1

Fall 2007

Simon Fraser University

Payman shafiee

Dagmara Kutrowska

John Li

Ardhitya Muljono

Olga Stepanova

2

INTRODUCTION

Background History i

Tata Tea Ltd. (‘Tata Tea’) first caught the attention of the beverage world in 2000 when it

purchased a renowned global company three times its size: the U.K.'s Tetley Tea, which sold for $425

million and was the number two brand in the world after Unilever-owned Lipton. After buying Tetley

in 2000, Tata Tea began cutting costs, shutting down manufacturing units in the United States and

Australia and selling its private-label capacity to Harris Tea in the U.S. for $15 million. Furthermore,

when Australian operations were moved to southern India and U.S., Tetley has nearly halved its staff

of 300.

In the 1990’s, the tea plantation business went into decline because of rising labour costs and

the rise of new competitors in Sri Lanka and Kenya. A separatist movement in Assam, a northeastern

Indian state, home to high-quality tea gardens, was a constant problem for Tata Tea until recently.

The Organization Todayii

Tata Tea represents the world's second largest global branded tea operations with product and

brand presence in 40 countries. Tata Tea is one of India's first multinational companies and largest

private enterprises. The organization and its subsidiaries focus their operations on the branded tea but

maintain a significant presence in the plantation activity in India and Sri Lanka.

The consolidated worldwide branded tea business of the Tata Tea Group contributes to around

86% cent of the company’s turnover, with the remaining 14 % coming from bulk tea, coffee, and

investment income. Tata Tea is headquartered in Kolkata, India and owns 27 tea estates in the states

of Assam and West Bengal in eastern India, and Kerala in the south. But Tata Tea is transforming

itself from a simple tea producer into a global branded tea company. This change has reduced the

company's dependence on the commodity teas and relieved additional resources with which to

strengthen its branded tea business.

Tata Tea has a lot of successful joint ventures and partnerships and uses new strategic

alliances as a preferred growth strategy.

3

MISSION, GOALS & STAKEHOLDERS iii

• Achieve market and leadership position for branded tea in India

• Be recognized as the most innovative in tea and tea based beverage solutions

• Drive long term profitable growth

• Co-create enhanced value for the stakeholders

• Make Tata Tea a great place to work

• Contribute significantly to social and community development on estates through comprehensive

labour welfare programs that offer free housing, healthcare and other benefits

• Create spirit of trust and good corporate citizenship

Objectives/Goals

• Become one of the largest and most admired beverage players in the world by 2010

• Become a $3 billion (sales) company in ten years (much of it will come from the U.S.)

• Become the number one global branded tea operation

• Research and develop new technologies / stay innovated

• Expand into new markets (e.g. Eastern Europe)

• Respond to changing customer preferences and needs around the world by diversifying brand

portfolio and pursuing new strategic alliances or acquisitions

4

Stakeholders

Capital

‐ Partnering companies and their employees

‐ Shareholders (see chart below)

– 32% of shares held by Tata Group Companies followed

– Individuals and Others account for 23%

Categories of Share Holders as of March 2007iv

Organizational

‐ Tata Tea provides livelihood to nearly 34,000 employees (and their family members)

Product

‐ Customers (people who buy Tata beverages)

Other

‐ Citizens of the countries where Tata Tea has plantations and operations

‐ Charities and non government organizations

5

EXTERNAL ANALYSIS

General Environment

1. Demographic

• Swelling populations in India and China (major tea consumers)

• Increasing multiculturalism (e.g. Canada) will have impact on workplace composition and require

increased management sensitivity

• Improving standard of living and income worldwide may shift demand towards premium tea

products (i.e. Eastern Europeans switching from loose leaf tea to bags)

• Disposable income to grow by 10% between 2005 and 2010.v

• Strongest growth: Latin America (18% growth), Eastern Europe (18%) and Asia-Pacific (14%)

• Increasing life expectancies may increase market power amongst older consumer demographic

segments

• USA Tea consumptionvi:

– 127 M Americans drink tea daily (50% of population)

– About 83% consumed Black Tea, 16% was Green Tea,

– 85% of all consumed tea is in ‘iced’ form

• USA coffee consumptionvii:

– 37% of 18- to 24-year-olds

– 60% of 40 - 59

– 74% of 60+

2. Economic

• Fluctuations in global currency and interest rates

• Effect of recent United States credit crisis on health of global economyviii

• Strong growth predicted for American tea marketix

• Global tea market valued at $6.8 billion (Coffee market at $18 billion)

