Tata Global Beverages Ltd.

Company

Tata Global Beverages Ltd (TGBL) is a manufactures and markets non-alcoholic beverages,
with a major focus on tea and coffee. The company markets tea and coffee products under
Tata Tea, Tetley, Jemca, Vitax, Eight O’Clock Coffee, Grand Coffee and Joekels brand
names, while it merchandises packaged water under Himalayan, Tata Water Plus, and Tata
Gluco Plus brand names. TGBL, through its joint venture, Tata Starbucks Limited, owns and
operates Starbucks cafes in India and through its joint venture with PepsiCo produces non-
carbonated ready-to-drink beverages. The company’s business operations span across Asia-
Pacific, Europe, the Middle East, Africa and North America. TGBL is headquartered in
Mumbai, Maharashtra, India. The company reported revenues of (Rupee) INR72,515 million
for the fiscal year ended March 2019 (FY2019), an increase of 6.4% over FY2018. In
FY2019, the company’s operating margin was 8.9%, compared to an operating margin of
10.2% in FY2018. In FY2019, the company recorded a net margin of 5.6%, compared to a
net margin of 7.3% in FY2018. The company reported revenues of INR18,971.3 million for
the first quarter ended June 2019, an increase of 6.9% over the previous quarter.

Tata Global Beverages Ltd (TGBL) is a manufacturer, distributor and marketer of tea, coffee
and packaged water. Global presence, distribution network, financial performance and
liquidity position are the company's major strengths, even as, overexposure to commodity
based business remains a cause for concern. Restructuring of overseas operations, expansion
initiatives, and hot drinks market in India are likely to offer growth opportunities to the
company. However, foreign exchange risks, competition, and changing consumer preferences
could affect its business operations.
TGBL is one of the leading branded natural beverages companies based in India. The
company’s branded beverage business operations are concentrated in India, Europe, the US,
Canada and Australia; while its plantation business is mainly located in India and Sri Lanka.
TGBL’s extraction business operations are located in India and the US. The company's
brands have a strong presence in over 40 countries across the world. TGBL generates
significant revenues across all the geographic regions it operates in. In FY2018, the South
Asia region accounted for 48% of the company’s total revenue, followed by Canada, America
and Australia region (28.7%), EMEA (22.3%), and Others region (1.1%).

Wide distribution network enables TGBL gain operational synergies and serves its customers
efficiently. Direct relationship with clients helps it receive regular feed-back on its products,
allowing it to develop new products that meet the changing consumer preferences. Apart
from the traditional distribution method, TGBL adopted various modern platforms for trade,
rural distribution, and digital channels such as e-commerce to reach a vast customers’ base
and also to reach in the farthest of regions. Through the wide distribution networks of
independent dealers, distribution partners and suppliers, the company builds a distribution
network of more than 1.9 million retail outlets across India and 33,000 retail outlets across
international locations. This also helps the company in creating a network of more than 2700
suppliers. Besides, the company has strategic partnerships with various companies to
distribute products across several international locations.

The company continues to expand its business with new product launches and store openings.
In August 2018, the company launched flavoured water drinks, Tetley Cold Infusions, in the
UK market, available in multiple flavours including Raspberry & Cranberry; Passionfruit &
Mango; Orange & Peach; and Mint, Lemon & Cucumber. In April 2018, the company’s joint
venture partner, Tata Starbucks, launched limitededition beverage to commemorate 150 years
of Tata Group. In March 2018, Tata Starbucks launched three new stores in Kolkata, India.
The offerings at the stores include wide range Starbucks’ variants of tea and coffee drinks.

TGBL's core business comprises tea and coffee, the two highly commoditized businesses.
Although, the company is also engaged in the sale of water products, it is heavily dependent
on tea and coffee businesses for majority of its revenues. In FY2018, Tea product category
contributed 81.5% of the total revenue, followed by Coffee with 17.9% and Other product
category with 0.6%. Overdependence on these two businesses exposes the company's
profitability to external factors like demand supply gap, production status and inflation.
Fluctuating raw material prices in domestic as well as international markets and increased
expenditure on promotional activities due to heightened competition could impact TGBL’s
margins. The continued adverse industry scenario would result in declined profitability
margins for the company which, in turn, would impact its investments in other fast emerging
value-added beverage products. On the other hand, coffee is a highly competitive industry,
dominated by companies like Unilever and Nestle. The company's volume and value growth
in this segment largely depends upon product differentiation, price positioning and promotion
efforts. Since these bigger players are in a better position to sustain market share during
inflating price scenario, TGBL's growth in the industry is limited to an extent. Since, the
company's diversification efforts will take time to accrue gains, reliance on tea and coffee
will continue. However, the adverse industry scenario in the present circumstances is posing
negative outlook for TGBL's financial performance. This may affect its position in the global
beverage mark.

Changing consumer preferences pose as a challenge to the company’s operations. TGBL’s

success depends on its ability to identify the tastes and dietary habits of consumers and to
offer products that appeal to their preferences, including their concerns regarding taste and
changing life style. Health conscious customers have been slowly moving their focus from
traditional tea to green tea. Changing lifestyle and availability of various other drink options
influencing a large number of customer pool. Therefore, introduction of new products and
product extensions require significant development and marketing investment. The
company’s failure in meeting its consumer preferences, or realizing the market dynamics,
could have a significant impact on its product sales.

Questions
1. Do you think company has given overexposure to Commodity Based Business?
2. What would be potential threat for the company? And how?