Size and pedigree, though, are not enough to guarantee success in a market where competition is fierce and innovation is a key factor. M. H. Ashraff, Tata Coffee’s managing director, talks to Shobha Ramswamy about the strategy the company has embraced to blend a winning brew.

Tata Coffee’s change in strategy
Since 1993-94 we have been trying to make the transition from a commodity-driven company to a completely branded one. Our five brand launches, in the roast-, ground- and instant-coffee markets, were in tune with that strategy. Most of our brands, with the exception of Coorg Double Roast (CDR), did not fare too well. CDR did fairly well, but it did not gain the expected market share. It was then that we decided to change our strategic direction and marketing game plan.

Up front, we chose to concentrate on the southern states. The need of the hour was for more value addition to our products and stronger branding. Mr Bean was launched, after extensive research on the marketing mix, as a power brand to spearhead growth in the retail market. The product is a blend: 53 per cent coffee and 47 per cent chicory. Initially launched in Kerala, Mr Bean has been extended to the Andhra Pradesh and Tamil Nadu markets. The response has been tremendous (the brand gained about 15-17 per cent of the total market share in Kerala in the first six months following its launch).

Currently, branded products account for 15-20 per cent of our total turnover. In about four years it should be around 80 per cent.

The coffee market in India
The most popular kind of coffee consumed in this country is a mixture of chicory and coffee, and the biggest-selling brand is Deluxe Green Label (DGL). Mr Bean contains chicory in the same percentage as DGL. So, basically, we are also gunning for the popular market.

Coffee bars have, to some extent, increased the consumption of the beverage in India, with the youth segment taking to these bars in a big way. Today Tata Coffee is the sole supplier of coffee blends to Barista. Markets in South India lean towards the filter option, while instant is preferred in other markets. The chicory-to-coffee percentage is unique to different markets, so Mr Bean’s composition depends on the region it is selling in.

Competition in the market
The competition in the market is tough. We are present in all segments: pure filter coffee, mixed filter coffee, pure instant coffee, and mixed instant coffee. We are extremely conscious of quality and our products are priced aggressively. Right now we are focused on Mr Bean and are hopeful of gaining a significant market share with this brand. Once we have established this brand, we will look at the other names in our bag.

I guess we will continue to be based more in the South than in the North. South India is a coffee-chicory market and we are aiming to achieve a 15-20 per cent market share in this segment. In time we will phase out CDR and concentrate on Mr Bean. We want to focus on the roast-and-grind sectors, establish our presence in South India and then look towards promoting other brands.

Challenges of the instant-coffee market
Tata Coffee is the second largest exporter of instant coffee from India (after Nestle); the instant-coffee division contributes 50 per cent to our turnover. This business is growing rapidly and the thrust is on the exports through value additions. Our two brands for international markets — Mysore Gold and International Tata Café — are doing extremely well in Russia and its neighbouring countries. We exported about 4 million kg of instant coffee last year and this accounted for about 60-70 per cent of our overall exports.

Recently, we have more than doubled our capacity by acquiring High Hill Coffee India, which owns a 3,600-tonne instant-coffee facility in Tamil Nadu. We are also exploring opportunities in markets such as Australia, South-East Asia and Europe. In fact, market survey and quality tests have revealed that our product profile is rated among the top two in Australia.

Breaking into the Indian instant-coffee market, which is dominated by Nestle, is not easy, but we are betting big on this business. Tata Coffee has two brands in this segment: Tata Café, which is a pure instant coffee, and Tata Kapi, which has a chicory mix. Besides retail, these brands are doing very well in the institutional sales market.

On the commodity market front, we are exporting coffee beans to international markets. Italy is our biggest customer while Japan and a few countries in Europe are showing interest in our produce. Tata Coffee is also involved in directly exporting beans to large roasters in Italy, like the world famous Illy Cafe. They like our quality and we get a premium here.

The vending-machine culture
We have made significant progress in our vending-machine business. Tata Coffee’s jiffy-vending machines, which were first rolled out in 1996, have sold fast. We have a strong presence in southern, eastern and western India, with some 4,000 machines in the market and a growth rate of 80-100 per cent per annum. These machines, which are targeted at offices, railway stations and airports, are playing a major role in the company’s volume game.

Institutional selling makes sense in other ways as well. Since the number of employees at offices is fairly constant, so is the demand for refreshments; this means that consumption patterns are guaranteed.

The company’s retail chain
Tata Coffee’s Coorg Coffee Works, a chain of 32 franchisee outlets in Tamil Nadu, Andhra Pradesh and Karnataka, retail fresh roast and ground coffee. Roasted coffee beans of different varieties are displayed and consumers are given the choice to make their own blends. We offer fresh roasted and ground coffee, which, unlike packaged coffee, reaches consumers without any loss of flavour or aroma. We plan to take these outlets to other Indian states.

Beyond coffee
Tata Coffee also grows tea, pepper, cardamom and vanilla at its estates. We are the largest producer of pepper in the country, while vanilla is a new business for us (the company has grown 100 hectares of vanilla on an experimental basis). Tata Coffee made a feeble entry into the branded pepper business some years ago, but we are likely to revisit that plan soon.

The company has huge timber resources, including rosewood and silver oak. Instead of selling timber, we have added value by entering into plywood manufacturing and introducing ‘Tata Conswood’.

Future plans
We want to sell our entire production in value-added form through branded products in the retail segment. We are aiming for the No 2 slot in the branded filter-coffee segment in the country, but instant-coffee exports will continue to be our thrust area. That is where we make the maximum profits. Our commodity sales will eventually dwindle to zero.

Uploaded on March 15, 2004