Strategic Marketing Management-Lipton Tea

Tea industry analysis

A PROJECT OF

STRATEGIC MARKETING MANAGEMENT

Name: Saba Latif Name: Naima Khan Name: Sara Syed Date of Submission:

ID #: 063832-048 ID #: 053632-075 ID #: 053632-017 02/11/06

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First and foremost, we express our gratitude to Almighty Allah, the sources of knowledge and wisdom endowed to mankind, We have revealed unto you in order that

you might lead mankind out of darkness into light by their Lord's Leave to the Path of the All-Mighty, the Owner of all Praise. We extend gratitude to our resource person, Honorable Mr.Mobin-ul-Haque who provoked us to research on this particular industry, his valuable suggestions, constructive criticism and helpful discussions broadened our vision and helped us conduct this research. Here we also express are gratitude to the brand activation manager of Unilever Mr. Abid R. Jaffri with Tapal Tea Private Limited Corporate manager Mr. Waheed Sarwar for there deep guidance on the product. And specially would like to thank our dear parents, who are a constant source of inspiration for us.

Saba Latif Naima Khan Sara Syed















EXECUTIVE SUMMARY Tea discovered around 5,000 years ago, tea is generally considered the oldest prepared beverage. Whatever its color (black, green, yellow or white, depending on how it has been processed), tea can be produced from three main varieties: camellia sinensiss, camellia sinensis assamic and camellia seinensis Cambodians. The main

global producing countries are India (accounting for about 26 percent of world production); China (26 percent); Sri Lanka (9 percent); Kenya (9 percent); Indonesia (5 percent) and Turkey (4 percent) Black tea dominates world tea production, accounting for more than 70 percent of the global total in 2004. Green tea production has continued to increase its share of the world total, largely due to China’s heavy focus on green tea. Some 76 percent of China’s production is green tea. Tea is a product widely & extensively used its trend pattrens in different parts of world are

Pakistan relies on imports to meet all its consumption needs. In 2003 the dominant supplier was Kenya, which supplied 66 percent of total imports. Pakistan’s apparent consumption in 2003 of 109 000 tonnes placed it seventh in the world. Annual consumption has varied considerably year on year as shown in Table 6, ranging from a low of 85 400 tonnes in 1997 to a high of 119 700 tonnes in 1999. Average consumption over the 10 years 1994-2003 was 108 000 tonnes. Consumption per capita has been declining and at 0.71 kg in 2003 is below that of the late 1990s but still above that in many other important consuming countries.















Tea industry History: Tea discovered around 5,000 years ago, tea is generally considered the oldest prepared beverage. Whatever its color (black, green, yellow or white, depending on how it has been processed), tea can be produced from three main varieties: camellia sinensiss, camellia sinensis assamic and camellia seinensis Cambodians. When the tea tree grows under natural conditions, it is evergreen and can reach 10 to 15 meters, but when it is cultivated in gardens (the name given to tea plantation worldwide), its height is artificially limited to one meter in order to facilitate the pickers. Tea trees are grown mainly in tropical and subtropical regions with humidity of 70 to 90 per cent. Rainfalls must be abundant and regularly distributed throughout the year, with a yearly average of 1,500 to 2,500 millimeters.

World tea situation and production: . World tea production reached 3.2 million tonnes in 2004, up from 2.6 million tonnes a decade earlier. This represents an annual average growth rate of 2.2 percent. Most of the growth was due to increased productivity rather than an expansion expan sion in area, as producers sought to reduce marginal costs in order to adapt to depressed prices. The main global producing countries are India (accounting for about 26 percent of world production); China (26 percent); Sri Lanka (9 percent); Kenya (9 percent); Indonesia (5 percent) and Turkey (4 percent) Black tea dominates world tea production, accounting for more than 70 percent of the global total in 2004. Green tea production has continued to increase its share of the world total, largely due to China’s heavy focus on green tea. Some 76 percent of China’s production is green tea. Table 1 – Tea Production, imports and exports: Selected countries 2003 2003

Production ’000 Mt

Imports ’000 Mt

Exports ’000 Mt

World

3,146

1,554

1,399

India

86 0

22

17 6

Sri Lanka

30 5

305

29 1

U SA

0

94

7

China

79 1

34

26 3

Kenya

29 4

0

26 9















Pakistan

0

1 09

0

Turkey

15 5

5

7

Imports are diverse with both developing and developed countries represented. The largest importers, in order of volume imported, are the Russian Federation (11 percent of the world total), UK (10 percent), Pakistan (7 percent), the USA (6 percent) and Egypt (5 percent). Together these five countries account for nearly half ha lf of total world imports, which totaled 1.6 million tonnes in 2003. By contrast, exports, as with production, are dominated by developing countries which account for 90 percent of the world total, with the major exporters in 2003 being Sri Lanka (21 percent of















2003. These were followed by the Russian Federation and Turkey each accounting for 5 percent, United Kingdom and Japan with 4 percent, and Pakistan and the USA with 3 percent.