• Tea market forecast to reach $10 billion by 2010 even though the global demand for tea is

becoming stagnant and the markets are reaching saturation, growth forecasts for the US market

are positive

• Global beverages industry (soft drinks, beers, ciders, flavored alcoholic beverages, spirits and

wines) generated total revenues of $1,000+ billion in 2006 (representing a compound annual

growth rate (CAGR) of 2.3% for 2002-2006)x

6

• Industry consumption volumes increased with a CAGR of 2.9% between 2002-2006,

• Volume expected see CAGR growth of 3% for 2006-2011

• European region accounts for 47.9% of the global industry’s , US for 25.1% , Asia-Pacific 18.9%

3. Sociocultural

• Growing consumer interest in environmentally sustainable projects and practices

• Growing consumer interest in corporate social responsibility

• Growing health-consciousness amongst consumers and concurrent interest in health-enhancing

products

• Tea cultures in many countries (e.g. Russia, England)

4. Global

• Growth of the American market

• Booming India and China economies with 7% and 9% growth rates xi

• Eastern European market is growing and becoming more developed (increase in disposable

incomes) many countries with tea cultures

5. Technological

• Development of technology to increase efficiency in cultivation, harvesting and packaging of tea

and coffee products

• Innovation in internet retailing to better meet customers’ tastes and needs

6. Political/Legal

• Continued tensions in the Middle East will continue to negatively impact oil prices and

international security can potentially affect distribution and logistics (through transportation

costs) prices

• Threat of antitrust legislation from local governments

• Pressure to keep jobs in India, despite lower production costs abroad

• Steadfast bureaucracy (stringent labor laws, restrictive land ownership laws etc.) and inadequate

infrastructure continue to hinder foreign investment and growth into and within Indiaxii

B. Industry Environment

Porter’s 5 Forces

1. Threat of new entrants

• The barriers to entry into the tea industry are substantial.

7

• Tata Tea and competitors such as Unilevers’ Lipton are global giants with economies of scale that

place new entrants at a major cost disadvantage.

• Indian tea industry, dates back to the mid 19th century, with 40% of current companies being public

owned with the remainder being fragmented farm ownership it is hard to compete with this

expertise and history

• The Tata name runs for many decades and the company is greatly ingrained in the Indian societies.

• Reputation for quality Very strong brand equity developed.

• Tata tea owns land in own country, is familiar with local laws, regulations etc and holds two

patents (very difficult for international firms to purchase such land)

• Retaliation to new entrants can be predicted as these organizations have a major interest in the

industry

2. Power of suppliers

• Being vertically integrated, Tata Tea owns their supply of tea and coffee.

• Tata Tea grows, picks, buys, blends and packs a variety of teas through its 51 tea estates in India

and Sri Lanka and 9 packaging facilitiesxiii

• Tata Tea, along with other competitors are susceptible to natural supply volatility stemming from

environmental forces and levels of investments in research and development to locate or improve

procurement.

• Growing global diversification of supply with development of tea plantations in Africa and South

Americaxiv.

3. Power of Buyers

• In the retail sector, consumers have considerable power as product demand is powered by fickle

consumer tastes and preferences.

• With low switching costs between substitutes, buyers have considerable power in their hands.

• Cultures that are spiritually and historically entwined with tea/coffee consumption, may exhibit

inelastic tendencies towards tea/coffee product purchases. These segments may display inelastic

behaviour towards lower-end tea products but may be highly elastic towards premium products.

8

4. Substitutes

• The Tata Tea group caters to all major consumer segments by boasting a diversified portfolio of

products including: teabags, loose tea, instant tea, iced-tea, coffee, and spice powders.

• Tata Tea is quickly diversifying away from traditional tea products but still faces threat of

substitutes from: energy drink brands, dairy-based drink brands, juices and carbonated soda

beverages.

