers downtrading or buying cheaper brands?

We have not yet seen evidence of that during the quarter but we will be on the lookout for that whether it is happening or not. My understanding of why that may not happen is because tea is a small part of the expenditure basket of a household. So, the imperative to downtrade is not very high.

How does the monsoon shortfall impact you?

It impacts us in three different ways. One, it impacts the tea-growing areas of the country and, therefore, the commodity costs. We are fortunate that this year, large tea-growing areas of the country, Assam and Kerala, have received reasonable rainfall.

The second way it impacts us is the way it impacts every FMCG company in terms of disposable income. There again, tea would be one of the lesser impacted products, as it is a necessity, drunk every day.

The third is that it will have some impact on cropping pattern and rural income. There will be a shift between urban and rural consumption for sure.

Given the economic scenario, what will be your focus this year?

In the past years, we have had many acquisitions. The focus now will be on organic growth. Currently the focus is on making those brands flower and blossom. We see ourselves strengthening iconic brands such as Tetley and Tata Tea. We see ourselves developing new brands like Tata Water Plus.

What was the need to create a new brand of water, Tata Water Plus, when you have Himalayan, an existing water brand in your portfolio?

Tata Water Plus is water fortified with zinc. Zinc helps in building up immunity and it is one of the trace elements that you do find deficiencies of in large parts of Indian segments. This can transform the way water is consumed in the country. Much like how Tata Salt transformed the way salt was had in this country, with salt with iodine; no one had heard about it until then. The reason we can do this is because consumers trust the Tata brand, much like they trusted Tata Salt many years ago. So far, water is seen as a thirst quencher or a hydrator. But now water can also be seen as adding back health to the body.

Tata Water Plus with Zinc is our first launch of water with minerals. This brand is priced at 16 for 750 ml, which is similar to the pricing for Aquafina or Kinley for one litre. Himalayan, like Evian, is water from one source; it comes from an underground spring in the foothills of the Himalayas. It is a premium offering.

Can you tell us what is happening with your joint venture with PepsiCo India—NourishCo?

The joint venture is focused on the distribution of our water products. So far it has three products—Himalayan, Tata Water Plus and our other new offering Tata Gluco Plus—a cold water drink with glucose and lime, which is an alternative to carbonated drinks. The focus is on developing more variants of fortified water with other trace elements like chromium and calcium in the future.

What about t!On cold tea?

That is no longer available in the market. We had test marketed it and have now withdrawn it.

A large part of your revenue is still from tea. Do you see that changing soon?

Tea is the heart of our company at close to 70% of overall revenues. It is a beverage we know best. Coffee is now 22% of our consolidated revenues and water is just emerging with 1-2% today. You will see a transformation over the next five years. Coffee and water will become bigger and by implication the proportion of tea will come down to 50-55%, but it would still remain the largest beverage in our portfolio.

Anything on the Starbucks alliance? When will we see Starbucks cafés across India?

I am not able to share anything on that right now. We will soon be ready with an announcement and will come to you with when and where the first store will open. We have said in the past that it will open in the top four to five metros and Mumbai and Delhi will be the first.

sapna.a@livemint.com

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