Types of Tea

Black Tea Black tea is a "true" tea (i.e. Camellia sinensis) made from leaves more heavily oxidized than the white, green, and oolong varieties. Black tea is generally stronger in flavor and contains more caffeine than the more lightly oxidized teas.

In Chinese and culturally related languages, black tea is known as red tea, perhaps a more accurate description of the color of the liquid. However, in the western world, "red tea" more commonly refers to South African rooibos tea.

Green Tea Green tea has been around for more than 4000 years. Chinese folklore attributes the discovery of green tea as a drink to a Chinese leader from that era named Sheng Nong. It is said leaves of the

















Green tea is made from the leaves of the ‘Camellia Sinensis’ plant. The mature leaves are picked and kiln dried to maintain the correct humidity during the drying process. The dried leaves are then further processed to remove stems and debris so that only the leaves remain. The dried leaves are what we think of as green tea. Green tea is still very popular in Asia and many people believe it has a wide range of health benefits. There are studies that suggest green tea can inhibit the growth of certain types of cancer cells and contains certain elements that slow the aging process.

Green and black tea come from the same plant and differs only in their method of production. Green Tea is dried for a shorter time, and is heated sooner to prevent fermentation. Green tea extract is one way of getting all the green tea benefits Diet green tea and green tea extract:

Diet tea will help lose weight - if you are having a green tea drink or green tea extracts as a part of a healthy diet or if you take another green tea product such as green tea powder, green tea supplement, green tea patch, and green tea capsule - your weight loss program may be the successful.

Tea dust Dust tea is a low-quality grade of fine grained black tea. Traditionally these were treated as the rejects of the manufacturing process in making high h igh quality leaf tea like the Orange Pekoe. When leaves break or get crushed during the manufacturing process they are variously labelled as Broken Orange Pekoe, Fannings and dust based on the particle size. The smaller the particle, the lower the quality.

This traditionally low quality tea has however experienced a huge demand in the developing world in the last century as the practice of tea drinking became popular. Cheap tea stalls in India

















cultivate tea in the mountainous areas; the projects could not achieve the desired results.

The already high tea consumption level may further increase in future due to urbanization and increase in per capita income. The per capita monthly consumption of tea (black & green) is 56.29 grams. Tea imports rose from approximately US$ 120 million in 1998-99 to US$210 million in 1999-00, showing an increase of over 65 per cent. Its imports were US$173 million in 2002-03. In rupee term, imports increased from Rs348 million, in 1990-91, to as high as Rs1, 8754 million in 1998-99. However, the imports decreased to some extent, and reached Rs1, 040 million in 2001-02. Pakistan relies on imports to meet all its consumption needs. In 2003 the dominant supplier was Kenya, which supplied 66 percent of total imports. Pakistan’s apparent consumption in 2003 o f 109 000 tonnes placed it seventh in the world. Annual consumption has varied considerably year on year as shown in Table 6, ranging from a low of 85 400 tonnes in 1997 to a high of 119 700 tonnes in 1999. Average consumption over the 10 years 1994-2003 was 108 000 tonnes. Consumption per capita has been declining and at 0.71 kg in 2003 is below that of the late 1990s but still above that in many other important consuming countries (Table 8). Table 7 – Tea imports, exports and consumption in Pakistan: 1994-2003

Year

Imports (‘000 tonnes)

Exports (‘000 tonnes)

Consumption (‘000 tonnes)