• However, tea consumption remains a spiritual and historical aspect of many cultures

5. Intensity of Rivalry

• Few major competitors that share most of the tea market and industry

• The competition is intense (especially with Lipton)

• Existence of a substantial number of small retail tea stores that could potentially turn into

competitors

Competition

Industry competitors

1. Unilever UK Foodsxv

• Anglo-Dutch multinational company with portfolio of 400 brands in 14 categories of home,

personal care and foods products

• 180,000+ employees in 100 countries, 317 manufacturing sites on 6 continents

• €1B yearly investment in R&D, €5 billion advertising and promotion budget

• Global market leader in all their food categories

• Owns Lipton Tea: world’s No. 1 selling loose leaf and ready to drink tea brand

• €3 billion yearly sales

• Recently announced expansion of international JV for Lipton ready-to-drink tea with PepsiCo to

include all countries in Europe

2. Nestle India Ltdxvi

• Began importing finished products to India in 1912

• 1947, following Indian independence , encouraged by government to localize production and grow

Indian milk industry by educating and training farmers

9

• Over nine decades of strong relationships with Indian government, farmers, suppliers and

generations of consumers

• Provides direct/indirect income to about one million people including farmers and suppliers

• Wide variety of food brands catering to majority of consumer segments and suitable for daily

consumption

• Nestle’s NESCAFE continues to be the instant coffee market leader in Indian market

3. Associated British Foodsxvii

• Multinational London based food and retail public company

• 2006 Revenue: £2,600 and a strong brand equity in UK market (100 years old)

• Brand portfolio includes: Twinings Tea, Ovaltine (malt-based hot beverage)

– Recent rebranding in US market saw surge in market share

– Recently established Joint Venture in Japan (one of world’s bigest tea markets)

– Good growth in developing markets: Brazil, Nigeria and Vietnam

Others: R C Bigelow, MJF holdings, The Williamson Magor Group, Duncan Tea Limited, Hillsdown

Holdings.

Retail Competitors

Tata Tea has not yet expanded into retailing. Tata Tea’s products are distributed globally to business

and regular consumers through food-service distributors (i.e. Sysco), supermarket chains and regular

retail chains (e.g. Wal-Mart).

10

INTERNAL ANALYSIS

Resources

Tangiblexviii

• Tata tea and the Tetley Group have developed R&D Centres that focus on different brands in

different geographical areas allows Tata Tea to be a leader in new product innovation

• Has five major brands in the Indian market - Tata Tea, Tetley, Kanan Devan, Chakra Gold and

Gemini – serve the majority of consumer segments for tea

• Owns 15,900 hectares of land currently under tea cultivation

• The Tata Tea brand leads market share in terms of value and volume in India

• Distribution network in India serves over 1.7 million retail outlets (ORG Marg Retail Audit)

• Subsidiaries in Great Britain, United States and India

• Tetley has a specialized portfolio of products for each country, including Black, Green, Fruit &

Herbal Teas, Iced Ready-to-drink Teas and an extensive range of exotic specialty tea

• Successful packaging formats including the resealable 'soft pack' format for Tetley teas in the UK,

and a unique 'stay fresh' round canister for green, fruit and herbal and speciality tea ranges in

Canada, the UK and Australia.

• 2 Patents: Pneumatic drier for drying fermented Tea leaves and other similar materials; Multi-stage

counter current fluid bed drier for drying fermented tea leaves and other similar materials

Intangible

• Brand name and history of Tata Tea has created long term value and reputation for its products

Tetley was the first British tea company to introduce the tea bag to the UK in 1953, and the

company continues this tradition of innovation.

• Tetley is the no.1 tea bag brand in Great Britain and Canada goodwill

• Tata’s brand is accorded "Super Brand" recognition in the country

• Resources already invested in R&D and operations, etc

• Acquisitions, joint ventures and alliances/partnerships

• Tata Tea is backed by India's largest business group and multinational company (Tata Group)

Tata Tea, unlike some competitors has access to parent company’s resources

11

Capabilitiesxix

• Supply Chain:

– Tata Tea produces around 30 million kg of Black Tea annually

– Tata Tea uses independent manufacturing and supply operations of Australian, Middle East,

West Asia, North Africa, Poland, Russia and Kazakhstan markets.

• Distribution: Tata Tea has established distribution network in developing countries and also uses

Tata Group and their partners’ distribution channels.

- Tata Tea's distribution network in the country serves over 1.7 million retail outlets in India.

• Human Resources: 35,000 skilled and experienced stuff with a variety of KSA’s

• Management Information Systems: Effective control of tea projects, tea sorting processes; various

technologies to speed up output and guarantee quality

• Marketing: good brand equity and strong brand associations helps Tata Tea to pull a lot of

attention when lunching marketing campaigns.

• Management: Ability to coordinate production and sales across the globe, synchronize demand

and supply sustain global demand for Tata’s products, envision the future with development of

new technologies, products and discoveries of new plantations; efficient production and value

chain management.

• Manufacturing:

- Able to keep up with the world demand for Tata products.

