Tata Coffee Limited, one of the world’s largest integrated coffee company, is in a makeover mode. After successfully weathering the turbulence created by the coffee price crash in the past two years, it plans to transform itself to a completely branded player in the next five years. This seems to be the mantra for the Rs 170 crore company having 23 estates spread over Coorg, Hassan and Chikmagalore in Karnataka. 

MH Ashraff, the man spearheading the transformation of the company — from a primary commodity vendor to a company with its own brand personality — is not a stranger to the world of plantation industry. After a stint in Tata Tea, Mr Ashraff moved to Tata Coffee as managing director. This was a time when the prospects for the industry looked bleak with the prices touching a record low all over the coffee producing world. 

While the atmosphere outside was one of gloom the challenge before the newly christened Tata Coffee was to get consolidated with its new identity. The company earlier known as Consolidated Coffee was renamed as Tata Coffee with the merger of Coffee Land and Asian Coffee. 

• Shifting focus to branded products 
• Forays into new export markets like Russia and CIS countries 
• Major retail and institutional thrust through vending machines, retail    outlets and beverage solutions 
• Increasing interest in Barista Coffee 
• Diversification into plywood manufacturing
• Presence in organic farming of coffee for niche markets 

The need of the hour, Mr Ashraff says, is to change the company’s outlook in tune with the developments in the global coffee market. “Given the current demand-supply situation at the global level, I don’t find any reason for much optimism in terms of an increase in prices. We were able to survive the ordeal as we happened to be one of the few integrated companies in the coffee sector in the country,” he pointed out. 

The company currently produces 10 million kgs. of coffee and out of this nearly 50 per cent is sold in primary commodity form without any value addition. Mr Ashraff has set out on the path of branded identity after initiating a series of cost cutting measures which has enabled the company to maintain a healthy bottomline despite the price crash. 

Value Addition
The company’s journey towards a complete value added player has started with the launch of ‘Mr Bean’ in the market. Mr Bean is being positioned by Tata Coffee as a power brand to spearhead the company’s growth in the retail market in the country. Mr Bean is also going to be the starting point of Tata Coffee’s relaunch mode based on changing customer requirements and is a product of extensive customer research. The brand was launched first in Kerala in October last year and has already carved out 17 per cent market share in the state. This was followed by launches in Andhra Pradesh and Tamil Nadu. 

With Mr Bean being developed as a key brand, the company is working on the currently available brands too. In the 53:47 coffee - chicory segment, Mr Bean would gradually push its famous Coorg Double Roast brand into the background. According to Mr Ashraff ‘‘the company is working to bring the whole range of value added product offerings under the umbrella brand of Mr Bean, gradually’’. In South India, which is a coffee-chicory market, the company is aiming to achieve 15 to 20 per cent market share in this segment. The other product offerings include Coorg Pure Filter coffee and Tata Kaapi. 

The Cash Cow
The instant coffee division of Tata Coffee is making profits for the company despite major threats from large Latin American coffee producing countries. In fact, 50 per cent of the company’s total turnover is contributed by instant coffee which is being exported to Russia and CIS markets, Africa and Far East. ‘‘We are playing a different game in these markets with heavy competition. Our focus is on the quality of the products which has helped us fetching a premium price compared to low quality competitors’’, Mr Ashraff said. The company has two brands of its own —Mysore Gold and International Tata Cafe which is doing fairly well in the Russian and CIS markets. However, bulk of instant coffee goes as customers’ brands. The company currently exports five million kgs. of instant coffee per annum. Export of instant coffee grew significantly at 50 per cent in volume terms during 2001-03 period as compared to the financial year 1999-2000. 

Testing New Waters
After a significant growth in exports of instant coffee, Tata Coffee is currently planning to foray into Russia and CIS countries, the company’s largest export market with its new offering—roast and ground pure coffee. 

