Tata Global Beverages shifts focus back to India
Ajita Shashidhar January 27, 2015
It was in January 2013 that the Rs 8,159-crore Tata Global Beverages (TGB) moved its base to Mumbai after being headquartered in London for five years. TGB insiders say the Chairman's (then Ratan Tata) office had been mulling over this move ever since Peter Unsworth, CEO of the company, had quit in May 2011.
Unsworth was the head of the world's second-largest tea company, Tetley, when the Tata Group acquired it in February 2000. He was largely responsible for the companys global operations. With his exit, the Chairman's office began to feel that the London base was fast becoming unviable as each of the geographies such as the US, Europe and Africa had a separate business head to oversee the operations. The senior management, says an ex-TGB employee, had to travel to Mumbai every second month for the review meetings and it had become an expensive proposition. But the biggest challenge was to convince R.K. Krishna Kumar (popularly known as KK), Tata's confidant and the then Director of Tata Sons. The chief architect of the $450-million Tetley acquisition, KK had always wanted the company to be based in London. He moved it to the UK in 2008 to make a global mark as a 'good-for-you' beverage company. It was then believed that placing the management team in London would give them a better geographical balance and perspective.
By then TGB had already acquired Good Earth Tea and Eight O'Clock Coffee in the US. It also had a 30 per cent stake in vitaminwater maker Glaceau for $677 million, which it eventually sold to Coca-Cola for a whopping $1.2 billion. The company had also made inroads into the tea and coffee businesses in South Africa, Russia and Poland.
Ajoy Mishra, MD and CEO of TGB, says that to be based in London was becoming less important as the Tetley acquisition had fully consummated and the action was shifting to emerging markets in Asia. On being nudged, he admits that moving back to Mumbai was also to focus better on the India market. "It was significantly driven by the fact that being a Tata group company, at some stage or other we needed to be at the Tata headquarters. But flip that question the other way round and say that now that you are operating from here do you get the sense that India could do with more focus, the answer is yes," he says.In the last 15 years, starting from TGB's (then Tata Tea) acquisition of Tetley, it has grown from a Rs 1,500-crore company to a Rs 8,159-crore entity. The net profit in 2013/14 rose to Rs 522 crore from Rs 473 crore in the previous year. Almost 66 per cent of its revenue comes from global operations. In India, 70 per cent of its revenue is from the tea business; coffee and water businesses contribute 20 per cent and 10 per cent, respectively. In 2012, the company even dislodged Hindustan Unilever to become the leader of India's branded tea market by volume as well as value.
Though a cursory look would make one think that everything was going well with its India tea business, the innovation that was supposed to propel the business to the next level was absent. Mishra agrees that much more needs to be done. And so after anchoring itself in Mumbai, the company announced an ambitious target of becoming a Rs 30,000-crore entity by 2020 and push its India growth with focus on three verticals - tea, coffee and water.Though Tata Coffee no longer sells any branded coffee, it is present in coffee retailing in India through its joint venture with Starbucks. One of the bestsellers in Starbucks across 15 countries in Asia, including India, is the India Estate Blend, a 100 per cent Indian Arabica blend, for which the beans are sourced from Tata's coffee plantations. Avani Saglani Davda, CEO of Tata Starbucks, says in the coming months many more blends will come from its India plantations. "We are building a coffee culture in India. We will soon take India Estate Coffee to the US and other markets," she says. Tata Starbucks already has about 61 stores in India.
Meanwhile, Mishra is upbeat about the prospects of TGB's water business, NourishCo, the 50:50 joint venture with PepsiCo India signed in 2008. The JV markets water brand Himalayan, Tata Water Plus (vitamin fortified water) and Tata Gluco Plus (glucose fortified water). While Himalayan has a pan-India presence, the other two have been rolled out only in Tamil Nadu, Andhra Pradesh and Gujarat. Very soon it will also enter Uttar Pradesh. TGB has also launched a sparkling water variant of Himalayan. In the next two years, Mishra expects 20 per cent of TGB's India revenue to come from its water portfolio.
In the tea business, though a market leader, the category is crying for some innovation. At a time when marketers refresh their brands every two years, there is a five-year gap between its latest launch, Tata Tea Acti Green, its green tea offering, and its re-launch of Tata Tea Gold. The first variant of Tata Tea Gold was launched way back in 2003.