- Able to implement ideas generated in R&D centers

• Research and Development: numerous R&D Centres worlwideworldwide

- Exceptional technological innovations and capabilities;

- Ongoing high investments into new projects, deep (centuries) knowledge of tea industry

Core Competencies

1. Tata Tea’s history of maintaining a global presence allows them to be ahead of market needs,

trends and future. The organization understands market needs and can therefore change direction,

implement new ideas or effectively give direction to their product market to generate revenue and

sustain growth.

2. Relying on their strong presence, R&D, production and distribution, partnerships and alliances,

Tata Tea can effectively target various market segments and respond to new consumer preferences.

12

3. Innovation has always been an important element of Tata’s strong brand image and growth. Tata

has continued investment in R&D to stay ahead of consumers expectations.

BUSINESS, CORPORATE AND INTERNATIONAL STRATEGIES

Business Level Strategy

• Tata Tea follows a differentiation strategy to achieve business unit level competitive advantage.

• Tata Tea separates itself from unlabelled tea producers and major label competitors by offering

beverage products positioned as having unmatched quality.

• Tata Tea is able to achieve its differentiation through vertical integration; controlling quality and

cost at all points of the value chain.

• Being its own supplier of raw materials, Tata Tea controls handling and minimizes damage to

ensure final product quality.

• It focuses on reducing lead time to improve customer satisfaction, and possesses a strong R&D

strongly coordinated with marketing and product development.

• Tata Tea takes pride in and emphasizes its quality and awards won.

• Differentiation is also partially expressed through its wide product offering in both its tea and

coffee products; by offering all of Popular, Premium, and Economy brands, Tata Tea develops a

reputation for not only quality but its ability to serve across all socio economic segments.

Corporate Level Strategy

• Tata Tea follows a dominant business corporate strategy with more than 70% but less than 95% of

its revenue coming from its tea business.

• As seen from the recent financials (below), for all of its recent acquisitions and efforts to becoming

a global beverages outfit, though not to discredit its transactions, Tata Tea’s dominant revenue source

remains its tea business, at least for the time being.

The results for September 30, 2007 should reflect the results of all recent acquisitions xx.

13

3 months ending

9/30/2007 6 months ending

9/30/2007 Year ended 3/31/2007

Revenue Tea 861.64 77% 1665.96 78% 3332.19 81%Coffee and Other produce 227.31 20% 435.04 20% 692.26 17%Others 4.94 0% 10.09 0% 18.79 0%Unallocated 23.01 2% 34.6 2% 59.98 1%Total 1116.9 100% 2145.69 100% 4103.22 100% Profit Tea 159.98 81% 277.12 80% 578.83 85%Coffee and Other produce 37.07 19% 67.82 20% 101.9 15%Others 0.71 0% 1.23 0% 1.13 0%Total 197.76 100% 346.17 100% 681.86 100%

However, it is more important to note the trend rather than the point-in-time picture. Tata Tea is

becoming increasingly diversified as evident in just a sample of its recent acquisitions and

investments:

‐ June 2006: $220 million takeover of Eight O’Clock coffee, the third largest U.S. coffee brand

‐ August 2006: $677 purchase of a 30% stake in Energy Brands, a flavoured water and energy

drink producer (later sold to Coca-Cola for a gain of $523 million)

‐ May 2007: Acquisition of two Polish Vitax and Flosana, two specialty tea brands focusing on

fruit and herbal blends, giving TTL 10% control of the Polish market

‐ Late 2007: Joint venture in Zhejiang, China, to manufacture and market green, instant, and

liquid tea products

‐ September 2007: 25.7% stake in Mount Everest Mineral Water

• As a result of such investments, both tea revenues and tea profits as a percentage of total figures

have dropped since the last fiscal year.

• By looking at the direction in which the company is heading, all signs point toward Tata Tea

becoming a related constrained company.

• The company is harnessing operational relatedness (sharing activities) such as marketing and

distribution channels.

• Its carefully selected acquisitions have also allowed for a certain degree of corporate relatedness

(the transferring of technical knowledge, experience, and expertise across business units).

14

• The Tetley acquisition combined Tata’s already largest distribution network in India with

Tetley’s large distribution capabilities in England and North America.

• Other recent acquisitions have further strengthened the group’s distribution reach.

