March 2004 | Sujata Agrawal and Saloni Meghani

The world in a teacup

Tata Tea could now offer tea to its consumers in any part of the world. Its new vision is to take the global challenge for leadership in tea

Any 'brief history of tea' will list the geographies that have left their fingerprints on the teacup - China, Japan, Europe, England and America. But a few years ago, the global beverage business woke up to quite a stir from another part of the map - India.

Tata Tea's acquisition of Tetley, UK, was the largest ever by any Indian company.

Making this cuppa for that sought after share-of-throat is a fine art that the company does not pretend to have acquired instantly. It has distilled its strategy over many years.

The preparation started way back in 1983, when Tata Tea decided to move from being a commodity player to interacting directly with the consumer. It involved a change in the mindset of the company from thinking about pricing only to strategies for building brands, markets and distribution networks.

Tata Tea was the first brand from the company's stable and is today the No 1 in the domestic market. Other brands like Agni, Kanan Devan, Gemini and Chakra Gold followed.

In the 1990s, the company realised that its place lay in the global sun and not just in India. It also realised that acquiring an international brand would be preferable to building one afresh the world over.

In 1995, the company bid for Tetley a well-known innovator in tea packaging and strong in buying, blending and logistics management but failed. Having already taken the first sip of global tea, the company was not to be easily deterred from reaching out again. In 2000, when an opportunity arose once more, 271 million pounds changed hands and Tetley was in the Tata fold.

It was the perfect blend. Tata Tea was a leader in India in the packaged tea segment with a presence in developing countries through exports. Tetley was the second largest tea brand in the world, with a presence in developed geographies. The integrated vista offered access to new markets and products to both, not to mention the synergy in tea buying and blending operations.

Tata Tea could now offer tea to its consumers in any part of the world and in any form they wanted.

Challenger brand
"Our new vision is to take the challenge for leadership in tea around the world," says Homi Khusrokhan, managing director, Tata Tea.

In the light of the fact that Unilever is about three times the size of the Tata Tea-Tetley combine, the phrase needs to be qualified further. Leadership isn't necessarily about being just the biggest volume player. "We want to concentrate on leadership in the eyes of our customers and consumers. We want a perceived leadership," says John Nicholas, managing director (commercial), Tetley Group.

A small player can be seen as a leader, not by being the biggest but by being the most innovative and expert in its category. "You have to be very clear about what your brand stands for in the market and focus on projecting that identity. You should not try to be all things to everybody. The key is to fight the brand leader from a different angle by projecting a different identity. You can then create a bigger business without directly competing against it," he concludes.

Ken Pringle, vice chairman, Tetley Group adds, "The risk of large-scale branding is that you dilute your proposition so that you have no real salience with any particular group of either consumers or customers." He elaborates on his idea of a lighthouse brand. If you have consumers who are as passionate about the brand as you are, they become the best spokespeople for the brand. Ben & Jerry's ice creams in the US is one such example.

Mr Pringle feels that innovation is what differentiates a product from that of its competitors. He does not consider a change in flavour a product innovation. Differentiation comes from strategy and execution. It's about having the first mover advantage in markets. "You must differentiate yourself not just in the brand or the way you communicate with consumers but in the very nature of the way you operate the business."

Getting glocal
Global business is also about recognising that there are geographic blocks. The phrase, think global, act local, plays a very important role in Tata and Tetley, adds Mr Pringle.

Tea is heavily rooted in local culture and its functional attributes and taste parameters are very influenced by it. There would have to be a modification of the blend to ensure levels of appeal for different markets.

Says Mr Khusrokhan, "You may have a global presence but the brand strategy and local distribution arrangement have to be appropriate for the local market." He believes that a brand has to be fairly strong in its own market anywhere.

He is clear that Tata Tea is a powerful Indian brand and may never be as well known globally as in India. Tetley would therefore be the company's global face. The Tata Tea brand may be known in a few countries with large Indian populations such as the Middle East and the US, he says.

In the UK, Tetley stands for flavour and strength and is associated with health to some extent. In developing geographies, flavour would be a matter of local orientation and Tetley would be positioned as an international brand with British credentials in the premium tea bag segment.

Internationally, brands are standardised in terms of super market and speciality teas. Consumers with the supermarket mindset are brand loyal but are also tempted by bonus offers.

Mr Khusrokhan is not worried that globally Tetley is known as Tetley and not a Tata Tea brand. In the tea industry, brands, in their own right, are so powerful that generally companies haven't had to use the corporate name behind the brand. For instance, many people don't know that Taj Mahal tea is a Hindustan Lever product. They think it comes from Tata Tea. It is only recently that Unilever has started putting 'Brooke Bond' on their pack so that people become conscious of the mother brand. To create awareness of the Tata name overseas, Tata Tea will use the words 'a Tata Enterprise' on the Tetley pack.

