A STUDY INTO THE FMCG SECTOR OF INDIA (TEA INDUSTRY) Submitted By
Prashant M Relwani
UNDER THE GUIDANCE OF
A PROJECT SUBMITTED IN FULFILLMENT OF MMS TO Vidyalankar Institute of Technology
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DECLARATION
This is to declare that the study presented by me to Vidyalankar Institute of Technology, Techno logy, in part competition of the MMS under the title t itle ³A Study Into The Fmcg Sector Of India (Tea Industry) ´ has been accomplished under the guidance of.
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CERTIFICATE
3
ACKNOWLEDGEMENTS
It is my pleasure and honor to present this report and say a few heartfelt words for the people who were part of this report in numerous ways, people who gave a lot of support right from the stage of conceiving the project. I am extremely grateful to my guide Dr. ««««««, who has been a motivator and source of inspiration. His uninhibited guidance and valuable tips have been responsible to put in my best efforts in working on this project. My special thanks to him for giving me a direction for the project. I also thank my Co-guide Co-gu ide Mr«««««..for her constant support.
Date
:
Prashant M Relwani
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CONTENTS Title of the Section
Pages Nos.
Objective Of Study
1
Methodology Of Study
2
Chapter 1 : Fast Moving Consumer Goods 1.1 : FMCG Industry In India 1.2 : Policies 1.3 : Key Players In FMCG Industry In India
3
Chapter 2 : Tea Industry 2.1: History Of Tea 2.2: Global Tea Industry 2.3: Types Of Tea 2.4: India Tea History 2.4.1: Characteristics Of India Tea Industry 2.4. 2: SWOT Of Indian Tea Industry 2.4. 3: Porter s Five Forces 2.4. 4: Present scenario Of Indian Tea Industry C ountries 2.4. 5: India Vs Other Tea Producing Countries 2.4.6: Areas Of Concern 2.4.7:Recommendations For improvement Chapter 3 : Top Top 2 Players In India Tea Industry Industry 3.1: Tata Tea 3.1.1:
SWOT Analysis Of Tata Tea 3.1.2: Internal Environment Analysis 3.1.3: Business Level Strategy 3.1.4: Marketing & Promotional Strategy 3.2: HUL (Tea) 3.2.1: SWOT Analysis Of HUL(Tea) 3.2.2: Present Strategy 3.3: Recommendations To Top 2 Players To Increase Market Share
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7 8 9 10 11 13 15 20 22 23 25 28 33 39
42 44 46 47 48 49 50 52 53
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OBJECTIVES OF THE STUDY
The purpose of this study is to get familiarized with the Indian Tea Industry and its marketing to International markets. In order to accomplish this objective, the present dissertation covers the following objectives: y
To highlight the present Market Scenario S cenario of India Tea Industry.
y
To examine the prospects pro spects of India Tea Industry in the International Market
y
To identify the problems of India Tea Industry Export to the International Market.
y
To know the scenario of World Tea Market.
To recommend some corrective measures to resolve the problems
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METHODOLOGY OF THE STUDY This research is an elaborate study to enable us to understand the whole scenario of India Tea Industry to the International market. Collected data and information were tabulated, processed and analyzed critically in order to make the study more informative, fruitful and purposeful.
In preparing this report I have used secondary data and information .Most of the data have been collected from secondary sources. The secondary information is collected from various books, financial papers, and documents, articles related with the Tea Plantation, Tea Marketing, Newspapers, India Tea Board, Web portal, International Tea Boards, EPB, Food and Agricultural Organization (FAO) etc. Annual report, Preparing the Dissertation on the India Tea Marketing beyond the boundary, the secondary data was collected, corrected, organized, analyzed and interpreted to draw some findings and recommendations.
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CHAPTER 1
FAST MOVING CONSUMER GOODS (FMCG): We regularly talk about things like tea, butter, potato chips, toothpastes, razors, household care products, packaged food and beverages, etc. But do we know under which category these things come? They are called FMCGs. FMCG is an acronym for Fast Fast Moving Consumer Goods, which refer to things that we buy from local supermarkets on daily basis, the things that have high turnover and are relatively cheaper and there cost is relatively low. FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily deals with the production, distribution and marketing of consumer packaged goods. The Fast Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the consumers at a regular interval. Some of the prime activities of FMCG industry are selling, marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain, production and general management. This project helps us understand the Tea Markets as part of the FMCG industry. Key Segments:
The FMCG sector consists of four product categories, each with its own hosts of products that have relatively quick turnover and low costs: y
Household Care
y
Personal Care
y
Food & Beverage Household
Care Fabric wash (laundry soaps and synthetic detergents); Household Cleaners(dish/utensil cleaners, floor cleaners, toilet to ilet cleaners, air fresheners, fresheners, insecticides and mosquito repellents, metal polish and furniture polish)
Personal Care Oral care, hair care, skin care, personal wash (soaps); cosmetics and toiletries; deodorants; perfumes; feminine hygiene; paper products.
Food & Beverage Health beverages; Tea; soft drinks; products (biscuits, (biscuits, bread, cakes); snack food; chocolates; ice cream; coffee; soft drinks; processed fruits, vegetables; dairy products; bottled water; branded
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FMCG INDUSTRY IN INDIA:
The Indian FMCG sector is an important contributor to the country's GDP. It is the fourth largest sector in the economy The US$ 21.1 billion FMCG (fast moving consumer goods) sector in India is running full throttle and is expected to have a lot of action in 2010. As the fourth largest sector in the Indian economy, it is distinguished by a good distribution network and a strong competition between organized and unorganized segment. According to Financial Express, the sector will witness a growth of 15 per cent in 2010, compared to last year. The industry also creates employment for 3 million people in downstream activities, much of which is disbursed in small towns and rural India.
This industry has witnessed strong growth in the past decade. This has been due to liberalization, urbanization, increase in the disposable incomes and altered lifestyle. Furthermore, the boom has also been fuelled by the reduction in excise duties, de-reservation from the small-scale sector and the concerted efforts of personal care companies to attract the burgeoning affluent segment in the middle-class through product and packaging innovations.
Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in reality, the sector meets the everyday needs of the masses. The lower-middle income group accounts for over 60% of the sector's sales. Rural markets account for 56% of the total domestic FMCG demand. Many of the global FMCG majors have been present in the country for many decades. But in the last ten years, many of the smaller run Indian FMCG companies have gained in scale. As a result, the unorganized and regional players have witnessed erosion in market share.
The Indian FMCG market has been divided for a long time between the organized sector and the unorganized sector. While the latter has been bee n crowded by a large number of local players, competing on margins, the former has varied between a two-player ±scenario to a multi- player one.
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Unlike the U.S market for fast moving consumer goods (FMCG), which is dominated by a handful of global players, India¶s US$ 21.1 billion FMCG market remains highly fragmented with roughly half the market going to unbranded, unpackaged home made products This presents a tremendous opportunity for makers of branded products who can convert consumers to branded products.
At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power, and river linking) are likely to enhance the living standard across India. Till date, India¶s per capita consumption of most FMCG product is much bellow world averages. This is the latent potential that most FMCG companies are looking at. Even in the much penetrated categories like soaps/detergents companies are focusing on getting the consumer up the value chain. Going forward, much of the battle will w ill be fought on sophisticated distribution strengths.
Growth
Potential:«««////////«««««««««««««««««««««« Potential:«««////////««««««««««««««««««««««
Most of India¶s population still lives in villages and hence, it is one area that can¶t be overlooked. As an agricultural economy, which is gaining a lot of focus, rural income is bound to increase. That will definitely provide a better growth prospect for the FMCG companies. The growing demand in the market will also support the sector in an effective manner. Per capita consumption of various products is very low in India and hence it will have varied growth possibility. The new generation customer is brand savvy. However, now the companies need to focus on rural customer to make them more aware of the kind of new products and services that the FMCG basket can offer. The purchasing power of the people also plays an important role. The urban area will continue to dominate the market share of the FMCG products, what with increasing incomes and new categories. Currently urban populace has a 66 per cent share in terms of consumption.
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Indian FMCG Market Progress«««««««««««««««««««««««. Progress «««««««««««««««««««««««.
India will continue to be a major FMCG player because of reasons like abundance of raw material, labour costs and an effective value chain. The climatic conditions across India is varied which gives it a huge raw material base for food processing industries. It is coming up as major coffee market. For a long time it has been the largest producer of milk, spices cashew and livestock. The production of caustic soda and soda ash also gives it a local advantage, since they are the basic ingredients in soaps and detergents. d etergents. India¶s FMCG Market Size (In USD Billion)
Sources: Naukri Hub, IBEF, Chennai Online
Competition:
Significant presence of unorganized sector ±Factors that enable small, unorganized players with local presence to flourish include the following: 1. Basic technology for most products is fairly simple and easily ava ilable. 2. The small scale sector in India enjoys exempt ion/lower rates of excise duty, sales tax etc. This makes the more price competitive co mpetitive vis-à-vis the organized sector. 3. A highly scattered market and poorly poo rly transport infrastructure infrastructure limits the ability of MNCs and national players to reach out o ut to remote rural areas and small towns. 4. Low brand awareness enables local players to market their spurious look-alike look-alike brands. 5. Lower overheads due to limited limited geography, geo graphy, family management, focused product pro duct lines and minimal expenditure on marketing. 12
POLICIES: India has enacted policies aimed at attaining international competitiveness through lifting of the quantitative restrictions, reduced excise duties, automatic foreign investment and food laws resulting in an environment that fosters growth. 100 per cent export oriented units can be set up by government approval appro val and use of foreign brand names is now freely permitted.