Tata Tea’s move toward related constrained diversification is a smart move given the slow growth of

many tea markets, compared to the high growth of new-age nutrient and electrolyte enhanced

beverages and other health beverages. Staying within a related constrained model is a safe choice and

keeps Tata Tea from overstepping its boundaries in terms of expertise. It also is a key to reducing

risk given the potential market saturation of several tea markets. Risk of loss of differentiation is also

reduced. Diving into new beverage products means that the company is keeping on its toes in offering

what consumers perceive as unique, rather than falling into the trap of corporate inertia where a

company’s offer of differentiation and uniqueness is no longer perceived as valued in customer’s

eyes.

International Strategy

Tata Tea is pursuing a transnational strategy, where the firm seeks to achieve both global efficiency

and local responsiveness. Outside Indian’s market, Tata Tea aims to reach other markets through their

“Tetley” brand that was acquired in 2000. According to the vice-managing director, R.K. Krishna

Kumar, the acquisition of Tetley will enable Tata Tea to reach millions of customers in the countries

of the western world, U.K., U.S.A, Canada, France, etc.xxi

Current Geographical Segment xxii

India UK USA& Canada

Rest of the world

Total

Sales Revenue

101251.34 132671.79 117220.91 51345.42 402489.46

Segment Assets

157262.68 56188.80 55370.29 8980.34 277802.11

Capital Expenditure

12239.50 2503.03 1002.15 310.28 16054.96

Source: Tata Tea Financial Report-2007

As seen in the above chart, the markets outside India are very important for the company as

well. These markets are the ones that are aimed by the global brand, Tetley Tea. However, each of

these specific markets represents different consumer tastes and preferences. Therefore, Tata Tea

thinks globally and acts locally, making it a truly transnational company.

15

Cooperative Strategy

• Tata Tea is active in strategic alliances, namely joint ventures.

• Several joint ventures Tata Tea currently has can be categorized as cross-border

• Joint ventures located outside India include xxiii

Associates:

Rallis India Ltd, Estate Management Services Pvt Ltd,Sri Lanka, Watawala Plantations Ltd,Sri

Lanka, Energy Brands Inc. (Associate of subsidiary)

Joint Venture of Subsidiariesxxiv

Tetley ACI (Bangladesh) Ltd, Southern Tea LLC, Empirical Group LLC, Tetley Clover (Private)

Ltd., Joekels Tea Packers Proprietary Ltd. (South Africa), Tata Coffee (Uganda) Ltd., Tata Tea (GB)

Investments Ltd.

• As we can see above, Tata Tea Ltd. also has several associates which it does not own or control

• The associates and joint ventures contribute to Tata Tea’s competitive advantage

• The locations of their joint ventures, especially the ones outside India, enable Tata Tea to enter

that specific market without having to set up their own headquarters. This alternative is easier and

less costly to do.

16

SWOT ANALYSIS xxv

Strengths

• First-mover advantages in some areas: Tetley was the first British tea company to introduce the

tea bag to the UK in 1953, and the company continues this tradition of innovation. The tea bag

was followed by the first round tea bag in 1989, and the 'no drip, no mess' Drawstring bag in 1997

• Strong on innovation A stream of successful packaging formats include the resealable 'soft

pack' format for Tetley teas in the UK, and a unique 'stay fresh' round canister for green, fruit and

herbal and specialty tea ranges in Canada, the UK and Australia. + 2 patents

• Large customized brand portfolio risk-management, easy to switch, save on resources

• Strong and developed brand equity

• Excellent reputation because of active social development projects

• Wide target market can target many segments with their brands risk-management

• Economies of scale (can use the same resources and capital for many brands including new)

• Access to capital (financial, human, R&D) + Tata Group support sharing distribution channels

• Solid financial position no longer burdened with the debt it incurred after acquiring Tetley in

2000 - low debt-equity ratio can continue making significant investments in building its

brands and developing new products

• Tata Coffee: ISO 9002 certified the first curing unit in Asia to receive this certification

Weaknesses

• Heavy indebtness (mostly from acquisitions) more than $600 million in all

• Only second in terms of market share in the global market of branded-tea

• Global company hard to manage and control

• Dependence on Indian resources risk- production costs increase or external circumstances

• Dependence on black standard tea constitutes almost 90% of the company's sales in value

terms this product is not expected to experience much growth over the forecast period.

• Dependence on Tetley brand for approximately 70% of retail sales in value terms

• Dependence on mature markets the UK and India jointly account for 60% of the company's

retail sales of hot drinks in value terms the market for tea is expected to decline in the UK over

the forecast period and in India growth of the category is expected to stagnate.