199 4

11 6 .1

1.5

1 1 4 .6

199 5

11 6 .6

7.6

1 0 9 .0

199 6

11 4 .8

0.0

1 1 4 .8

199 7

8 5 .4

0.0

8 5 .4

199 8

11 1 .6

0.0

1 1 1 .5

199 9

11 9 .7

0.0

1 1 9 .7

200 0

11 1 .4

0.0

1 1 1 .4

200 1

10 6 .8

0.0

1 0 6 .8

200 2

98 0

00

98 0

















199 8

135,381

1 1 1 ,5 0 0

0.82

199 9

139,018

1 1 9 ,7 0 0

0.86

200 0

142,654

1 1 1 ,4 0 0

0.78

200 1

146,277

1 0 6 ,8 0 0

0.73

200 2

149,911

9 8 ,0 0 0

0.65

200 3

153,578

1 0 9 ,0 0 0

0.71

Av 1998-2003

0.76

. Pakistan is a developing country market with a per capita GDP of US$ 2 100 in 2004. Growth of its economy has picked up in recent years and was estimated at 5.5 percent in 2004 with a relatively low inflation rate of 2.9 percent. Although it is an extremely price sensitive market dominated by bulk CTC1 teas, there is a small market segment for high quality teas. In 2003, the population of Pakistan was estimated to be 154 million, 66 percent of whom lived in rural areas, where tea consumption was highest. Tea is the most popular and cheapest beverage in Pakistan, but is increasingly facing competition from other beverages.

Companies in Pakistan:

Company Description

Uni Lever Brothers (Pakistan) Limited Formerly known as Lever Brothers (Pakistan) Limited. The Group's principal activities are to manufacture and sell spreads and cooking products, ice cream, beverages and home and personal care products. The brands of the Group include Brooke Bond, Lipton, Lux, Rexona and Lifebuoy, Sunsilk, Surf, Vim, Dalda, Blue Band and Planta. The

















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every day, 150 million people choose our brands to feed their families and to clean themselves and their homes over half of our sales are generated by our 12 €1bn brands: Knorr, Flora/Becel, Hellmann's, Lipton, Omo, Surf, Lux, Dove, Iglo/Birds Eye/Findus, Blue Band/Rama, Sunsilk and our Heart ice cream brand we are the global market-leader in all the Food categories in which we operate: Savoury & Dressings, Spreads, Weight Management, Tea and Ice Cream we are also global market-leader in Skin S kin and Deodorants, and have hav e very strong positions in other Home and Personal Care categories by 2005, we invested around €1 billion in research and development, for example at the Unilever Food and Health Research Institute, which has a worldwide reputation for scientific excellence in 2005 we spent over ov er €79 million on a wide range of community projects we have 337 manufacturing sites across six continents, all of which strive for improved performance on safety, efficiency, quality and environmental impacts, working to global Unilever standards and management systems we invested €5 billion in advertising adv ertising and promotions in 2005

Lipton yellow label: Lipton is one of the world's great refreshment brands, making a big splash in the global beverages market with tea-based drinks including leaf tea, infusions, ready-to-drink tea and other healthy, refreshing alternatives to soft drinks. Lipton continues to lead as the global tea beverage market, making a big splash with a variety of tea-based drinks. Lipton is growing fastest in ready-to-drink teas Lipton ready-to-drink teas in Asia which can be served hot or cold. Other recent flavour innovations cater to changing and adventurous tastes, Leaf tea remains a favourite in many markets and Lipton is making it tastier and easier to make with innovations.

While tea is a naturally rich source of antioxidants, it is not a substitute for fruits or vegetables which provide a wide range of antioxidants and essential

















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Studies observing large populations and there eating and lifestyle habits over a long period of time show that regular tea drinking may help maintain heart health. A number of studies showed that people consuming tea (without milk and sugar) on a regular basis as part healthy lifestyle tend to maintain better heart health better than those who do not drink tea. Lipton is the world's best-known and best-selling brand of tea, with sales of nearly €3 billion today. Lipton is the global market leader in both leaf and ready-to-drink tea, with a global market share nearly three times larger than its nearest rival. Available in over 110 countries, coun tries, Lipton is particularly popular in Europe, North America and the Middle East and parts of Asia. Tea revitalises your mind and body. Tea – half the caffeine of a regular cup of coffee. All teas – black, green, oolong or white provide you with an antioxidant boost. Just one 200ml cup of Lipton Yellow Label will provide you with around 135mg of antioxidants.