Food laws:
Consumer protection against adulterated food has been brought to the fore by "The Prevention of Food Adulteration Act (PFA), 1954", which applies to domestic and imported food commodities, encompassing food colour and preservatives, pesticide residues, packaging, labeling and regulation of sales.
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KEY PLAYERS IN THE INDIAN FMCG INDUSTRY IN INDIA:
Name
Of Company 1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco Company) 3. Nestlé India 4. GCMMF (AMUL) 5. Dabur India Ltd 6. Asian Paints (India) Cadbury India 7. Britannia Industries Ltd. 8. 9. Procter & Gamble Hygiene and Health Hea lth Care 10. Marico Industries Ltd.
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CHAPTER 2
HISTORY OF TEA: Little did Chinese Emperor Shen Nung realize that in 2737 B.C., when dried leaves blew into his cup of hot water, the beverage he discovered would cause sensations around the world. During this time, water was always boiled for hygienic reasons. The pleasant aroma and refreshing taste enchanted him and soon everyone in the realm was drinking tea. Japan was introduced to tea by Yensei, a returning Buddhist priest residing in China at the time of the discovery. Tea was immediately embraced by Japanese society and resulted in the creation of the intricate Japanese Tea Ceremony, elevating tea to an art form. Tea continued to travel throughout the Orient and it was during the time of the European explorers tea made its cultural broad jump. The East India Tea Company brought tea into Holland but its prohibitive cost of $100 per pound kept tea as a rich man's beverage until so much was imported that tea prices fell and was sold in small food shops. In 1650, Peter Stuyvesant brought tea to the American colonists in New Amsterdam, later called New York. Soon the t he colonists were drinking more tea than all England. In England, tea gardens, ornate outdoor events with fancy food and tea, fireworks and gambling, seemed to sprout up overnight as entertainment centers of the day and many British enjoyed the festivities offered there. Russia discovered tea when ornate chests of the dried leaves were sent to Czar Alexis by the Chinese Embassy in Moscow in 1618. It became Russian custom to sip heavily sweetened tea from a glass in a silver holder. Russians also enjoyed honey or strawberry jam stirred into tea as their ethnic contribution. Even today, vodka and tea are the national beverages of Russia. To recover extensive expenses from the French and Indian War, England levied a huge tax on tea imported to the colonies, mistakenly believing the colonists were so hooked on it they'd pay 15
anything to keep their supply coming in. One night the men of Boston dressed as Indians, reminiscent of the French and Indian War stole aboard the ships docked in the Boston harbor and threw the expensive tea cargo overboard and into the harbor. England reacted by having a raging fit, closing Boston's port and sending Royal troops into occupation of Boston. Because of this, colonists met to discuss these events and declared dec lared a revolution. At one point, England even gave The John Company the power to not only import tea but to coin its own money, make peace, declare war and other ot her privileges previously previously only held by countries. In the 1880's, America came to the forefront as the biggest importer of tea due to faster clipper ships and the ability to pay p ay its debts in gold. A tea plantation owner introduced iced tea to the St. Louis World's Fair in 1904. It was an extremely warm day and his hot tea booth was being passed up by the crowds in favor of cold drinks. As desperate measure, since he was out time and money for even coming to the Fair, he added ice to the vats of liquid hot tea and in the process made it one of the highlights of the 1904 World's Fair. The tea bag came along as a surprise. Samples of tea at the turn of the twentieth century were given out in small silk bags and instead of opening the bags, the tea bag in its entirety was being dropped into hot water by consumers. Quickly, a tea company sprang into action and patented the tea bag. Thomas J. Lipton was responsible for designing a four-sided tea he dubbed the 'flothru' tea bag, which allowed tea to steep more quickly in the cup than the customary two-sided bag. Today tea is grown on tea estates and 70% of the tea we drink is grown in Sri Lanka, India, Indonesia, Kenya, Argentina and China. The best climates for growing tea are those that are tropical or semi-tropical and tea can be gro wn on soil that is not fit for growing much of anything else. Today there are three basic types of tea: black, oolong and green and from these three types spring over 3,000 cultivated varieties. The leaves are picked at just the right moment designated by the tea estate manager, then crushed to start the oxidation ox idation process.
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GLOBAL TEA INDUSTRY: The global tea industry is largely dominated by India ± the second largest producer and the largest consumer of tea. India is succeeded China and followed by Kenya Sri Lanka, Vietnam and Indonesia in the production pro duction hierarchy of countries. The tea industry is peculiar, the soil characteristics, the climate and the rainfall determine the character of the tea and its taste. Tea affects the taste buds; therefore, it is difficult to replace a particular variety with a substitute. This explains why certain types are favored by certain countries: for example, the CIS (commonwealth of independent states i.e. Russia) countries co untries favor Indian and Sri Lankan teas. UK and Pakistan favour Kenyan teas. India accounts for 26 per cent of world's production. While Sri Lanka, Kenya and Indonesia are the other leading producers; their combined production is lower than that of India. What makes India an interesting object of study is that its size is no millstone around its neck; its production growth between 1996 and 1998 at 5.63 per cent was way ahead of the increase in world production of one per cent only. In 2008, world tea production reached over 4.73 million tones. Producing 1.16 billion kilos (2.56 billion pounds) of tea per year, China is the number one source for tea on the planet. At 980 million million kilos k ilos (2.16 billion pounds), India stands at number t wo. Kenya and Sri Lanka follow. When it comes to exports, China ships out 297 million kilos (654.78 million pounds) of all types of tea whereas India, with primarily pr imarily black tea, moves 203 million million kil k ilos os (429.9 (429. 9 million million pounds). po unds). This ranking is fairly recent. Prior to the 1960s, India was the top producer and exporter. For example, in 1955, India shipped out 165 million kilos (363.77 million pounds) of her total production of 301 million kilos (663.59 million pounds). The fierce rivalry with Sri Lanka saw the two jockeying back and forth for top exporter position from the 1960s through the ¶80s. But in 1991, Sri Lanka surpassed India for good with 211 million kilos (465.12 million million pounds). po unds).
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China caught up in 1993 with 201 million kilos (443.13 million pounds) to India¶s 175 (385.81 million pounds). Kenya¶s exports exceeded India¶s that same year with 188 million kilos (414.47 million pounds). For total production, India has taken second place to China since 2006. (All figures come from respective countries' tea boards.) So, while other sources are ever more aggressive in their outputs, India seems to be lagging. It is no surprise that China has made fast gains on the rest of the pack, given the increases the country has made in its other industries. But why is this happening in tea, specifically? What is the fundamental reason, if there is one, for India¶s slip in tea supremacy? In my presentation and during the lively question-and-answer that followed, I offered a few ideas that seemed to catch the audience¶s attention. The follow table shows the amount a mount of tea production (in tones) by leading co untries in recent years. Data is generated by the Food and Agriculture Organization (FAO) of the United Nations
as of January 2010. Country
2006
2007
2008
China
1,047,345
1,183,002
1,257,384
India
928,000
949,220
805,180
Kenya
310,580
369,600
345,800
Sri Lanka
310,800
305,220
318,4 70
Turkey
201,866
206,160
1,100,257
Vietnam
151,000
164,000
174,900
Indonesia
146,858
150,224
150,851
Japan
91,800
94,100
94,100
Argentina
72,129
76,000
76,000
Iran
59,180
60,000
60,000
Bangladesh
58,000
58,500
59,000
Malawi
45,009
46,000
46,000
Uganda
34,334
44,923
42,808
Other countries
189,551
193,782
205,2 11
Total
3,646,452
3,887,308
4,735,961
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TYPES OF TEAS: All true tea comes from the Camellia sinensis plant. But the different types of tea stem from the processing. Main varieties: Black, Oolong, Green, White, Loo se teas and Tea Bags.
dur ing Black teas are oxidized and fermented during processing, to give them their distinctive flavors¶. Black tea has a full, rich taste.This taste.Th is particular variety of black tea is called Keemun
Oolong Tea is tea that falls between a black and a green tea. It only undergoes a small amount of fermentation during processing. The variety of oolong oo long tea in this photo is infused with jasmine
Green teas have undergone less processing than black teas, and have a much lighter flavour. The health benefits of green tea are seemingly endless. Since the leaves are not fermented, the taste is pleasantly fresh and herbal.