17

Opportunities

• Hot-selling New Age beverages Positioning tea as healthy choice beverage (e.g. marketing

campaign) organic tea variants, decaffeinated tea and "therapeutic" blends containing

antioxidants

• 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.

• Technological improvement opportunities (e.g. Optimization of pruning cycle, Rationalization of

fertilizer application, Nitrogen / Vacuum Flushing, etc) -> e.g. Tata Coffee has been consistently

investing in improving quality

• Can use benefits from economies of scale introducing new brand

• Eastern European market is growing and becoming more developed (increase in disposable

incomes) many countries with tea cultures Tetley continuing to increase its presence in

Eastern Europe, Russia, through to Bangladesh and Pakistan, and recently launched in South

Africa.

• Industry consumption volumes increased with a CAGR of 2.9% between 2002-2006

• Acquiring a controlling (>50%) interest of a beverage company

• Value-added tea sectors – fast-growing and high-margin fruit/herbal, green, black specialty and

other teas the company has a platform with which to enter the specialty tea arena.

Threats

• Sales may not expand enough to service the company's significant debt

• Consumers are switching to healthier beverages

• Environmental/external conditions (e.g. natural disaster wipes out some of the tea plantations)

Political instability in the developing countries

• Continued tensions in the Middle East will continue to negatively impact oil prices and

international security distribution and logistics prices rising

• Cultural factors (when introducing brands into new markets certain cultures may not be as

accepting of some products e.g. may not buy into the tea bag idea)

• Inability to meet the growing demand production capacity issue

18

• Commodity tea prices Tata Tea's divestment of its tea plantations means the company is more

susceptible to changes in the price of commodity tea Auction tea prices could impact margins

if price hikes are absorbed by the company.

• Competitive environment Competition in the domestic and international markets for tea is

intense which means that future acquisition targets may be harder to find and more expensive ->

e.g. Rise of new competitors in Sri Lanka and Kenya.

SWOT Synthesis

Tata Tea’s diverse brand portfolio affects both internal and external aspects of their

operations. It gives them strength in a way that it provides economies of scope, risk management

strategy and opportunity to target a variety of market segments. At the same time, it also creates a

weakness, because having a diverse portfolio means that one cannot become too specialized in one

brand and does not know each brand and its segment’s preferences very well. Having this portfolio

also gives Tata Tea an opportunity to introduce a new brand easily using the economies of scale and

existing resources (experience, human and financial capital, etc).

Another factor that fits both under strengths and weaknesses is their multiple partnerships.

They can use them for resources (sharing distribution channels and marketing costs, etc) but at the

same time, they have incurred very heavy debts to acquire those partners. In addition to the risk that

their investments will not pay off, there is also a risk that their partners may break off and take away

their capabilities and resources with them.

Overall, Tata Tea’s biggest strength seems to lie in their R&D – it provides the company with

continuous innovations, and possible first-mover advantages. It also offers opportunities if they can

use new ideas in order to improve their technology and processes, thus cutting costs and/or

increasing market share.

Tata Tea’s biggest weakness seems to be their numerous dependencies including dependence

on black standard tea that is not expected to experience much growth over the forecast period;

dependence on Indian resources; and dependence on mature markets which are expected to decline

in the future.

Nevertheless, there are more strengths and opportunities that exist for Tata Tea than

weaknesses and threats. The company can use its strengths to protect themselves from threats.

19

ALTERNATIVES

1. Exploit emerging markets

– Tata Tea is dependent on Western Europe and Asia for 70% of sales and these traditional tea-

drinking market segments are nearing saturation

– With income and standard of living rising significantly in Eastern Europe, Latin America and

other Asia-Pacific nations, Tata Tea can secure increased sales by pursuing these emerging

markets

– Respond to the significant demand in growing US tea/coffee segments

– Capitalize on company’s strong cooperative skills and business acumen to purse Joint Ventures

opportunities, acquire at least 50% stakes in local companies

– In Latin America, Tata Tea is in a good position to grow its Coffee segments and seek

opportunities to secure new sources of supply

2. Diversify Brand Portfolio

– Majority of Tata Tea’s sales are in the standard black tea variety

– Tea industry growth is slowing, mainly due to stagnating global demand for standard black tea

– Tata Tea has opportunity to re-focus on high-margin, fruit/herbal and specialty blends

– Tata Tea has the experience and research capabilities to provide the profitable US market with

‘New Age’ beverages

– Strive to acquiring more than 50% (ideally) of a New Age beverage company (e.g. Happy Planet

juice)

– AND/OR Partner with Starbucks to supply all-natural, iced tea beverages in their coffee houses

(Tata coffee already supplies Starbucks with raw coffee)

3. New positioning strategy for tea

‐ In response to changing needs of health-conscious consumers, aim to re-position tea from a

traditional beverage into a hip and healthy concoction

– Create new advertising campaigns that focus on tea benefits

– Introduce new packaging for Tetley products to reflect more modern brand image

‐ Introduce Indian-themed tea houses in Europe (both Western and Eastern) and the U.S.

