A global bladder-print
The Hindu Business Line — August 25, 2006

Tata Tea has bought a 30 per cent equity stake in Energy Brands Inc of the US at $677 million, valuing the maker of Glaceau Vitamin waters at all of $2.3 billion! This is exciting news! The biggest-ever equity investment by a private Indian firm! Add up the investments made over the last several years, first on Tetley, Good Earth Tea, Eight O' Clock coffee of the US, and now on Energy Brands Inc, the Tatas have collectively spent all of $1.5 billion-plus on a varied stake pattern of holding in companies that represent the robust No.2, 3 or 4 status in the markets of the developed world.

Wassup?

The dream is for real. The plan is for real. Tata Tea and Tata Coffee spearheaded by a razor-sharp strategic mind that comes in the guise of an aggressive R K Krishna Kumar are out there to establish that one big global footprint in the space of beverages of literally every kind. Watch out then for the seamlessly integrated complete beverage services provider - The Tata Tea & Coffee! Some quick thoughts strike me as I type in this piece. This is a big plan. As big as it comes.

Watch out then for more of these. Here is the first of the Indian TNC (trans-national corporation) brands. The Tatas will build and cobble together a portfolio of brands that represent the growing segments of the beverages business, wherever they lie. Buy up the No 2 and No 3 brands and cobble up enough shares to challenge the status quo of leaders in the space. I classify beverages into two categories: staple and non-staple. The staple beverage in many ways is the beverage like tea and coffee and malted drink that is completely agri-linked. Add water as the basic drink of them all to this category of the staples as well.

And then there is the non-staple beverage. Every fizzy, coloured, sweetened, carbonated beverage is but this. The Pepsi and Cokes of the world occupy this terrain rather weakly now. The Tata plan is clearly geared to attack the staples. And why the staples? Very simply because the growth is in this terrain globally. The advanced first-generation markets of the modern day world have been through the non-staples for generations.

The sugary-drink category is under acute threat in markets such as the US and the UK and most certainly large parts of Continental Europe and Japan. The world is re-discovering health with a vengeance. At the same time, the bladder of the West is all too used to the lifestyle beverage that has occupied whole generations of folk and their collective imagination. What would you replace a Pepsi or a Coke with? A Glaceau Fruitwater? Caffeinated water? A bottle of herbal tea? Or for that matter even Pepsico Inc's own Propel enhanced water, which incidentally enjoys a 36 per cent market share in the US, just ahead of Glaceau at 17 per cent?

The consumer verdict is clear. Back to the good old ways of good health. And nothing gets better than water and the staples. Naturals that do less harm to you in the long run. The Tata plan is on right track then - identifying and picking up those brands of staple beverages which will form the bulwark of the bladder-fluid consumption of the future. The plan is unique as this is one of the first seamless plans out of India that looks at a borderless world. It decimates the narrow physical boundaries that political lines on a map seem to restrict corporates and their thinking to.

It is rich in its understanding of the future. It helps insulate volumes, profits and margins from geographies. Wait for a couple more acquisitions from the house of Tatas, and you might as well nigh see 50 per cent of volumes and profits coming from the US or a UK or Europe! The plan insulates volumes and margins from categories as well. The portfolio being cobbled together will now have coffee, tea, tea bag, soluble coffee, fruit-based beverages, vitamin waters, plain old water and maybe much more.

What a far cry from Tata Tea, the singular tea plantation company, braving the vagaries of the commodity market situation in the country and outside of it, to declare a profit or a loss. The Tata investments are also into categories that are robust in daily consumption terms. Every effort of a Tata Tea, Tata Coffee, Tetley, Good Earth, Eight O' Clock coffee or a Glaceau is a daily effort that reaches beverage solutions to millions of homes and throats every day.

Glaceau itself does 5 million bottles of beverage sales daily! That's 50-lakh parched throats every day! The cash-flow is quick, daily, repeat and robust! A good business to be in. Again quite unlike the commodity trading business that a typical plantation company does. Something that Tata Tea and Coffee did in the past, and still do in relative small measure, thanks to all these acquisitions! What's interesting in the Tata plan of action is the fact that the independence of all the operations picked up has been maintained to full degree. Something that will pay back rich dividends in the years to come. This is clever.

The Tata Tea group has moved away from the blind to the branded. From the selling of the blind commodity to investments that seek the spurring of high value-added brands across geographies in a seamless marketing world. This is most certainly the master plan KK (R.K. Krishna Kumar, Vice-Chairman) has built for the company. A plan that will hold the company and the group in good stead over generations to come.