Tea comes from the Camellia sinensis plant. But the leaves are picked and harvested before the leaves open fully, when the buds are still covered by fine white hair. Hence the name. White tea is scarcer than the other traditional teas, and quite a bit more expensive. This variety of white tea is called Silver S ilver Needle White
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teas are typically whole leaves or at least large pieces of leaves Loose
A tea bag is a small, porous paper, silk or plastic sealed bag containing tea leaves for brewing tea
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INDIA TEA HISTORY:
Tea is an agro-based commodity and is subjected to vagaries of nature. Despite adverse agro climatic condition experienced in tea growing areas in many years, Indian Tea Plantation Industry is able to maintain substantial growth in relation to volume of Indian tea production during the last one decade.
Tea is an essential item of domestic consumption and is the major beverage in India. Tea is also considered as the cheapest beverage amongst the beverages available in India. Tea Industry provides gainful direct employment to more than a million workers mainly drawn from the backward and socially weaker section of the society. It is also a substantial foreign exchange earner and provides sizeable amount of revenue to the State and Central Exchequer. The total turnover of the Indian tea industry is in the vicinity of Rs.9000 Crs. Presently, Indian tea industry is having (as on 18.12.2009 ) 1692 registered Tea Manufacturers, 2200 registered Tea Exporters, 5848 number of registered tea buyers, Nine tea Auction Auct ion centers. The tea industry in India is about 172 years old. It occupies an important place and plays a very useful part in the national economy. Robert Bruce in 1823 discovered tea plants growing wild in upper Brahmaputra Valley. In 1838 the first Indian tea from Assam was sent to United Kingdom for public sale. Thereafter, it was extended to other parts of the country between 50's and 60's of the last century. However, owing to certain specific soil and climatic requirements its cultivation was confined to only certain parts of the country.
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Market Growth Rates
1990-91 - 1996-97
1.30%
1996-97 - 2001-02
2.70%
2001-02
- 2006-07
2.20%
2004-05
- 2009-10
1.80%
2009-10
- 2014-15
2.00%
MARKET GROWTH RATE
Market Growth Rate(India) 3.00%
2.50%
2.00%
1.50% 1.00% 0.50% 0.00%
Series1
1990-91 1990-91 - 1996199697
1996-97 - 200102
1.30%
2.70%
2001-02
- 200607
2.20%
2004-05
- 200910
1.80%
2009-10
- 2014-
15 2.00%
As can be seen from the above graph the market growth rate has been hovering around the 2% mark since the mid 90¶s.
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Major Tea Growing Regions:
Tea plantations in India are mainly located in rural hills and backward areas of North-eastern and Southern States. Major tea growing areas of the country are concentrated in Assam, West Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim, Nagaland, Meghalaya, Mizoram, Bihar B ihar and Orissa.
Unlike most other tea producing and exporting countries, India has dual manufacturing base. India produces both CTC (Crush, Tear, Curl) and Orthodox teas in addition to green tea. The weightage lies with the former due to domestic consumer¶s preference. Orthodox tea production is balanced basically with the export demand. Production of green tea in India is small. The competitors to India in tea export are Sri Lanka, Kenya, China, Indonesia Indo nesia and Vietnam.
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Consumption Trends:
There has been a dramatic tilt in tea consumption in favor of domestic market since fifties. While at the time of Independence only 79 M.Kgs or about 31% of total production of 255 M.Kgs of tea was retained for internal consumption, in 2009 as much as 812 M.Kgs or about 82% of total production of 991 M.Kgs of tea went for domestic consumption. Such a massive increase in domestic consumption has been due to increase in population, greater urbanization, increase in income and standard of living etc. Indian tea export has been an important foreign exchange earner for the country. There was an a n inherent growth in export earnings from tea o ver the years. Till 70s¶, UK was the major buyer of Indian tea Since 80s¶ USSR became the largest buyer of Indian tea due to existence of the trade agreement between India and erstwhile USSR. USSR happened to be the major buyer of Indian tea accounting for more than 50% of the total Indian export till 1991. However, with the disintegration of USSR and abolition of Central Buying Mechanism, Indian tea exports suffered a setback from 1992-93. However, Indian Tea exports to Russia/CIS countries recovered from the setback since 1993 under Rupee Debt Repayment Route facilities as also due to long term agreement on tea entered into between Russia and India. Depressed scenario again started since 2001 due to change in consumption pattern, i.e. switch over from CTC to Orthodox as per consumer preference and thus India has lost the Russian market. Another reason for decline in export of Indian tea to Russia is offering of teas at lower prices by China, South So uth Asian countries like Indonesia and Vietnam. Global competition:
The major competitive countries in tea in the world are Sri Lanka, Kenya, China and Indonesia. China is the major producer of green tea while Sri Lanka and Indonesia are producing mainly orthodox varieties of tea. Kenya is basically a CTC tea producing country. While India is facing competition from Sri Lanka and Indonesia with regard to export of orthodox teas and from China with regard to green tea export, it is facing competition from Kenya and from other African countries in exporting CTC teas.
Because of absence of large domestic base and due to comparatively small range of exportable items, Sri Lanka and Kenya have an edge over India to offload their teas in any international 24
markets. This is one of the reasons of higher volume of export by Sri Lanka and Kenya compared to India. Another important point is that, U.K has substantial interest in tea cultivation in Kenya. Most of the sterling companies, after Indianisation due to implementation of FERA Act started tea cultivation in Kenya. So , it makes business sense for U.K. to buy tea from Kenya and Kenya became the largest supplier of tea to U.K.
India's share in world w orld production
2
11
1 8
4
31
4 4
9 9 26
China India Sri Lanka Kenya Turkey Indonesia Vietnam Bangladesh Malawi Uganda Tanzania Others
India is the second largest producer of Tea in the world second only to China who overtook India as the largest producer of o f tea in 2006.
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CHARACTERISTICS CHARACTERISTICS OF THE INDIA TEA INDUSTRY: 1) Productivity and quality : The art of plucking, fine-tuned over o ver the last 200 years, requires two fresh leaves and a bud to be plucked manually. Tea productivity can be measured as per unit of labor (man year) and per unit of land (hectare). Mechanized plucking (when labor is in short supply or expensive) enhances productivity, but with compromise co mpromise on quality, as coarse leaves also get plucked. When tea is in short supply supp ly,, some so me producers increase productivity by allowing plucking of coarse leaves with fresh ones. When premium for quality rises, producers improve the quality by compromising on productivity. The productivi pro ductivity ty also a lso depends on the age of tea bushes, genetic material, irrigation, fertilizer, cultivation techniques, etc. Replantation (typically 2% of crop pa) to replace rep lace old bushes is done to improve productivity. productivity.
2) Labor intensity :
This industry is very labor intensive. Labor cost is generally fixed and therefore lower production would result in higher unit co st of production. The proportion of variable elements in labor cost depends on labor legislation and extent of casual and temporary workers employed. If the production suffers on account of bad weather or pests, the per unit cost of production goes up significantly . 3) Long gestation:
Tea bushes mature for commercial exploitation in 5-7 years and remain productive for an average 50 to 60 years. Major part of capital expenditure expend iture is to be incurred in first five years, which then yields return over the next 100 years.
4)
Commodity nature:
Tea prices fluctuate widely with demand supply supp ly imbalances. The commodity is perishable and demand is relatively inelastic to price. While demand has a secular growth rate, supply can vary depending on climatic conditions in the major tea growing countries. Unlike other commodities, tea price cycles have no linkage with the general economic cycles, but with agro-climatic conditions. 26
5)
Inconvenient but healthy drink:
Tea is a very inconvenient drink to brew. The tendency to form a creamy layer of caffeine tannin adds to the inconvenience. incon venience. Tea besides having properties pro perties of fatigue amelioration has chemicals, which help in maintaining cholesterol levels and in preventing cancer. However, research work on the subject is not conclusive.
6) Organized industry :
Tea industry is an organized agro industry. This implies that labor laws exists and since the dominant mode of tea trade is through auctions, a large number of o f small producers get fair prices.
7)
Domestic
Competition:
The major share of tea market is dominated by unorganized players. There are about 1000 of tea brands in India, of which 90% of the brands are represented by regional players while the balance of the 10% is is dominated by Tata Tea, Hul, Wag Bakri Bakri Chai, Godrej,Sapat Godrej,Sapat International and others. With the growing shift from loose to branded tea, regional players are now expanding their reach and also getting gett ing premium with their offerings
Special Features of India Tea Industry:
Production dependent of agro-climatic conditions
Same plant and same agro-practices agro -practices give variations in quality in different regions
Product Life is for limited period
Labour intensive
High Cost due to high input cost
No priority for Scientific Cost Management
Huge proportion old tea & Low Productivity
Low investment in Development Programme
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SWOT ANALYSIS OF TEA INDUSTRY OF INDIA: Strength :
Demand for tea has been growing at some 2% per annum and should accelerate further
Technical & Manpower Skill: Due to a huge population base in India Technical & Manpower Skill is available in abundant.