– Opportunity to enter into a Joint Venture/Franchise or purchase with local company

20

– Focus on introducing non-traditional tea drinking cultures to high-quality, loose-leaf (high-

margin) brewing techniques and products versus tea bags (low-margin)

– If successful, forces of globalization will create demand for such tea-houses in traditional tea

drinking markets (Asia)

4. Diversifying production and supply away from India

‐ Since the majority of Tata’s supply and manufacturing resources are currently located in India, the

organization is susceptible to external risks such as natural disasters or political/economical

instabilities.

‐ Indian labour and production costs are rising. Beneficial for Tata to re-locate a portion of

production to a lower-cost countries (Africa or other Asian countries)

‐ Continuously aim to increase tea consumption in Indian market

EVALUATION CRITERIA

1. Reduces risk through diversification of business activities

2. Aligns with mission and goals

3. Focuses on growth gains market share

4. Strengthens brand awareness / brand equity (different for different geographical markets)

Exploit emerging markets

Diversify Brand Portfolio

New positioning strategy for tea

Diversifying production and supply away from India

Reduce risk through diversification

2.5 4 2.5 2.5

Aligned with mission/goals

5 4 5 1

Growth 3 5 5 3 Brand awareness / brand equity

4 3 5 3

Total 14.5 16 17.5 9.5

Exploiting emerging markets

This first strategy scores high in preserving alignment with Tata Tea’s missions, vision, and goals as

it maintains the objective of serving global tea demand and preserving quality. Brand equity will be

strengthened in emerging markets as Tata Tea allocates its resources toward strengthening brand

21

awareness in developing countries. Opportunities for growth are fair, but possible, and will depend

heavily on how successful Tata Tea is in reaching emerging markets. Where this alternative suffers is

in the area of diversification, as the focus will shift back toward making Tata Tea a tea company in

the face of possible market saturation. Tata would be taking a step back in its efforts to reduce

business risk and become a multi-beverage company.

Diversify Brand Portfolio

This strategy would be an extension of Tata Tea’s current pursuit toward becoming a multi-beverage

international business. Growth prospects are strong given hot new-beverage markets for nutrient

enhanced water and new age fruit beverages. Brand equity would improve modestly given that much

of Tata Tea’s resources would be geared toward expanding its product offering, most likely through

acquisitions. However, Tata Tea’s acquisition and subsequent sale of a 30% stake in Energy Brands

to Coca-Cola is a clear lesson that expansion through acquisition may not be feasible if another

company is later able to acquire a majority interest in the investee and take over strategic control.

Hence, this strategy’s main drawback is that Tata Tea may not be able to find a beverage company in

which to acquire a majority interest in the short term.

New Positioning Strategy

There is speculation that the global tea market may be saturating, but that does not mean that demand

cannot be spurred by repositioning the image of tea in consumers’ eyes. If Tata Tea can successfully

reposition tea as a hip and healthy beverage, modernize its packaging, and attract consumers with

Indian-themed teahouses, the potential for growth and enhanced brand equity can be bountiful.

However, as with the first alternative, Tata Tea would not be diversifying.

Shifting Costs of Production

This strategy is the least beneficial and contradicts Tata Tea’s mission to be a socially responsible

Indian employer. Shifting production out of India may lower labour costs, but could greatly hamper

morale and create controversy in the public eye. At worst, Tata Tea could lose its identity and gain

bad publicity.

22

Recommendations

Based on the evaluation of strategies against the criteria described, it is recommended that Tata Tea

pursues the “New Positioning Strategy” but also follows the acquisition recommendations of the

“Diversify Brand Portfolio” strategy when opportunities arise. While an acquisition of a 50%+

interest in a new-age beverage company could solidify Tata Tea’s entry into the multi-beverage

business and allow it to take strategic control over its new-age beverage business, such a possibility is

highly dependent on the availability of such a large stockholding for sale, as well as Tata Tea’s ability

to make such a purchase without assuming an unwise amount of debt. Hence, in the meantime, Tata

Tea’s efforts should be concentrated toward repositioning tea as a beverage and investing toward

teahouses. As Tata Tea puts its efforts toward repositioning tea as an important product to health

conscious consumers and responds to consumers’ taste for the exotic with its investment of teahouses,

it reaps the rewards of increased brand presence and market power. Concurrently, Tata should look

for opportunities to acquire majority-interest stakes in beverage companies such that the company

diversifies its risk profile, capitalizes on the high-broth new-beverage market, and increases its

distribution capabilities.

