GROUP 24

Sourabh Singhal (PGP-19-146)

TATA Global Beverages Shubham Bagga (PGP-19-143)
Rashi Korjani (PGP-19-126)
and Tea Industry Sucheta Vardhan (PGP-19-148)
an economic analysis Rohit Nuvvula (PGP-19-132)
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Industry Overview

Tea and tea products are a $45 billion industry worldwide. With over 2.9 million tonnes of tea produced
and sold each year makes it the second most preferred drink in the world after water. The global tea
market is project to grow at a CAGR of 4.5% in 2019-24. The tea market is dominated by Black tea,
but maximum growth is coming from increase in sales of Green tea.1
Global Market

Largest
Largest Major Players (by % Market Share)1
Producers (Mn
Markets2
tonnes)2 12 10.6
10
China (2.4) China
8
6
India (1.3) Japan 4 2.3 2.3 1.7 1.7 1.6 1.6
2
Kenya (0.4) USA 0
Unilever Tata Associated Yunnan Teekanne Greenfield Tapal Tea
Sri Lanka Group Global British Taetea Tea GmbH & Tea Ltd (Pvt) Ltd
Russia
(0.35) Beverages Foods Plc Industry Co KG
Ltd Group Co
Vietnam (0.26) India Ltd

Tea Industry at Global level follows a Monopolistic market structure as the HHI comes out to
be 133.84 which is very low. Also, there is high level of Product Differentiation in global
market of tea Industry.

Indian Market

Production, Imports, Exports and Consumption of Tea

(2014 to 2018)3
Year Production Imports Exports Consumption
('000 tonnes) Quantity Value Quantity Value Quantity
'000 tonnes Rs. million '000 tonnes Rs. million '000 tonnes
2014 1,207.30 26.5 3,406.70 228.5 44,230.40 1,005.30
2015 1,208.70 25.8 4,091.00 240.6 45,767.20 993.8
2016 1,267.40 23.9 3,416.30 237.2 47,479.70 1,054.00
2017 1,321.80 26 3,638.10 269.5 53,424.70 1,078.20
2018 1,338.60 22.8 3,326.80 270.2 56,050.30 1,091.20

A $2.1 billion market growing at CAGR of 9% in the period of 2019-2024. Largely dominated by
black tea ($1.7 billion) and green tea ($320 million)1. Indian tea market is dominated by Tata Global
Beverages Ltd. and Hindustan Unilever with over 10 brands. Indian market has seen a constant rise in
tea production, however the value of tea and profits coming out of it has been falling. This happened
due to rising marginal costs which are not accompanied by the corresponding rise in the prices.
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Tata Global Beverages Limited

Tata Global Beverages Ltd. (TGB hereafter) is an international beverage and refreshments company
and the second-largest tea producer in the world with a strong portfolio of brands like Tata Tea, Tetley,
Jemča, Vitax, Eight O’Clock Coffee. Tata tea alone contributes 86% to the consolidated turnover of
TGB. Tata tea controls 53 tea estates with a cumulative area of 26,000 hectares under cultivation4.

HHI index (only major market players):

% Market Share (by value)1
Tata Global = 282+292+7.62+3.12+2.22
Beverages Ltd
Hindustan Unilever =1696
Ltd
Others Wagh Bakri Ltd
26% 29%
Twinings Pvt Ltd
Since the HHI Index for the Indian tea
Amar Tea Pvt Ltd
28%
market is greater than 1500, it can be
Goodricke Group Ltd inferred that the market displays
Oligopolistic characteristics.
Major players in the Indian tea market

Indian market has a few large players who control majority of the market. However, not many entries
and exit barriers exist in the market, the major stakeholders cannot control the price in the market.
Even if the big firms influence the market, there are many substitutes available within the tea industry
and consumers can shift to the other products.
Also, the elasticity of demand of tea is less than 1 but elasticity within India for Tata Global Beverages
is greater than 15. Having elastic demand, the company cannot increase its prices beyond a limit and
must take into effect what other competitors are doing. Here come the strategic decisions based on the
reactions of other firms. Usually, there are times when a strategy is achieved via Nash Equilibrium
matching up with the best strategy of competitors. This might lead to inefficiencies in the market as
the optimal outcome is not achieved, however these inefficiencies can be reduced in a similar way a
monopolistic market structure follows. They diversify their product within the brand. For an instance,
Tata Global Beverages has Tata Tea, Tata Tea Premium, Tea Veda, Gold, Chakra Gold, Agni, Tetley
etc4. This way the companies reduce the inefficiencies and meet the consumer tastes and preferences.

Demand Drivers

 Demographics (Population and its composition): Demand of tea is largely in the age group of
25-39 which have 45% of people having tea as their first beverage preference6. India is growing in
population and due to various governmental policies and initiatives the working-class group is
quite large. Such parameters are crucial and therefore beneficial for TGB and its products.