Lipton range

Lipton Yellow Label tea

Tapal tea:

Lipton Green Tea

Lipton Iced Tea

Lipton Ice Tea



















Tapal Danedar

Gulbahar green tea

Tapal jasmine green tea



















Mezban premier dust

Tapal special round teabags



















significant presence in plantation activity in India and Sri Lanka. Tata Tea and the Tetley Group have full-fledged research and development centers that focus on the branded business. Tata Tea has a research centre at Teok (Assam) and a product development centre at Bangalore focused on the entire gamut of tea operations The Tetley Group

Headquartered in Great Britain, is a leading international tea company selling over 60 Tetley branded products to over 40 countries world-wide. Tetley is the second largest tea bag brand in the world; it is the number one tea bag brand in Great Britain and Canada and has h as significant market shares in the United States, Australia, Poland and France. Beyond these markets Tetley is steadily growing its presence in the rest of Europe, particularly the former Eastern block countries and throughout the Caribbean and lesser developed markets such as Bangladesh, Pakistan and Russia where Tetley was launched last year. Tetley has a customized portfolio of offerings for each country, ranging from black, green, fruit and herbal teas, iced ready-to-drink teas and an extensive range of exotic specialty tea. The Tetley brand is accorded "Super Brand" recognition in Great Britain. Tetley own one manufacturing facility at Eaglescliffe in the north of England. Established since 1969, it currently occupies 220,000 square feet and is believed to be the largest tea bag factory in the world. Its quality management systems are accredited to the ISO 9002 standard and are also in the process of receiving the ISO 14001 certification.



















Climate: mostly hot, dry desert; temperate in northwest; arctic in north. Terrain: flat Indus plain in east; mountains in north and northwest; Balochistan Balochistan plateau in west. Natural Resources: land, extensive natural gas reserves, limited petroleum, iron ore, copper, salt, limestone, marble, chromites and precious stones. Natural Hazards: frequent earthquakes, occasionally severe especially in north and west; flooding along the Indus after heavy rains (July and August) Population: 130,579,000 Male: 67,840,000 Female: 62,739,000 Urban: 42,458,000 Rural: 88,121,000 Population Growth: 2.11% (2001 est.) Birth Rate: 31.21 births/1,000 population (2001 est.) Death Rate: 9.26 deaths/1,000 population (2001 est.) Ethnic Groups: Punjabi, Sindhi, Pashtun, Baloch, Muhajir Religions: Muslim 97.96 (Sunni 77%, Shi?a 20%), Christian, Hindu, and other 3%. Languages: Punjabi 48%, Sindhi 12%, Siraiki (a Punjabi variant) 10%, Pashtu 8%, Urdu (official) 8%, Balochi 3%, Hindko 2%, Brahui 1%, English, Burushaski, and other 8%.



















Labor Force: 40 million Labor Force by Occupation: agriculture agriculture 44%, industry 17%, services 39% (1999 est.) Industries: textiles, food processing, beverages, construction materials, clothing, paper products, shrimp Agriculture products: cotton, wheat, rice, sugarcane, fruits, vegetables, vegetables, milk, beef, mutton, eggs Currency: Pakistani rupee Exchange Rates: Pakistani rupees per US dollar - 59.152 (January 2001) Tourist Arrivals: 543.40 (In ?000?) Telephones - main lines in use: 2985.52 (In thousands) 1998-99 Telephones - mobile cellular: 158,000 (1998) Post Offices: 12,854 1999-2000 Hospitals: 876 Dispensaries: 4635 Doctors: 91823









































The Food and Drug D rug Act sets out conditions regarding health and quality requirements that would apply to tea and coffee manufacturers just as they would to other food manufacturers so that consumers will have confidence in the safety of the products they purchase. Firms have not been allowed to make health claims on food labels unless those foods are classed and approved as drugs. At the time this profile was being prepared Health was consulting on a list of health claims that might be permitted on labels of specific foods. If a final decision is made to permit health claims similar to those proposed by tea manufacturers and others, the Food and Drug Act Regulations would have to be amended. Food and Drug Administration (FDA) has regulatory authority to assess the accuracy o f claims made by manufacturers about the health benefits of their products. Currently the FDA does not provide detailed information about healthful patterns concerning beverage consumption. If a tea producer claims that a tea product prevents or cures a disease, then the FDA would consider the





















Macro Indicators2

Trade to GDP Ratio In the backdrop of more than 4% per annum growth in the world economy for the fifth consecutive year and ranging structural reforms, Pakistan witnessed Fig. Fig. III III.a. .a. Trade a s Pe rce ntage overal ove ralll imp improve rovemen mentt in it exp export orts. s. Whi While le its expo ex port rts s gr grew ew at an av aver erag age e ra rate te of 16 16.4 .45 5 40 percentt per annum over the last four years, it percen 34 35 31.6 doubling doubl ing of export exports s durin during g the last seven years. 29 28.4 28 27.2 30 25.8 bid bi d to im impr prov ove e ex expo ports rts an and d lilibe bera ralilize ze th the e 25 economy econo my for increa increased sed participation participation in global 20 trade, tra de, it car carrie ried d on ref reform orms s esp especi eciall ally y in the 15 areas of trade and tariffs during the past six 10 years or so. A manife manifestation station of reform output 5 also al so be se seen en in th the e Fi Fig. g. III III.a .a.. wh whic ich h sh show ows s 0 chan ch ange ges s in tra trade de-t -too-GD GDP P ra rati tio o wh whic ich h ha has s 199 9- 00 00 2 00 0 - 01 01 2 0 01 01- 02 02 2 00 2- 03 03 2 00 3- 04 04 2 00 4 - 05 05 20 0 5- 06 06