NEW STRUCTURE AND CONTROL SYSTEMS NEEDED

• For this recommendation, Tata Tea would need to change its advertising and positioning strategy,

but no major change in structure or control system is needed.

• When introducing new packaging for Tetley products, the company will need to control for quality

and production.

• When introduce Indian-themed tea houses in Europe (both Western and Eastern) and the U.S., the

company will need to generate creative ideas, hire new stuff, find good locations, advertise and

monitor progress.

• In general, Tata Tea would need to closely monitor how this strategy enrolls to see if anything

needs to be adjusted or changed. A marketing research is recommended in order to collect customer

feedback.

• Tata Tea will also need to assign someone to look for attractive acquisitions worldwide.

23

IMPLEMENTATION

Action Plan

• Discuss the new alternative with the Board of Directors and then other stakeholders. Show the

cost/benefit analysis.

• After approval, set up a team to research the current market. The team’s goals should be to identify

trends and needs in the current market.

• Collaborate with the research team and marketing department to form a solid and appropriate

positioning strategy

• Create a budget and time-plan to keep on track and monitor progress

• Once the new marketing campaign is launched, collect feedback from customers as well as

management.

• Keep records of competitors and monitor to identify the opportunities to acquire them.

• If acquisition opportunities arise then benefit/cost analysis is needed to determine the feasibility of

the acquisition.

CRITERIA FOR EVALUATION

• Market share: an evaluation of market share over time provides Tata Tea with a clear indicator of

how successful its repositioning campaign is faring. Improved market share indicates that its brand

image is improving and its competitive position is strengthening over competitors.

• Sales growth: revenue growth provides a good indication of how successful Tata Tea’s

repositioning campaign has been in generating increased consumer interest in its tea products.

• Same store sales, year over year: the growth of teahouse revenues year over year allows Tata Tea to

assess the success of its investment in themed tea stores

• Number of new teahouses opened: this provides a simple and easy indication of how Tata Tea is

doing in generating interest in its Indian-themed teahouses

• Return on investment for acquired beverage companies: if Tata Tea makes smart acquisitions and

integrates and manages such investments well, its performance will be reflected through a high

return on its purchases prices.

24

End Note References

i http://www.tatatea.com/ ii http://www.tatatea.com/ and from case iii http://www.tatatea.com/vision_miss.htm iv http://www.tatatea.com/invest_relation.htm#16 v Tea Report-World- 15/12/2006. Retrieved from Global Market Information Database vi http:// www. teausa.com/general/501g.cfm vii Crown, Judith. A wake-up call for coffee. October 22, 2007. Retrieved from

www.businessweek.com viii http://www.msnbc.msn.com/id/17584725 ix Perman, Stacy. High time for tea in America. March 8, 2006. Retrieved from

www.businessweek.com x Beverages Industry Profile: Global. Beverages Industry Profile: Global. (Data Monitor Report) March 2007. Retrieved from Business Source Premier Database. xi China and India: The Challenge. August 22, 2005. Retrieved from www.businessweek.com xii http://news.bbc.co.uk/2/hi/business/4269858.stm xiii Tata Tea-Company Profile (Data Monitor Report). Feb 2007. Retrieved from Business Source Premier Database. xiv From case xv http://www.unilever.com/default.asp xvi http://www.nestle.in/AR122006.pdf xvii http://www.abf.co.uk/ xviii http://www.tatatea.com/ xix http://www.tatatea.com/ xx http://www.tatatea.com/fin_hl_sep_07.htm# xxi http://www.tatatea.com/ xxii Tata Tea Financial Report-2007 retrieved from http://www.tatatea.com/fin_hl_sep_07.htm xxiii Tata Tea Financial Report-2007 retrieved from http://www.tatatea.com/fin_hl_sep_07.htm xxiv http://www.tatatea.com/comp_profile.htm xxv Tata Tea Ltd - Hot Drinks – World (SWOT Analysis).March 2007. Retrieved from Global Market Information Database.