Good Research Support Suppo rt by tea growers has will help industry grow further.
Weaknesses:
Labor intensive industry: The second generation labors are reluctant to join this industry hence it could pose a problem of skilled labour in the near future.
No Effective Cost Management system adopted by companies and other regulatory bodies.
Supply from more efficient players like Kenya, China, Sri lanka
Declining Export of India over the t he years.
Opportunities:
Export Potential if India can increase its production capacity
To make tea more acceptable and fashionable like coffee
To come up with new flavors/formulation of the tea, tea houses etc to popularize the concept of tea in India.
Large untapped rural market for branded tea companies lile Hul and Tata Tea
Threats:
Global competition
Low Cost in some countries like China, Sri S ri Lanka and Kenya.
Import of Tea from other countries. Cost escalation on account of o f increase in the cost of production
28
PORTER'S FIVE FORCES:
Industry Rivalry y
(High):
There are approximately
700
tea companies in India hence there is intense rivalry
amongst them. y
Market is dominated by a large number of unorganized players
y
Industry growth is slow.
y
There are low switching costs.
Bargaining
Power of Buyers
(High):
y
There is a large numbers of buyers purchasing the product
y
The bargaining power of buyers is extremely high as the buyers have many options available.
y
y
Not much product differentiation in terms of taste also a lso low switching cost. Buyers purchase a large proportion of the industry¶s total output
29
Bargaining
Power of Suppliers
(Low)
y
There
o f tea in India. are a large number of produces of
y
There are substitutes like coffee available
y
Supplier¶s product creates low switching cost.
Threat of Substitutes
(Moderate)
y
Substitutes ± Coffee, Cold drinks, juice (young generation ge neration new to tea)
y
Existing consumers are loyal
y
Substitute¶s price may be lower. As there are so many players in the industry a price war is unavoidable.
y
The substitute products quality & performance may be better.
Threat of new Entrants y
(High)
Large untapped rural market for branded tea segment in rural India and Indian tea in global markets
y
Encouraging government policies like food and beverage act.
30
PRESENT MARKET SCENARIO OF INDIAN TEA INDUSTRY:
The tea industry occupies a place of considerable importance in the Indian economy, producing a fourth of the world¶s annual tea output²among them some gardens producing high quality teas - and employing around 1.26 million people at tea plantations and 10 million persons derive their livelihood from tea. In Northeast India alone, the tea industry employs around 900,000 persons on permanent rolls. rolls. With domestic demand at an estimated 825 million kg (MKg) as of 2009, India is one of the largest consumers of tea globally. However, as domestic demand accounts for over 86% of the country¶s tea output and since tea imports are permitted only for re-export, India¶s share of the global tea trade is on the lower side. Nevertheless, exports have a critical role to play in maintaining the demand-supply balance in the domestic market. Although tea is produced in 14 States in India, five of them²Assam and West Bengal in North India, and Tamil Nadu, Kerala and Karnataka in South India account for over 98% of India¶s tea production. Within that, North India alone accounts for around
75%
of India¶s total tea production, of which 85-90% is
consumed in the domestic market. The balance, much of it of high quality, is exported. Tea is among the most labour-intensive of all plantation crops. On an average, around 65% of the cost of production is incurred on labour. The recent buoyancy in tea prices, which started from 2006, has come as a relief for bulk tea players, who have had to cope with depressed prices for almost a decade since 1999. Tea prices, after reaching a peak in 1998, went into a steady decline thereafter, with average domestic prices dwindling from around Rs. 76.43 per kg in 1998 to a low of around Rs. 58.05 per kg in 2005 (Refer Chart for trend trend in tea prices prices over the period 1998-2008). Although global tea prices also declined 1999 onwards, driven primarily by oversupply, the decline in average prices was sharper and of a longer duration for Indian teas vis-à-vis the teas from Kenya and Sri Lanka, India¶s two main rivals in the exports market. This was on account of a number of factors: lack of marketing initiative by the Indian players to look for export markets beyond the CIS1 countries; proliferation of small growers and bought-out leaf factories (which led to a decline in the quality of tea produced), and failure to check spurious varieties of tea from being traded as premium tea (which affected the image of Indian teas in the export market); higher cost of 31
production of tea in India (as compared with that in Sri Lanka and Kenya) on account of the higher social costs here; and existence of certain non-tariff barriers like residual-pesticide (in tea) specifications imposed by a number of importing countries. All these factors led to the loss of key export markets, which in turn increased supplies in the domestic market, thereby bringing a downward pressure on prices. This apart, tea prices also came to be affected by the quality factor, which came into play during the early part of the current decade when the delay of re plantation activities in the latter half of the 1990s began to tell on quality and hence on prices. Most players had deferred re-plantation during the latter half of the 1990s to cash in on the buoyancy in tea prices during 1997-98, but when the sharp price decline happened subsequently, their financial position got so weakened that they were unable to make the required investments in their tea estates. Trend in Domestic Tea Prices
Source: ICRA research
Increasing domestic consumption, and exports to an extent, behind current buoyancy in prices
The gradual depletion in pipeline stock since 2003, following a secular increase in domestic consumption on the one hand and muted increase in production on the other, has been the main
32
factor supporting the increase in tea prices from 2006 onwards. According to ICRA¶s estimates, while the average growth in production during the period 2003-08 was just 2.0% or so, domestic consumption would have increased annually at around 3.5% during the same period. The steady increase in domestic demand, range-bound export volumes and low growth in production absorbed the pipeline stock over the years and left virtually no carry-forward stock at the end of the 2008 season. Chart presents the trend in India¶s production, consumption and export of tea over the period 2003-08. Trend in Indias Production, Consumption and Exports of Tea
Source: ICRA research
Climatic conditions taking there toll on Tea Industry
Unfavorable weather conditions for tea plantations coupled with global slowdown have badly affected tea exports of Assam. Statistics say that India, the seco nd-largest tea producer in the world experienced a slump by 25 per cent in January 2009. The tea industry is going through a rough patch for last last three years due to rain deficiency¶s a result. This along with several o ther problems is the major reason why the Indian Tea industry is growing at a snail¶s place. Let us have a look at the various problems faced by the Industry in India.
33
INDIA Vs OTHER TOP TEA PRODUCING COUNTRIES:
Major tea exporting countries of the world are Kenya, Sri Lanka, China, India and Indonesia. However, prior to evaluation of export performance of major tea exporting countries of the world, it is necessary to analyze the production and domestic demand of tea in these countries. On the production front India is the second major producer of the tea in the world .Other major producing countries include China, Sri Lanka, Kenya and Indonesia. During 1951-60, India was producing around 40 percent of world production, declined to 26 per cent in 2008.The declining trend can be observed in case of Sri Lanka as well. Only China and Kenya are able to increase their share in world production considerably. The share of China and Kenya during 1951-60 was 13.59 per cent and 2.67 per cent respectively, increased to 31 per cent and 9 per cent in 2008.In recent years China emerged as major tea producer in the world. Fig-1 shows, during 2004 and 2005, China became number one tea producer in the world pushing India into number two position. India had doubted China¶s emergence as a top raking producer, citing limitations in field level statistics and under reporting of the tea production in India. Tea board of India was then engaged in revising the production.
Since 1985, even though China¶s area under tea cultivation is lower than earlier period due to improvement in yield, production increased by 3.28 per cent per annum during 1984-94, further increased by 4.13 per cent per annum during 1995-05.In India production increased by 1.83 per cent per annum and 1.07 per cent per annum respectively during the same period. In Kenya, production increased by 5.53 per cent per annum and 3.12 per cent per annum respectively during the same period. Production in Sri Lanka and Indonesia also increased during this period with improvement in supply conditions in Kenya, China and Indonesia, India¶s share in world production declined even though tho ugh its total production increased.
Domestic consumption is calculated by deducting export from production. In case of India, there is continuous increase in share of domestic do mestic consumption in production, it increased from 32.06 per cent during 1951-60 to 66.92 per cent in 1981-90, further increased to
78.26
per cent in
2001-04. We can observe o bserve that, whatever additional production is taking place, it is almost almost
34
entirely consumed internally leaving export surplus to remain stagnant and sometimes export even shows declining trend. In contrast, Kenya¶s domestic consumption share in production is very low and declined over a period of time shows that except for a few years, the increase in production of tea in Kenya is almost entirely used for export
In Sri Lanka, domesti do mesticc consumption in production pro duction is very low and is declining. dec lining. In 2001-04, around 94 per p er cent of tea production in Sri Sr i Lanka is used for export. In recent years, tea t ea export and production are almost same in Sri Lanka .In china, share of export in production of tea increased over a period of time. From Fig .1 one can observe that in China, production, export and consumption shown increasing trend. In Indonesia, share of consumption in production increased, but it is lower than India.