wide-

saw In a

can





















Figure III. Figure III.c. c. ill illustr ustrate ates s the dia diachr chroni onic c Fig. III. d. Per Capita Income US$ sectoral contribution in GDP growth from 847 200 20 011-02 02 to 20 200 055-06 06.. Se Sect ctor or wi wise se 742 669 anal an alysi ysis s sh show ows s th that at th the e ag agri ricu cult ltur ure e 582 526 501 503 sector started with 0.03% in 2001-02 and reached reache d 1.4% of contri contribution bution durin during g the year 200 20 044-05 05.. It wi witn tnes esse sed d dec ecli line ne in contribution during 2002-03 and 2005-06 with 0.55% contribution to GDP growth. The Indu In dust stri rial al se sect ctor or re reac ache hed d it its s pe peak ak 19 1999 99-00 -00 20 2000 00-0 -01 1 20 2001 01-0 -02 2 20 2002 02-0 -03 3 20 2003 03-0 -04 4 20 2004 04-05 -05 20 2005 05-0 -0 contribution of 3.8% during 2003-04 and now stands at 1.5% starin staring g from 0.6% during 2001-02. 2001-0 2. During the last five years, the manufacturing manufacturing sector reaching plateau of 2.2% during 2004-05 contributed contributed 1.5 percent during 2005-06. However, the services sector seems to have contributed steadily from 2.5% share during 2001-02 and contributing 4.5% to GDP growth in 2005-06.

Per capital income, in current dollar terms, has grown at an average rate of 13.6 percent per annum during the last three years rising from $ 669 in 2003-04 to $ 742 in 2004-05 and further to $ 847 in 2005-06. The main factor





















Fertilizer 1.9 1.6 Tea 2.0 1.9 Sub-total 75.0 83.8 Others 25.0 16.2 Total 100.0 100.0 Source: MOC/FBS/Economic Survey of Pakistan * Provisional

1.7 1.5 75.2 24.8 100.0

2.1 1.4 75.9 24.1 100.0

1.8 1.2 70.3 29.7 100.0

2.0 1.1 74.7 25.3 100.0

2.4 0.9 72.5 27.5 100.0

Major Source of Imports

USA, EU, Japan, Kuwait, Saudi Arabia and Malaysia remain important suppliers of imports into Pakistan. Pakistan’s imports are highly concentrated in a few countries and over 40 percent continue to originate from just seven countries namely, USA, Japan, Kuwait, Saudi Arabia, Germany, UK and Malaysia. It may be noted that Saudi Arabia is emerging as major supplier to Pakistan followed by USA and Japan. [See Table III.f.] Table-III.f. : Major Sources of Imports (percentage (percentage shares) Country

99-00

00-01

01-02

02-03

03-04

04-05

05-06*























Similarly, reductions in waste go hand-in-hand with cost savings as food processors and other manufacturers make increasing use of plastic, rather than wooden, pallets. Although more expensive to buy, plastic pallets, which can be made from recycled plastic, can be used many more times than wooden pallets which tend to be mangled fairly quickly by fork lifts and then sent to landfill.





















The plucking of the two leaves and a bud involves a number of systems - Janam plucking, fish-leaf plucking , step-up plucking etc.. Shear plucking is done when there is a scarcity of pluckers during July to September. Pluckers' productivity productivity is found to be maximum in unpruned teas. The plucked leaves are processed to produce the black tea.

Withering





















claims made by manufacturers about the health benefits of their products.





















could result in hearings to assess environmental impacts before construction may





















industry growth is low because it is high investment industry and the share of market is limited among few firms in Pakistan. There are different types of tea product in Pakistan herbal tea green tea and ice tea. Switching cost in tea industry is low because the customer has different choices because of different brands of tea and also different substitute industries. Intermittent overcapacity in tea industry is high because the tea is a bidding product so some times in firm’s























































































































































































































































































































Strategic Marketing Management-Lipton Tea

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