Recipe for success
Among the ingredients, other than brand, that Tata Tea is working on for the right international mix are the integration of processes and the synergy of operations.

"We are integrating and trying to work as one virtual company," says Mr Khusrokhan. The focus is on having common systems and creating a global database for market and data collection. The greatest synergy is in terms of new growth areas and in tea buying and blending operations, he adds.

Under the new growth strategy, certain markets have been identified where Tata Tea will introduce its brands by way of soft launches. These regions include the Gulf countries, West Asia North Africa (WANA) countries, Syria, Jordan and certain market in the Far East. The Tetley Group will offer the Tetley brand in most of the developed markets of the world, as also Pakistan, Bangladesh and Russia.

"Generally, the largest markets will focus on the Tetley brand. However, there are some markets which we have determined would be more suitable for the Tata Tea brand, especially those with large pockets of Indian population," says Mr Pringle.

"Wherever both the Tata Tea and the Tetley brands co-exist in one market, Tetley will be positioned as the premium brand," says Abhijit Mazumdar, ED, global business division, Tata Tea. The new entity is also looking at developing altogether new products.

Tata Tea's presence in developing markets and Tetley's in developed markets will help the cause of both. Says Vijay Singh, managing director, developing markets, Tetley Group, "As a consequence of the differential growth rates, almost 70 per cent of the tea consumed in the world is in the developing markets. These markets largely have either loose or packet tea and this offers us a long-term opportunity to upgrade them to tea bags."

"The challenge lies in building the brand as Tetley is a late entrant and has limited awareness. The other challenge is that of distribution, which is critical to success. Creating distribution networks is expensive and time consuming. This is why we need to develop unique business models that enable us to leverage distribution either created by our partner, a joint venture or an alliance," he adds.

Tetley plans to have a few manufacturing hubs around the world which won't necessarily be directly connected to their original domestic markets. It has recently spent some time moving its sourcing base around. For instance, tea for Australia is now sourced from India, which will also be the source for some other developing markets. There is also the joint venture with the Laksons Group in Pakistan for a tea-blending plant, and with ACI Ltd in Bangladesh for manufacturing, marketing and distribution of Tetley. The combine has also opened the opportunity for Tetley to buy packaging from India and for both companies to use their joint buying power to negotiate better worldwide freight prices.

The companies have created three teams to work on designing integrated processes. The Commercial and Business Processes Team will streamline and standardise marketing. The Global Supply Chain Team will concern itself with raw materials, finished products, delivery and distribution and the Support Team will look at finance, research, communications, IT and HR. "We have cut across individual operation areas and gone through an intense benchmarking process in Tata Tea, Tetley as well as other companies. The end result of this exercise will be that we will have world-class processes that are endemic to the branded business," says Percy Siganporia. A fourth team, known as the Growth Team, is looking at geographical and product category growth.

The cultural integration, which is often an issue in many a merger or acquisition, has been smooth for Tata Tea and Tetley. Mr Nicholas says, "We are different but we are learning from each other. For instance, Tetley is very process oriented while Tata Tea is quicker to respond and more action-oriented."

Mr Pringle emphasises, "We have focused on bringing together skill sets of both teams. We can add to each other's knowledge and skills and create business with better value prospects."

For instance, Tetley is well known for its packaging innovations. Its round bags in the 1990s were received with greedy gulps by consumers, who saw it as a faster and better brew. Laminated packaging replaced cardboard and changed the consumers' perception on the freshness of tea.

In India, however, taste preference is stronger than brand loyalty. Says Mr Khusrokhan, "Most consumers have a personal recipe for making tea and stick to the one brand that gives them that satisfaction. The name of the game is raising the consumers' curiosity, arousing interest and encouraging them to try something different."

While Tetley is standardised, Tata Tea has strong regional brands and different blends for different areas as each region has its own taste preference. Speciality and herbal teas are high growth segments but in India they are a very small, niche segment. In the US, cold tea is the biggest segment but again in India, it is tiny.

Overall, the conventional black tea market is growing at around one or two per cent all over the world. Consumption of black tea in some markets is either static or falling and the competition comes not just from cold drinks and soft drinks, but even water. However fruit and herbal tea, ready-to-drink teas and teas drunk out of home are showing rapid growth.

Tetley and Tata have shaken hands at the right time. They are sure to concoct a powerful brew to warm the cockles of every tea lover's heart.

Also read other articles on the Tata group and globalisation:
TCS: Pushing boundaries
Titan: Living in interesting times
Tata International: International explorer
TACO: The better half
Tata Steel: Stealing the show
Tata Motors: Riding the global wave
Indian Hotels: Sovereign splendour
Tata Technologies: Future of auto tech
Tata BP Solar: Sunny side up