Major Tea Exporting Countries Country
2003
2004
2005
2006
2007
2008
Kenya
269.3
332.5
348.3
312.2
343.7
383.4
11.55
23.3
Sri Lanka
290.6
290.6
298.8
314.9
294.3
298.8
1.53
18.2
China
260
280.2
286.6
286.6
289.4
296.9
2.59
18
India
173.7
197.6
199.1
218.7
178.8
196
9.62
11.9
Vietnam
60.3
99.4
87.9
105.1
110.9
115
3.7
7
Indonesia
88.2
98.6
102.3
95.3
83.7
95
13.5
6
Argentina
58.2
66.4
66.4
70.7
74.2
75.5
1.75
4.6
Uganda
34.1
29.7
33.1
32.7
43.6
42.4
-2.75
2.6
Malawi
42
46.6
43
42
46.6
40.1
-13.95
2.4
Tanzania
20.4
24.2
22.5
24.1
29.1
24.8
-14.78
1.5
Bangladesh
12.2
13.4
9
4.8
10.6
8.4
-20.75
0.5
Zimbabwe
17.1
14.9
8.5
11.4
7.6
5.5
-27.63
0.3
Sub-Total
1326.1
1494.1
1505.5
1518.5
1512.5
1581.8
4.58
96.1
Others
72.2
68.7
64.6
62.5
62.5
64.4
3.06
3.9
World
1398.3
1562.8
1570.1
1581
1575
1646.2
4.52
100
Source: Global Tea Brokers
% Change
Share
Fig.2
35
India¶s share in world exports % share in world exports
0.003
2
2
2
1
3.997
23
5
6 7 18
12 18
Kenya Sri Lanka China India Vietnam Indonesia Argentina Malawi Uganda Tanzania Bangladesh Zimbabwe Others
Over the years India has been slipping on productivity and quality parameters. Industry is sensitive to productivity and quality which matters most for the survival of tea companies. Evident that during 2000-2002, although total land under cultivation improved marginally by 2.5 percent, tea production actually dropped by 1.3 percent due to ageing life of plantations. Even, yield showed a sharp drop dro p of 3.9 percent from 1679 Kg/Hectare to 1614 Kg/Hectare.
36
Reasons for decline in exports:
1) Fall of Soviet Union, main trading partner of India. Tea exports have come down by 70
percent from 44 Mn/Kg in 2000 to 12.5 Mn/Kg in 2003.
2) Exports to trading ally Iraq, Iran and Afghanistan was affected during the same period due to
tension and war in middle-east. Exports came down by roughly 70 percent between 2000 and 2003.
3) Quality has always been the biggest consideration in tea exports. Other emerging countries
like Sri Lanka and Kenya are scoring high due to modern methods of production and branding. Whereas, India is on continuous slippage in terms of quality and branding thereby giving away its share of exports.
4) Concern over quality has resulted in exports of high margins value added tea (Tea Bags and
Branded Tea) come down from 45 percent of total tea exports in 1999 to 33 percent in 2003 (value terms). In volume terms, came down from 86.8 Mn/Kg in 1999 to 39.8 Mn/Kg in 2003.
Global tea industry has witnessed a paradigm shift with emergence of stronger countries like Sri Lanka and Kenya. These countries captured large shares in global tea exports at the cost of older players like India. Infact, these countries are eating away the premium grade tea export market and value added tea export market on platform of superior quality and aggressive branding. Impact on India is evident from fro m Sri Lanka¶s tea exports which increased from 262.9 Mn/Kg in 1999 to 298.8 Mn / Kg in 2008 whereas India¶s reduced from 191.7 Mn/Kg to 196 Mn/Kg during the same period.
Sri Lanka and Kenya are able to increase their productivity at constant pace which helped it divert higher produce in the export markets. Higher exports were achieved by these economies as a result of persistent efforts towards quality betterment and brand building. This exercise actually helped economies towards driving high margin value-added tea exports.
37
It is witnessed, Indian tea is increasingly been displaced by tea of other Asian and African countries. Trend indicates that although land under cultivation in India has increased at CAGR of 1 percent in last 3 years, yield has actually come down from 1679 Kg/Hectare in 206 to 1614 Kg/Hectare in 2009. Sri Sr i Lanka witnessed a complete reversal to India with yield increasing by 40 Kg/Hectare between 2006 and 2009 with no increase in land under cultivation. Even in Kenya yield increased more than 10 percent or 242 Kg/Hectare in the same time period. Although, India is regarded as µGoliath¶ of tea industry its position is slipping to smaller countries like Sri Lanka and Kenya on quality and productivity parameters.
Middle-east countries like Iran, Iraq, Afghanistan and UAE were India¶s main trading ally and contributed 35 percent (volume-based) (vo lume-based) of total Indian tea exports. But, 9/11 terrori t errorist st attacks and war in Afghanistan and Iraq led to sharp decline in tea exports to these t hese nations.
38
AREAS OF CONCERN: Despite India¶s historical success with the tea industry, in recent years, the industry has faced serious competition in the international and national nationa l market which has lead to the present crisis. crisis. Many factors have been cited as causing the crisis in the Indian tea sector±since the late 1990¶s. Analysts agree that the dramatic fall in prices is one of the most significant causes of the crisis. The worst affected are plantation workers and small growers; many estates failed to withstand the downward slide of price and hence moved moved out of business leading leading to the closure of tea estates that employ thousands of workers and of factories (BLF) to which small growers might sell their products. Tea prices in India are being driven down by many factors: a) Decline in demand for Indian tea in the global market b) Defects in auction system c) Poor price realization d) Defective market structure e) Increase in cost of production
a)
Decline
in demand for Indian tea tea in the global market:
The decade of 90¶s has been quite depressing for the Tea Industry in India. The major cause of depression in the industry was the decline in the international demand of Indian tea.
The
traditional markets of Indian tea like USSR and UK have drastically reduced the import of tea from India. Changed global situations like disintegration of USSR, WTO agreement, globalization of markets across the nations, etc. have proved to be adverse to India. In the year 2004, India lost its its eminent position of the largest producer of tea to China. China. Kenya has alread already y taken over Sri Lanka in export pushing India to third position (Table 1). There is a fierce competition abroad. Indian tea has lost its competitive advantage to other countries on account of high cost and poor quality. quality. However, one new development, development, i.e., India becoming becoming the largest consumer of tea next to UK, has provided a lifeline to the tea t ea industry. While tea production of
39
India grew by about 250 percent since 1947 but the rate of growth of export remained insignificant .It appears that, India grows tea mainly for Indians. However, the exports of all other leading tea exporting countries have grown rapidly over the same period. The fact remains that whatever the size of the domestic demand, there is still sizeable surplus amounting between 180 and 200 million million kg that needs to be sold. so ld.
(b) (b) Defects in auction system: India¶s tea market is facing yet another paradox which could be explained in terms of glaring gulf between the price charged by dealers and retailers. A report for the International Labour Organization (ILO) notes that the large tea companies are benefiting from fall in auction prices and rise in retail prices for tea. This widening gap between consumer and auction prices is cutting into the margins realized by the tea producers but is not being passed on to the consumer in the form of lowered tea prices. Similarly a report by the Government of Assam found it ³unfathomable that the retail price of tea has not come down with the fall of auction price. Certainly, the margins of intermediaries are far too high. Price paid to plantation and small tea growers has fallen since 1998; retail prices for tea have increased . Average price for medium quality tea sold in Indian market increased from Rs.85-90 per kg in 1999 to Rs.123.05 in 2009. In 2008, a kg k g of tea used to fetch Rs 105.12 of tea and it continues co ntinues to rise. In India, nearly 55 percent of total tea produce is sold through auction houses, with the rest sold through private sales. Even after the abolition of compulsory auction in 2001, the auction houses are very important constituent of tea marketing structure. The important feature of tea auction sale is that the producers/growers do not take part in the selling process directly. The brokers in the market sell tea on behalf of producers. Brokers generally do not accept bid from unknown buyers. The large buying companies use their market power (as they have their own network of sales and marketing all over the country and export tea after blending) to push down price and take the advantage of depressed market to pay low prices; they are clearly benefiting from the current
40
situation. Hindustan Lever, Tata Tea, Wagh Bakri Chai, etc. are such powerful buyers having enormous influence on the market and price of tea in India in general and Assam tea in particular. These big tea companies which are in monopolistic competition in consuming countries always try to stabilize prices. The longer transaction time and higher transaction cost (like warehousing charges, transportation cost, brokerage charges etc.) are some other problems with the auction system. system. It takes about 35 days for the entire transaction processes to complete.
