Analysis of Tea Industry

About Tea Industry

• Total size of $89.32 billion

• Total production of 907 million Kg

• Share of 0.62% in total exports

• Per Capita Consumption of 0.66 Kg

•Major Players – HLL & Tata Tea

Value Chain Analysis

Primary Activities :-
•Inbound Logistics
- Assam, Darjeeling, Tamil Nadu main areas
- Best quality of raw material
- HLL is not growing tea but Purchasing

• Operations
- Best Manufacturing Process ( Withering, Rolling,
Fermentation, Drying, Sorting, Finished Tea)
- Tata Tea have integrated factories
Value Chain Analysis

Outbound Logistics:
•3 main distribution channels
- Bulk Market
- Loose Tea
- Packaged Tea

•Branded Players are pricing high

•Octroi, Freight amounts up to Rs.40-45/Kg

•Tata Tea has its factories near the Tea estates

Value Chain Analysis
Marketing and Sales:
•Government has been the largest purchaser

•Huge demand overseas

•Positioning strategy by HLL

- Super Premium
- Premium
- Popular
- Economy

•Tata tea concentrating on Tea Bags and Vending

Machines
•Ice Tea
Value Chain Analysis

Supporting Activities:-
Infrastructure:
•Tea cultivation area of 515,832 hectares
•Average holding size of 4.04 hectares
•Fragmented Market

Human Resource Management:

•Total Direct and Indirect employment of 11 million
people
•Frequent Strikes and lock outs
Value Chain Analysis

Technology:
•Cost of Production amongst the highest

• Total 1200 tea processing units

•Lack of Automation

Procurement:
• Cheaper Finance available ( 3.2% in 2005 vs. 5% in
2003)

•Abundant and cheap labour available

Porters Five Force Analysis
Porters Five Force Analysis

Inter firm Rivalry

• Over Supply in International markets

• Intense competition among exporting

Countries

• Low auction Prices

• Many Regional Players

• Two major players control 50% of market

Porters Five Force Analysis

Bargaining Power of Suppliers

• No bargaining power with Integrated players

• Higher bargaining power with Non Integrated players

• Fragmented producers

• Old age bushes – 30% of tea area being above

economic threshold age limit
Porters Five Force Analysis

Bargaining Power Consumers

• India is the largest consumer of tea

• Unorganized sector-64% Organized Sector-36%

• Existence of nearly 300 brands

• Unorganized tea market is priced lower compared to

Organized market

• High Bargaining power

Porters Five Force Analysis

Threat of Substitutes
• Faces competition from other beverages like fruit
juice and cold drinks
• Traditional coffee drinking belts

Threat of New Entrants

• High Capital required
• ROI expected is only after 5-7 years
• Non availability of fresh cultivable area
• Attractive retail market
• Threat of new entrant in suppliers is low but in case
of retailers is high
 Strategic Group Mapping

G
e
o
g Dilmah Tea ?
r
a
p
h
i
c
a HLL, Tata Tea
l
C
o Everyday,AV
v
e Thomas
r
a
g
e WaghBakrie

Marketing Intensity
 Product Portfolio Matrix - HLL

Embryonic Growth Maturity Decline

Dominant Red Label

Strong Taj Mahal

Favorable Taaza

Tenable Ice Tea Green Label Ruby

Weak Tiger
SWOT Analysis

Strengths

•India is the world leader in tea production and

consumption.

•India has second largest area under tea cultivation.

(516 thousand hectares)

•Well-established industry

•Manpower
SWOT Analysis

Weakness

• Low labor productivity (Declined from 1,844 kg

per hectare in 1998 to 1,655 kg per hectare in
2003)

• Proportion of low productive tea bushes is

expected to increase

• Dependence on monsoons

• Low wage rate

SWOT Analysis

Opportunities
• Growth in per capita consumption of tea. (growing
at a CAGR of 1.8%)

• Potential to capture market in low consumption

areas like Bihar, Uttar Pradesh and Orissa.

• Only 36% is branded.

• Market potential in iced tea, flavored teas, green

teas and organic teas segment.

• Growing awareness about the medicinal value of

tea.
SWOT Analysis

Threats

•Production growth to be limited in future

•Increasing popularity of soft drinks

•Competition from Sri Lanka, Kenya and China.

•Unstable Government Regulations

•Lack of land rejuvenation and re-plantation
activities.
SWOT Analysis

S-O Strategies
• Increase branded products market so as to increase
domestic consumption and export as well.

• Certification of the tea estates.

• Set up tea cafes ( “A lot more can happen over a cup

of tea”).

• Capture the theme of medicinal value of tea.

• Apply land rejuvenation and replanting activities so

as to increase productivity.
SWOT Analysis

S-T Strategies

 Advertise India’s tea specialty in world market.

 Open retail outlets of Indian tea in foreign markets.

 Mechanize and automate operations so as to take

advantage of large area and increase productivity.

 Advertise value added products of tea such as iced

tea, organic tea etc.
SWOT Analysis

W-O Strategies

• Better irrigation facilities made available to the

growers.
• Fixing the minimum wages so as to gain
international acceptance.

W-T Strategies

• Mechanize operations.
• Research and Development Investment needs to
be stepped up.
 Financial Analysis

Industry Ratios

Key Ratios 2005 2004 2003 2002

Debt-Equity Ratio 0.4 0.43 0.39 0.35
Current Ratio 1.17 1.18 1.35 1.63
Inventory Turnover 7.21 7.46 7.57 7.67
Debtors Turnover 15.75 12.85 12.17 12.58
 Financial Analysis

Debt Equity Ratio

  2005 2004 2003 2002

TATA Tea 0.2 0.22 0.23 0.25
Goodricke Tea 0.53 0.39 0.35 0.39
AV Thomas 0.15 0.27 0.33 0.43
INDUSTRY 0.4 0.43 0.39 0.35

Current Ratio

  2005 2004 2003 2002

TATA Tea 1.08 1.12 1.26 1.63
Goodricke Tea 1.29 1.29 1.29 1.28
AV Thomas 2.08 1.98 1.87 1.9
INDUSTRY 1.17 1.18 1.35 1.63
 Financial Analysis

Inventory Turnover Ratio

  2005 2004 2003 2002

TATA Tea 6.49 6.98 6.67 6.03
Goodricke Tea 4.39 4.89 4.74 4.09
AV Thomas 8.8 8.52 8.03 8.26
INDUSTRY 7.21 7.46 7.57 7.67

Debtors Turnover Ratio

  2005 2004 2003 2002

TATA Tea 27.14 17.48 13.06 12.42
Goodricke Tea 10.16 10.82 12.21 11.89
AV Thomas 10.65 6.88 8.25 6.08
INDUSTRY 15.75 12.85 12.17 12.58
Conclusion

• Organized Market

• Technology Up gradation

• Solve human Resource Problem

• Product Differentiation

• Acquisitions