 Disposable Income: With rising per-capita disposable income in India, the consumers value the
differentiated tea and are willing to buy it. This helps the company to charge appropriate prices for
its varied products and target the segment according to their income levels.
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 Tastes and Preferences: In the constantly changing world, the tastes and preferences of
consumers are also changing every moment. Consumer’s utility gets satisfied very quickly and
they change their preference for something new. Presently, more focus in tea industry is on organic
leaves and strong taste. This way taking the preferences and tastes of consumers, TGB launched
its new brand of Tata Premium which is primarily positioned on tea leaves.

 Availability of Substitutes: With rising substitutes of tea in general and of TGB tea, the demand
can be shifted to other competitors. However, TGB has been able to maintain its position in tea
market substantially well. The substitutes like Taj Mahal, Red label etc are significant but the brand
loyalty has been helping TGB since its inception.

 Price: It is one of the major factors determining the consumer reaction for buying the product. If
TGB increases the price of Tea to a large extent, due to elasticity greater than 1, customer will tend
to shift from TGB to other brands and quantity demanded will reduce.

 Rising Tea Café Culture: India is witnessing a change in perception of drinking tea due to rise in
the number of tea lounges and cafes. TGB started its first tea lounge by the name Tata Cha Café
in 20171. There is a significant rise in the number of consumers visiting tea lounges due to their
differentiated service and ambience.

Y Conclusion: The factors other than Price will

cause an outward or backward shift in demand
curve, while changes in the prices will lead to
movement along the demand curve which might
Price

not affect the overall demand. If the demand

drivers are positive for elastic demand curve of
TGB, the changes in any of the factors would lead
to a change shown in the graph of DD shifting to
DD1
DD DD1. Price rising from P0 to P1. This price rise
might be beneficial for the company in terms of
0 Quantity Demanded X revenue generation with rising demand.

Major Costs associated with Tata Global Beverages and Tea Industry

Fixed Costs Variable Costs

Maintenance of Tea estates Labor Cost (60%)7
Warehouse Crop Care (Pesticides/Irrigation/Chemicals etc.)
Capital Equipment Electricity/Fuel
Seasonal barrier
Distribution costs
Group 24

Challenges to Tata Global Beverages and Tea Industry

Cost: With rising costs, the tea industry in India and worldwide has taken a deep hit. The subsidies on
tea production remain to be low, prices stagnant and constantly rising labor cost which accounts for
60% of total cost in tea plantation7. In the previous year, Assam Government increased the daily wages
of tea planters by a huge margin ranging from ₹30-1678. This also led to a proportionate increase in
pensions, provident fund etc. This has been a significant step as the wages paid to these laborers were
quite below the Minimum Wages established by Government. This has led to rising Marginal Costs,
and thus keeping the overall profits low.
Pricing: The industry has started witnessing a stagnancy in prices. This has been especially due to
rising costs which the producers are not able to pass on to the customers. India and Global market for
Tata Global Beverages and also for any company has Price Elasticity of Demand for Tea greater than
1 due to varied availability of substitutes. The companies cannot afford to increase prices as consumers
might shift to other competitors and revenues might dip. This is why, in quarter ending March 2019,
the tea industry reported fall in operating profits3. The labor costs kept rising but there was no
corresponding rise in its realization price.
Another issue arises, when supply of a commodity increases in the economy with a little or no rise in
demand. This excess supply leads to overburdening of stocks generating a pressure on prices to take a
deep dip. This is why the prices in global tea industry have been falling. Kenya in 2018 produced extra
50 million kilograms which dampened the overall tea prices across the World. Likewise, in India the
production increased but the demand in the foreign market remained stagnant causing product’s prices
to fall by 32%.3
Profits: Due to rising marginal costs per worker and constant prices in tea industry, the operating
profits in the industry are highly affected. This situation leads to reduction in number of tea planters
due to high wages which ultimately leads to underutilization of the capital employed. This eventually
causes a reduction in the production of tea, generation of low revenue, thus affecting the overall profits.
Profits fell by 9.1% and 9.8% in quarters ending in June and September 20183. Even when firms know
the cost of market development is rising, they still have to invest in marketing campaigns. Also, the
production entails risk of weather conditions which might even lead to product’s obsolescence. All of
these factors are detrimental to growth and profits of tea
Competitive landscape: Indian tea export has been a major foreign exchange earner. However,
exports of Indian tea are declining due to lower prices being offered by different countries.
While India is facing competition from Sri Lanka and Indonesia about export of orthodox tea variety
and from China about green tea export, it is facing competition from Kenya in exporting CTC (crush-
tear-curl) teas8. In countries like Sri Lanka, they work on a unique out-grower model where workers
who live on tea-estates are leased a portion of land to grow tea. This model has boosted incomes of
workers and resulted in better utilisation of land, which remains underutilised due to rising costs and
labour shortages on the plantations.
Tata Global Beverages and Hindustani Unilever continue to lead the local tea market with a combined
57% market share1. Unilever reported double-digit growth in over the year. However, regional players
are continuing to grow faster than the leaders. Regional players are investing in their distribution
networks and are expanding their presence into new regions.
Group 24

Environmental factors: There are multiple tea gardens such as Red Bank, Dharanipur, Dheklapur,
Surendranagar and Bundapani of the Dooars and Raipur Tea estate in West Bengal, which have shut
down in recent years due various problems affecting the industry.
 Climatic change and seasonal effects: Being very sensitive to climatic change, tea cultivation is
possible with a maximum temperature of 27◦C9. Untimely, low to no rainfall, prolonged dry spells
and even flood like situations are major challenges in the production of tea.