(c) (c) Poor Price realizations The price of tea has been on long term decline while production costs have been rising, putting pressure on tea growers and working condition of laborers. The decline in prices has been primarily due to growth in production in the face of sluggish demand. Low prices for tea are generally passed on to the plantation workers in the form of low wages and withdrawal of basic facilities like food, health, education, etc. given that it is easier to cut cost by reducing labour cost (as the labour has weak bargaining power) than raising the price of tea (difficult in the competitive market economy) and in most of the cases producers have to remain competitive by lowering wages. Major causes of poor poo r price realization are due to following following reason: y
Competition between producing countries for a share of the world market was one of the major causes of falling price of Indian tea. World production of tea is fairly diversified and not concentrated in a particular area. Presently 36 countries of the world produce tea and many of them are big producers. They prevent the establishment of a monopolistic leader in the world tea market to ultimately allow fair and free competition in the market.
y
Demand for tea is rising very slowly (1.5-2 per cent), therefore the only way to increase market share of export by a country is at the expense of o f the competitors.
41
y
Because of the dominance of auction system as a day±to±day intermediary between producers and buyers, the actual producers have been unable to maintain direct contact with the ultimate customer of tea and thereby there by creating a long term relationship.
y
Tea is a perishable product. Its quality and flavor deteriorates very quickly. Therefore it is frequently necessary to cut prices prices to clear stocks.
y
Tea producers have to stay in market despite cut in prices of their produces as they have invested a huge sum of money; many people are dependent on it and lack of alternatives for them.
y
It is forecasted that tea production will increase over next few years, despite a slower growth in demand, a trend that can only undermine price of tea in the long long run. The present decline in prices was on the back of a 0.6 percent annual increase in production during 1984±2008 is estimated at 2.8 percent .
y
There is a major shift in the consumption and thereby composition of demand for tea in the developed (importing) countries which has had unfavorable effect on aggregate export earnings earnings from tea.
The increasing increasing use of tea bags and soluble instant instant tea
effectively reduces the quantity of tea needed per cup and also raise the demand for plain cheaper tea. The tea bags accounts for 10 percent of the volume of world consumption±and it is still increasing. Factors which help to motivate consumption of instant tea include its ease of use as a cold dink and introduction of vending machines. These changes in the consumption patterns of tea have also significantly contributed to the decline in tea prices.
(d) (d) Defective market structure: The tea value chain comprises all the stages from green leaf production from the bushes to finished product and sale to the customers. Value is added to the tea leaves at each stages of the supply chain, each with associated cost. This includes the cost of plucking and sorting, factory 42
packing, internal transportation, ware housing, sales changes (auction or direct sale), freight, insurance, interest, blending, blending, packaging and retailers retailers sales cost etc. In general most of the agricultural produces, value addition is done at the downstream in the higher processing and retail stages of supply chain±this is also true with tea. While tea is ready to drink item, the downstream stages such as blending, packing and ultimate marketing are the most profitable one. This part of the value chain is controlled by a handful multinational tea packers and brokers. Concentration is extremely high in the downstream of tea supply chain where 90 percent of western tea trade is controlled by
7
(seven) MNC¶s, 85 percent of world production is sold by
these MNC¶s. As a result, these MNCs can considerably influence world retail price. These are the indications that big companies have been influential in keeping world market price low, which affect the sustainability of tea industry.
(e) (e) Increase in cost of production: While market prices for tea have been falling, the cost of production has been on the rise in India, putting downward pressure on pro fitability fitability and income. One factor which is closely related to the cost of production is, of course, productivity in terms of volume per hectare which is affected by change in climate, soil fertility, age of the tea bush, high over-head cost, poor agricultural practices etc. The stagnation in productivity in many big estates is compounded by high land labour ratio. Productivity declined in India from 1996 to 2008 in the large garden. Labour cost accounts for around 60% of the unit cost of production and approximately 55 to 75 percent of that labour cost is on plucking. High fuel cost, dilapidated infrastructure including transportation and unstable law and order situation in and around garden area etc. result in high cost of production. Field and factory workers¶ productivity is also considered low in India. The impact of social cost (health, food, housing, water etc.) in the large estates in percentage terms works out to about 5-8 percent of the total costs. It implies an additional Rs.4.12 per kilo for manufactured tea in NE Region of India and Rs. 3.44 per kilo in South India. Therefore it is assumed that around 80 percent of the cost of production goes towards fixed expenses like fuel, 43
power and labour .Inflationary pressures are now pushing up these fixed costs further. Labour unrest is another major problem faced by planter/estates. Looking into the profitability of the industry at the current price, does not provide the way to meet these costs. Rising costs and low productivity can have negative consequences on social and environmental aspects of production (sustainability (sustainability problem), pro blem), if these costs cannot be passed on to the ultimate buyer. Table 1:
Name
of Country
MAJOR COUNTRY WISE EXPORTS OF TEA FROM INDIA
2006-2007 Qty Value
2007-2008 Qty Value Value
2008-2009 Qty Value
(M.Kgs.)
(Rs.Crs)
(M.Kgs.)
(Rs.Crs)
(M.Kgs.)
(Rs.Crs)
Russia
39.36
322.21
42.02
355.29
36.75
392.65
Kazakhstan
9.69
104.67
9.57
96.92
9.76
131.49
Ukraine
1.15
8.75
1.54
11.49
1.58
15.31
Uzbekistan
0. 22
1.65
0.03
0.33
0.06
0.71
Other CIS
0.21
3.06
0.27
5.6
0.55
8.5
Total CIS
50.63
440.34
53.43
469.63
48.7
548.66
UK
22.86
214.09
17.88
165.43
18.64
212.64
Netherlands
3.12
48
2.73
45.43
2.53
57.19
Germany
4.51
89.02
5.83
96.53
4.28
90.79
Ireland
2.37
46.73
2.01
36.85
1.49
33.58
Poland
3.94
35
4.4
35.97
2.99
38.33
U.S.A.
8.76
138.99
9.55
132.42
8.89
153.4
Canada
0.92
12.5
1.04
12.81
1.7
30.71
U.A.E.
22.77
231.22
24.55
243.75
21.66
275.85
Iran
9.91
105.79
13.14
145.7
13.92
196.22
Iraq
34.92
180.76
2.54
13.38
6.61
80.17
Saudi Arabia
1.1 2
11.04
1.56
13.64
3.11
35.93
A.R.E.
3.4
25.32
5.14
33.17
12.73
99.1
Turkey
0.2
1.27
0.14
1.13
0.08
1.05
Afghanistan
9. 44
51.76
8.26
43.15
12.81
92.91
Singapore
0.47
7.22
0.41
6.91
0.3
7.03
Sri Lanka
3.08
29.14
3.93
32.48
4.37
48.28
Kenya
8.37
46.45
3.26
15.51
1.84
11.52
Japan
2.6
61.83
2.4
49.23
2.78
69.52
Pakistan
1 4.06
90.67
5.48
28.51
7.91
60.38
Australia
4.49
89.05
4.87
95.63
4.86
114.55
Other Countries
6. 21
89.53
6.2
92.85
8.44
123.98
2045.72
178.75
1810.11
190.64
2381.79
TOTAL
218.15
Source : Tea Board of India 44
RECOMMENDATIONS RECOMMENDATIONS FOR IMPROVEMENT: IMPROVEMENT:
y
The fact which emerges from the present crisis is that Indian tea has not been globally competitive. It has concentrated more on building up its large estates what it should do is it should given less attention to processing and improving the quality by proper blending and marketing±for higher price realization of o f their products.
y
Unlike its key competitors, India does not have any powerful brand to support its promotion drive in the international market. To win back the confidence of lost foreign markets, Indian tea producers have to identify the need to revitalize the image of Indian tea in that international international market. A vigorous campaign which which include Indian tea logos and making Indian brands acceptable in those most major markets.
y
Further, an inspection agency should be appointed to keep a quality check on the tea that is exported, and the major thrust should be made to improve quality for the long term sustainability of tea industry of India.
y
There is an urgent need for reducing the unit cost of production through productivity gains, capacity building of small growers, streamlining marketing channels, improving infrastructure, tailoring marketing activities to individual country¶s demand, propagating health benefits of tea and promotion of organic tea using using the tea mark. This is exactly what the domestic tea companies should do for their long term survival.
y
International brands like Liptons, Brooke Bond of HUL and Tetley tea of Tata Tea; and Wagh Bakri Chai etc are the market leaders and have great power in price determination in both both domestic and international market.
This needs needs to be stopped and proper
investigation is needed to curb the wrong practices in the tea market by introducing new laws to regulate the price movements.