"Tea happened decades ago in India. Then some 30 years ago, came teabags. But after that nothing exciting has happened in this space in India. The onus is on the market leader to create this move," says Harish Bijoor, brand specialist and CEO of Harish Bijoor Consults.
TGB is yet to introduce in India the innovative products like Chai Latte and the round tea bags that it is selling in foreign lands. It also sells steamed green tea in the US and the UK. All this is yet to come to India and that's why Raghu Vishwanath, MD of Vertebrand, a brand valuation company, calls TGB a "conservative" and "risk-averse" company when it comes to India. "Apart from Titan, the Tatas, in general, have not been successful in building B2C brands. They are better performers in B2B segments like power and energy," he says. Vishwanath also points to Tata Motors, which he says, has been very successful in trucks but could not replicate it with passenger cars.
The same seems to be the reason why a large segment of the industry has labelled the NourishCo JV as a failure. While the JV happened in 2008, the water brands are only available in three states, that too when start-ups like Hector Beverages (Paper Boat brand) and Danone Narang (Blue brand) are making huge inroads. "If TGB has the guts to acquire Tetley, what's stopping them from investing in the water business?" asks A. Mahendran, ex-MD of Godrej Consumer, who recently launched his own food company, Global Beverages & Foods.However, Mishra and his team refuse to admit that TGB had in between taken its eyes off India. "We can't de-focus as India is the home base and this is where large parts of our revenue and profits come from," he says. In the tea business, he says, there may not have been many brand launches but the brands are constantly being refreshed. "The green tea launch is making news lately, but if you take our regional brands, Kannan Devan, Chakra Gold and Gemini, year after year we continue to invest in those markets. There are local campaigns in those markets that play up the brand."
Sushant Dash, TBG's Regional President, India, says the company does re-stage its brands almost every three years. "In the last five years, we have re-staged Tata Tea Premium and we have done product innovations. We have talked about badi patti-chhoti patti, which is a mix. We did a re-stage of Tata Tea Gold last year and Kannan Devan six months back in Kerala," he says. TGB, he says, even innovated to suit the tastes of the consumer at a local level when it created a blend called the Danapur blend (with bolder leaves) for the Uttar Pradesh and Bihar markets.
Harish Bhat, ex-MD of TGB and now a member of the Group Executive Council of Tata Sons, points to consumer behaviour to justify the company's less-frequent brand launches. "You may not think twice about having a new ice cream brand or chocolates as they are impulse categories. But a cup of tea is a habit, which once you develop a palate, you want to have it time and again," he says. Mishra says though TGB can easily launch a fancy fruit or herbal tea, India does not have a big enough market for speciality tea. In a market where over 90 per cent of the tea is sold in polypacks, the strategy has been to increase the sale of green tea along with its black tea offerings. "So we have launched loose green tea under the Tata Tea brand. We are democratising green tea in India."
However, he admits that the water business has not grown as fast as they had wanted because of the difficulty in finding the right bottling partners. A 200-ml cup of Tata Gluco Plus is priced at Rs 6 and when they sell a product at such low price points, Mishra says, it becomes unviable to work with large bottlers. "We appoint local bottlers and distribute it but never at a radius more than a certain amount to avoid as transportation costs. The process of appointing a bottler, their certification and so on does take time," he says.
According to Ramesh Chauhan, Chairman of Bisleri, selling flavoured water or any functional water product in India is tough. "It may work in the West as they are used to consuming soft drinks along with their food as the food there is dry," says Chauhan, who eventually launched a premium energy drink called Urza.
To be a Rs 30,000-crore company, TGB, says Mahendran of Global Foods, has to think out of the box or else risk being outwitted by smaller and agile players. Industry experts say the need of the hour is to invest more consciously in brands. But Mishra believes that the only business TGB is into is building brands. "There is no great differentiator between the tea that my competitors are packing and I am packing. The differentiator is the brand and that is what has made us the No.1 brand." Mishra's predecessor, Bhat, is confident about the company's future. "The one big trend that is sweeping the world is the trend of health and wellness and tea, coffee and water are ideally positioned," he says.Of course, TGB could have grown faster in India but the company, Bhat says, believes in being slow and steady. "We have launched Tata Water Plus and Tata Gluco Plus in Tamil Nadu and Andhra Pradesh. We have launched Himalayan in many cities and we would like hit the sweet spot. Once the value proposition does its magic, we would then take it to the rest of the country," he says.