According to Mr Ashraff, the decision to enter the Russian market with roast and ground coffee was prompted by the gradual change in the customer profile of coffee consumers in the country. ‘‘Russia continues to be one of the fastest growing market for coffee consumption’’, he said. The growth in Russian market is estimated between 15 to 20 per cent for the past couple of years. The company is currently negotiations with partners and would enter the market in the next couple of months, he added. 

The company is also exploring opportunities in other markets like Australia South East Asia and Europe. The company has decided to make an entry into Australia with instant coffee. Australia consumes 40,000 metric tonnes of coffee per year. Russia and Australia represents the two fastest growing coffee consuming countries in the world and the company has decided to get into these markets as part of its long term strategy to emerge as a global player. 

The company is also working on a joint venture coffee manufacturing plant in Russia to take the advantage of low taxes for companies with manufacturing facilities in Russia. “Though the project has not taken off yet, we have not shelved the project as we are still having discussions with our Russian partner”, he said. 

Jiffy Vending Machines
Tata Coffee Jiffy Vending machines started operations in 1996 and has grown fast. With a strong presence in South, East and West India, there are around 4000 vending machines in the market with a growth rate of 80 to 100 per cent per annum. ‘‘These machines cater to out-of-home consumption of coffee in a fast, convenient and hygienic mode,” Mr Ashraff said. Jiffy vending machines are targeted at institutions like offices, railway stations and airports and is playing a major role in the company’s volume game. 

The company is planning to introduce it in north India too. Jiffy vending machines are available at a price ranging between Rs 6,000 to Rs 35,000 depending on the additional advantages offered. The company is currently test marketing filter coffee machines too, which, if it succeeds, is expected to revolutionise the vending machine segment. Other than vending machines, the company also offers beverage solutions to large establishments. 

Up The Value Chain
Tata Coffee has introduced Coorg Coffee Works, currently a chain of 32 outlets in Tamil Nadu, Andhra Pradesh and Bangalore in Karnataka. Run on a franchisee model, these outlets retails fresh Roast and Ground Coffee. Roasted Coffee beans of different varieties are displayed and consumers are given a choice to make their own blends. ‘‘In these outlets, we offer fresh roasted and ground coffee which unlike packaged coffee would reach the consumer without losing its flavour and aroma. There are other players too in this segment. However, this a potential growth segment with a set of customers preferring fresh roast and ground coffee’’, Mr Ashraff said. 

Yet another initiative taken up by the company is the acquisition of 34.2 per cent stake in Barista Coffee Company Ltd, a fast growing speciality retail chain,thus marking its entry into the growing coffee cafe business. Today, Tata Coffee is the sole supplier of coffee blends to Barista. 

Tata Coffee has also entered into organic farming by converting 80 hectares of plantation into a 100 per cent organic unit three years ago. ‘‘We are drawing a 30 to 40 per cent premium on organic coffee which is hitting niche markets across the country,” Mr Ashraff said. 

Other Businesses
Apart from coffee, tea, pepper cardamom, vanilla and medicinal plants are also grown in the company estates as inter crops. ‘‘We are the largest producer of pepper in the country with one million kgs. of pepper produced in the company plantations.” Vanilla is a new business and the company has grown 100 hectares of vanilla on an experimental basis. In terms of medicinal plants, Tata Coffee is in talks with companies for possible marketing tie ups. 

The company also has a huge timber resource which includes Rosewood, Silver Oak and other miscellaneous trees. Instead of selling timber, Tata Coffee decided to add value to it thereby entering into plywood manufacturing and introduced ‘Tata Conswood’. 

Managing Costs
With coffee prices continuing to be very low, the plantation business of Tata Coffee is making loss currently. However, the company managed to post an overall profit of Rs 20 crore in 2002-03 and is expecting similar growth this year too. Along with value adding initiatives, cost reduction was actively taken up by the company for sustenance. ‘‘We shut down all the loss making units and offered VRS to around 250 people’’. 

However, the effort paid off when Tata Coffee increased its production by 18 per cent while the industry average in the country was 14 per cent less. 

‘‘Today we are a lean company with just sufficient people—3200 including workers,” Mr Ashraff added.