 Injudicious nutrient management: For better tea production, the soil pH should be below 5.510.
But the excessive and injudicious of fertilisers are leading to deterioration in soil health which
affects the future harvests as well.

 Pests and diseases: There are a loss of 10-15 percent in tea production due to pests and diseases.
Again, overdose of pesticides poses risks of soil contamination and ecological disbalance. 10
Impact of government policies:
 Labour shortage and Absenteeism: Big, medium and small plantations are suffering from labour
shortages primarily due to low wages in this industry. The National Rural Employment Guarantee
Act, 2005, while ensuring the ‘right to work’ provides with many lucrative offers for these workers.
They tend to leave their plantation jobs and opt for these more beneficial schemes.3

 Withdrawal of fertilizer subsidy: West Bengal state government has withdrawn fertilizer subsidy
on tea. Resentment is growing among the plantation workers. This move will add to an added ₹2
billion in the total annual production cost.3

 Trustea programme: In India, initiatives like the ‘trustea’ programmes have a strong focus on
smallholders, which produce around 35% of the total volume of tea, are working with industry
experts such as TRA Tocklai to increase capacity building and knowledge dissemination on safe
use of agrochemicals11.

Salient features

Labor dependent Market:

Indian tea market is completely dependent on human resources on the supply side. Moreover, the labor
is dominated by females. In north eastern tea plantations of India, women workforce is as high as
70%9. Plantations supporting the supply of premium tea brands, women are the only choice of tea
leaves pickers.
Pricing Strategy
Being in a fiercely competitive market TGB follows product differentiation strategy for its brands
across segments. TGB follows a ‘Perceived Pricing’ for positioning its products to consumers with
different preferences and purchasing power. Because of the oligopolistic nature of the tea market in
India it is important for TGB to justify the brand image and corresponding value addition through its
product pricing e.g. for its premium tea brand Tata Tea Premium a Product TGB follows a Product-
Quality Leadership strategy to justify its superior positioning. Product Quality, brand equity, emotional
connect and brand loyalty are the inputs to pricing for TGB.
Group 24
References

1. Available at: http://www.portal.euromonitor.com (Accessed: 7 August 2019)

2. Szenthe ,Adrianna .(2019) The World's Top 10 Tea Producing Nations [Online].Available
At:https://www.worldatlas.com/articles/the-worlds-top-10-tea-producing-
nations.html (Accessed: 8 August 2019)
3. Available at: https://industryoutlook.cmie.com/ (Accessed: 7 August 2019)
4. Available at: http://www.tataglobalbeverages.com/company/tgb_at-a-glance/about-us (Accessed:
6 August 2019)
5. Klonaris, Dr Stathis. (2011) Committee on Commodity Problems. Available
at: http://www.fao.org/fileadmin/templates/est/COMM_MARKETS_MONITORING/Tea/Docu
ments/IGG_20/12-2-demand.pdf (Accessed: 11 August 2019)
6. Klonaris, Dr Stathis. (2011) Committee on Commodity Problems. Available
at: http://www.fao.org/fileadmin/templates/est/COMM_MARKETS_MONITORING/Tea/Docu
ments/IGG_20/12-2-demand.pdf (Accessed: 11 August 2019)
7. Asopa, V.N. (2007) ‘Tea Industry of India’, IIM A Research and Publications [Online].
Available at: https://web.iima.ac.in/assets/snippets/workingpaperpdf/2007-07-02Asopa.pdf
(Accessed: 11 August 2019)
8. Seetharaman, G. (2019) India’s Tea Industry is struggling to move up the value chain [Online].
Available at: https://economictimes.indiatimes.com/industry/cons-products/food/indias-tea-
industry-is-struggling-to-move-up-the-value-chain/articleshow/65456045.cms (Accessed:6
August 2019)
9. Conversation with Chairman of All India Tea Association
10. (2013) India Tea Industry [Online]. Available at: https://eoi.gov.in/ashgabat/?0796 (Accessed: 9
August 2019)
11. The sustainable trade initiative. (2016) Challenges, opportunities, and ways forward for the
Indian tea industry. Available at: http://www.ethicalteapartnership.org/wp-
content/uploads/TEAM-UP-India_V3_LR_final.pdf (Accessed: 10 August 2019)
12. Baruah, Juri. (2018) How Women Tea Pluckers In Assam Are Being Exploited by Being Tagged
‘Unskilled’ [Online]. Available at: https://www.youthkiawaaz.com/2017/06/is-plucking-
regarded-as-a-skilled-work-in-tea-plantation/ (Accessed: 7 August 2019)
13. Pate,Vipal A.,Shah,Sarvesh Kumar. (2016) Tea production India: Challenges and Opportunities
[Online]. Available at: http://biopublisher.ca/index.php/jtsr/article/html/2263/ (Accessed: 9
August 2019)