45
y
Improvement of supply chain management inside the country and global tea marketing network is absolutely essential to compete with countries such as China and Sri Lanka who are India¶s biggest competi co mpetitors. tors.
y
The tea industry in India has a legacy of corporate farming right from the day of British rule. The current situation situation in the sector has given given ample reason for a rethink rethink on whether corporate farming can really boost boost agriculture. Time has come when tea companies companies should sell out their large estates to farmers for cultivation, for ensuring more competitiveness and make the industry viable. viable. This will reduce production costs also. In return big companies should enter into contract with tea growers by giving them technical and marketing support and all that is needed for backward and forward linkages. Indian farmers have done wonders by ushering in the green revolution and ensuring food security in this country. They will replicate replicate the same in the tea sector also. also.
y
As it is observed, retail price of tea have not declined when prices at the local auction centers have fallen so dramatically since 1990¶s, noting the larger profit by the packers/retailers who who are mostly at the end of the value value chain. The issue here is the role played by these companies in their own plantation, implications of direct purchases by them from other growers and their relationship with brokers at the tea auctions, where price manipulation is widely suspected. These defects at the auction centers should should be investigated and remedial measures like ± bringing more transparency at the auction market; introduction of online auction practices for tea, etc. should be taken which will lead to changes in the structure of tea auctions to limit the manipulation by the big players in the industry.
y
Despite being the largest producer and consumer of tea, the Indian plantation sector lacks appropriate mapping of production and consumption levels. Due to absence of accurate estimates the formulation of long term industry wide action plans have been affected. Hence in order to rectify this an the Tea board of India must set up a committee to keep a check on this issue. 46
y
It has been observed that the actual producer of tea has no direct link with the ultimate consumer. Tea producers sell their products to the bulk purchaser through direct sale or through auction to big buyers. Therefore, the producers do not understand the market demand choice of the customer, it is very important in today¶s market economy for long term sustainability of the industry. With the withdrawal of sales restriction, the growers can directly go to t he market by building their own brand. As t he margin of profit is very high at the present domestic retail market, Indian tea growers should invest and take this opportunity for the promotion of their brand at the retail market and also by reducing the prices of tea and passing p assing on this benefit to the customers.
y
Fresh capital inflow is needed right at this moment for the tea industry of India. Investment in new plantations and production machineries must come immediately to compete in the international market. market. Since tea industry industry has to compete globally, globally, it is necessary that they should have access to global capital capital at competitive competitive rate. This can bring life to the industry and those t hose who live on it, especially workers workers
y
Recognizing the fact that the tea industry¶s crisis in India has multiple causes, which require a variety of solutions±one of the most important steps from the government part shall be to introduce a stronger competition law to curb the misuse of corporate buying power and promote social social objectives at the garden level. level. I believe that focusing focusing on the role of the larger tea companies, which hold a great deal of power in Indian tea market can have a significant influence over conditions for workers on plantations and small growers.
47
CHAPTER 3
TOP 2 PLAYERS IN INDIAN TEA INDUSTRY: TATA TEA: Company Profile:
Tata Tea Limited, also known as Tata-Tetley, is the world's second largest manufacturer and distributor of tea. Tata Tea is the largest vertically integrated tea firm in the world, from its plantation activity through to its packaging and a nd marketing initiatives.
Tata Tea Limited, together with its subsidiaries, engages in processing, producing, marketing, and distributing tea products primarily in India. It also involves in the cultivation and manufacture of black tea and instant tea, tea buying/blending, and sale of tea in bulk or value added form. It offers tea primarily under the t he following brand names:
TATA TEA
Tata Tea Premium
Tata Tea Gold
Tata Tea Agni
Tetley
Kanan Devan
Chakra Gold
48
Tata Tea Limited owns approximately 51 tea estates in the states of Assam, West Bengal, and Kerala in India. It also has operations in Australia, the Middle East, west Asia, North Africa, Poland, Russia, and Kazakhstan. The company was founded in 1964 and is headquartered in Kolkata, India. Set up in 1964 as a joint venture with UK based James Finlay and Company to develop valueadded tea, the Tata Tea Group has now product and brand presence in 40 countries. It is one of India's first multinational companies. The operations of Tata Tea and its subsidiaries focus on branded product offerings in tea, but with a significant presence in plantation activity in India and Sri Lanka. The consolidated worldwide branded tea business of the Tata Tea Group contributes to around 86
per cent profit from branded tea sales while the remaining 14 per cent coming from bulk tea,
coffee and investment income. Tata tea Brand is ranked the second most trusted beverage brand in brand equity.
49
SWOT Analysis Tata Tea: Strengths: trengths :
y
Market
Leader:
With a value share of 22.6% in November, Tata Tea is now the market
leader in the Rs
7,000-crore
branded teas market, having overtaken peer Hindustan
Unilever (HUL) which has a value share s hare of 21.3% (Source: AC Nielsen). N ielsen).
y
Resources & Capabilities: Tata Tea Limited owns approximately 51 tea estates in the
states of Assam, West Bengal, and Kerala in India.. The crop at each of these plantations imbibes the characteristics of the region where it grows. In that respect, tea is much like wine. Having plantations in varied agro-climatic zones enables Tata Tea to cultivate distinct tealeaves.
y
Brand
Name:
Tata tea Brand is ranked the second most trusted beverage brand in brand
equity. The company's best-selling brand is Agni which caters to the mass segment and other brands include Tata Tea Gold, Chakra, Gemini and Kanan Devan.
y
Experience: Tata Tea has been one of the oldest companies in India and has the
advantage of skill and experience on their side.
Weakness:
y
No
product differentiation: One of the major problems Tata Tea faces is the lack of
much product diff d ifferentiation erentiation hence loyalty loyalty of o f consumers is a major area of concern. y
lack of branding branding activitied my the organized palyers amd Branding: Due to lack
low
switching cost of consumers retaining consumers becomes a challenge as they switch over to cheaper brands. y
Distribution Network :
The distribution network of Tata Tea comprises on 1.25 lakh
distributers this is not much when you compare to HUL who have the strongest dealer network in the country.
50
Opportunities:
y
New
Product
Development:
The Company can integrate into fruit & herbal teas. This
segment has not yet been tapped by any of the tea companies yet and this could give Tata tea the first mover¶s advantage if they decide to enter this segment.
y
Rural Market: There is a large untapped rural market which needs to be exploited.
Although Tata Tea has made it s presence felt in the rural markets this sectors is characterized by a large un organized sector and local players rule the rusts of the day in these markets.
y
Export Potential: Tata tea is present in 40 countries around the world. There are a lot
more opportunities it can exploit if they can increase their production capacity to exploit these untapped world markets all a ll over the world.
y
Mergers and Acquisitions: There are more than 1000 tea companies in India. Tata tea
can increase its market share and penetration by acquiring these small companies and also forming mergers with other big MNC¶s like it did for T etley Tea, Good Earth etc
Threats: y
Low
Barriers: There are not too many entry barriers put by policy makers this makes
the Indian Tea market extremely fragmented and unorganized. There are many regional players who hold small chunks of markets. By imposing Entry barriers the existing players will be in a better position position to exploit the existing situation.
y
Globalization: India is opening it s doors to MNC s and with that comes the threat of
globalization of the economy. The small and regional players will face intense competitions from big MNC s.
51
INTERNAL ENVIORNMENT ANALYSIS:
1) Resources :
51 tea estates in states of Assam, West Bengal, Tamil Nadu, Kerela.
Area of 26,500 hectares under tea cultivation.
Produces about 60 million kg of black tea annually.
Subsidiaries & Associated companies
Overseas business
2)
Capabilities
Distribution system.
Strong and trusted management.
Research and development.
Marketing.
3) Core competencies.
Brand name
52
BUSINESS LEVEL STRATEGIES:
Bought leaf factories & co-operatives to change the structure of green leaf production product ion
Identified branded tea as its thrust area
To exit the beverage retailing business to focus on branded products Tata Coffee sold off its stake in Barista, no plans of re-entering the business Introducing drinks like TiON, all over India µJaago Re¶ campaign campaign followed by the 'Aaj 'Aaj Se Khilana Bandh, Pilana Shuru' campaign to target the youth for voting and work against corruption
Focus on brands like Chakra Gold, Gemini and Kanan Devan in regions where they are strong.
MARKETING STRATEGY: In spite of a global presence, the t he brands are distributed differently depending on the t he location. As Tata tea is far better known in India and a powerful po werful brand brand there, it is pushed on this market and countries with a large Indian population. pop ulation. Therefore Tetley is the company's global face and a nd the largest markets focus on the Tetley brand. Where both brands co-exist in one market, Tetley is positioned as the premium brand.
53
PROMOTIONAL STRATEGY: The new campaign ³ J aago e motionally aago Re´ will migrate Tata Tea from being a physically and emotionally revitalizing tea experience to one that will challenge the consumer¶s intellect to ³awaken´ to what is around them. It will motivate motivate people peo ple to internalize the tea experience and externalize e xternalize their social awakening. It is probably the first time time that any brand is taking on the mantle of social responsibility responsibility in such a manner. The campaign ca mpaign will also provide a poignant platform for connection with the youth.´ The campaign in keeping with the magnitude of the strategy also plans to deploy a mega approach to connect with the consumer at all possible touch points. po ints. Television Television will w ill be the lynchpin of the campaign. There will be one main commercial and six short duration commercials. Each of the commercials co mmercials will touch upon one relevant social issue. As part of the campaign Tata Tea brand has also tied up with the Jaago India foundation. The foundation and Tata Tea have launched a website that each month will cover a socially relevant issue. The site will provide all the required information on the issue, will allow allow consumers to interact and provide solutions. To generate interest and create empathy the site will feature four short film on the topic of the month. Other than television and the website the campaign ca mpaign will also use radio, press, shop level visibility and the new outdoor o utdoor medium of malls and multiplexes to drive home the message of Jaago Re. Many of the communication tools being planned at the malls and multiplexes will be used for the first time in the countr y.
54
HINDUSTAN UNILEVER LIMITED: Company Profile:
Unilever owns two of the most widely recognized product lines Lipton and Brooke Bond. The major competition facing Lever at present is from Wagh Bakri Chai Tea, who is truly a market challenger. Lipton comprises of Yellow Label which is designed for upper middle, upper lower and upper middle class, which is a market leader in the industry, it comes in all the packages including hard packs, jars, and teabags. Lipton yellow label although the direct competitor of Brooke Bond Supreme comes in the family of Unilever so it is prone to its competing attacks. Lipton follows a massive promotion scheme to hold its share. Richbru is designed for middle and lower upper classes, and Pearl dust is designed for rural areas, mostly districts of Sindh where consumption of dust is extensive. Brooke Bond comprises co mprises of: of:
Brooke Bond
Supreme
Taj Mahel
3 Roses
Red Label
A1 Karak Tea
55
SWOT Analysis for (HUL): Strength :
y
o f brands in the Most Brand Name: According to Brand Equity, HUL has the largest number of
Trusted Brands List.HUL has a very strong Brand name in the Indian market. Its brands are strength for the company.
y
Strong
Distribution Network :
Hindustan Unilever's distribution covers over 1 million
retails outlets across India directly and its products are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail outlets in India. It has 39 factories in the country. Two out of three Indians use the company¶s products and HUL products have the largest consumer reach being available in over 80 per cent of consumer homes ho mes across India.
y
Unique sizes have been introduced for various segments including teabags, stir ready.
y
w ith technological superiority, e.g. Brooke Bond¶s Product Range : Wider product range with
hot tea can
Weakness: y
y
It is a product being introduced introd uced in an already existing tea market with established brands.
No competitive advantage can be brought in this industry. Only massive advertising and
promotional activities may entice consumer for trial.
y
Brand
Dilution:
Having too many brand extensions can dilute and confuse consumer
perception and give fresh and new competitors to seize market share.
56
Opportunities:
y
Alliance with Pepsi to access massive distribution network. Presence of big, well known partners drives demand further.
y
Declining markets for other beverages such as soft drinks
y
Rural Market: There is a large untapped rural market which needs to be exploited.
Although Tata Tea has made it s presence felt in the rural markets this sectors is characterized by a large un organized sector and local players rule the rusts of the day in these markets.
y
Greater awareness of health benefits of tea.
Threats: y
A rigorous threat is the increasing number of branded and unbranded tea in the market with ample price difference. difference.
For that, established companies need to increase their their
advertising and promotional budget. There is a need to get a better shelf space and more retailer patronization for the company's brand.
y
Unilever presently pays 80% as taxes on imported tea. This rise in import duty on tea by government is intended to discourage it's consumption, which possess to be a threat as it has resulted in higher prices for the co nsumers.
y
Low
Barriers: There are not too many entry barriers put my policy makers this makes
the Indian Tea market extremely fragmented and unorganized. There are many regional players who hold small chunks of markets. By imposing Entry barriers the existing players will be in a better bett er position to exploit the existing situation.
y
Presence of other major players such as Coca-Cola and Nestle leading to tough competition 57
PRESENT STRATEGY:
Ownership :
The owner of the premium Brooke Bond and Lipton tea brands in India, Hindustan Unilever Ltd (HUL), has taken a decisive step towards regaining absolute market leadership from Tata Tea Ltd by entering the so-called so-ca lled economy segment of the market as well. Value Leadership:
HUL already leads the domestic tea market in terms of value and has been narrowing the gap in volume sales, where Tata Tea's economy brand Agni, priced at around Rsl50 per kg, gives it the edge. New Variants:
HUL launched its Brooke Bond Sehatmand tea in Madhya Pradesh, Chhattisgarh and Bihar in late January, using non-governmental organizations among other channels in a low-profile promotional campaign. The new tea, priced at Rs.l70-180 per kg, includes folic acid, calcium and other vitamins as part of its ingredients. HUL expects Brooke Bond Sehatmand to create a new segment in the 850 million tonnes (mt) a year tea industry. Of this, packaged tea accounts for less than 350mt. 350 mt.
58
RECOMMENDATIONS RECOMMENDATIONS TO TOP 2 PLAYERS TO INCREASE MARKET SHARE:
y
Increase number of service outlets : In recent times there have been numerous coffee
shops springing up in Tier A cities like Mumbai, Delhi, Bangalore etc Tea house shpul be set up in a smililar fashion and premium pre mium quality quality tea¶s t ea¶s should be served at these t hese outlets.
y
Strategic alliance: Tie up with their own range of five star hotels to supply premium
quality tea and coffee as also with lower end three star hotel n also local eateries(Udipi joints etc). Tie-up with airlines, rajdhani, shatabdi, caterers etc to promote their tea coffee n also mineral water brands
y
Own Depots: To start own depots of Tata Tea and HUL tea so that they can sell loose tea
thus reducing cost of packing which will also reduce the Vat & additional charges. Thus masses from lower income group would be effectively targeted.
y
Penetration : Deeper penetration in rural markets by using self help wo men groups for
door to door selling. selling.
y
Profit margins for retailers: Increase profit margins for retailers to achieve higher sales
volume as they are the main influencing factors in lower income group people.
y
Promotional activities : More number of ads which are equally effective as middle class
people from towns get influenced by ads to a large extent g) Jago Re campaign.
y
Product Innovation : Enter new market segment with product innovation like tea
flavored ice-creams, tea wine, tea chewing gums etc
y
Flavors: Launching of flavored teas bamboo cups in china bring it to India too.
Launching of more flavors in India (lemon tea, black tea).
59
y
Related
Diversification:
Future strategy of entering children¶s drinks like Complan,
Bournvita, Horlicks.
y
Bundling : Providing a bundle pack like a small tea sachet free with 100 Gms pack of
biscuits.
y
New
Markets: Explore new and untapped markets not only in India but also in different
countries.
y
Branding : The top 2 players i.e. Tata Tea & HUL should focus their attention on proper
branding of their products and should shou ld try to create a brand loyalty among the consumers of their products.
60
BIBLIOGRAPHY Books y
The Marketing white book,2009-2010,Statistics for FMCG sector
y
4 P s ,December issue,2009, Living the ³GLOCAL´ life (Pg.72,73)
References Articles (online): y
y
y
y
Mr. Daipayan Lodh, Motilala Oswal,2008,A Equity Research on FMCG Sector. Mr Gaurav Kumar,2008,An Industrial Analysis Report On Growth & Pro spects Of Tea Industry In India Mr. Shashank.Chauhan ,2008, Benchmarking Of FMCG Industries In India Mr.Muhammed Alee Mansur, 2006, Bangladeshi Tea In The International Market´Problems And Prospects
y
A report by PricewaterhouseCoopers for IBEF, 2004, Fast Moving Consumer Goods.
y
Mr. Sunil Bhat,2008,Managerial Microeconomics FMCG Sector At Crossroads
y
Federation of Chambers of Commerce Co mmerce and Industry(FCCI),2008 FMCG-The Road Ahead
y
India Business Information & Consulting Service,2009, FMCG Sector Report
y
,&5$ Indian Tea Industry: Outlook Positive For The Short To Medium Term
y
Mr.Nirmal. Pandey,2008, Tea Report
y
Mr.Jayanta Roy,2009, Tata Tea Limited
y
Mr.Ritwik.Raje,2009,Tata Tea Limited
y
Dr. V.N. Asopa,2007, Tea Industry of India The Cup That Cheers has Tears
y
Mr. Mandeep Saini,2008,The Integrated Excellence
y
Mr.Ashim Kr. Das, 2009, Sustainability In Tea Industry: Indust ry: An Indian Perspective 61
WEBSITES y
y
http://www1.american.edu/TED/indiatea.htm http://beacononline.wordpress.com/2008/10/23/marketing-problem-faced-by-the-teaindustry/
y
www.gmsworldnet.com/.../vision_2020_reinventing_indian_tea_industry
y
http://www.financialexpress.com/news/tata-tea-hul-war-brews-in-tea-mkt/496631/
y
www.hindustantimes.com
y
http://www.indiatea.org/teascen http://www.indiatea.org/teascenario/teascenario.html ario/teascenario.html (Financial)
y
www.naukrihub.com
y
www.teaboard.gov.in
y
http://www.scribd.com/doc/24393545/FMCG-Project
y
http://www.scribd.com/doc/26195273/Lipton-Yellow-Label-tea-survey
y
www.wikipedia.com
y
teaboard.gov.in/pdf/tea_statistics/Tea_Statistics_1955.pdf
y
http://www.thehindubusinessline.com
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