A STUDY INTO THE

FMCG SECTOR
OF INDIA
(TEA INDUSTRY)
Submitted By

Prashant M Relwani

UNDER THE GUIDANCE OF

A PROJECT SUBMITTED IN FULFILLMENT OF MMS

TO

Vidyalankar Institute of Technology

1
 DECLARATION

This is to declare that the study presented by me to Vidyalankar Institute of Technology, in part
competition of the MMS under the title A Study Into The Fmcg Sector Of India (Tea Industry)
has been accomplished under the guidance of.

2
CERTIFICATE

3
 ACKNOWLEDGEMENTS

It is my pleasure and honor to present this report and say a few heartfelt words for the people
who were part of this report in numerous ways, people who gave a lot of support right from the
stage of conceiving the project.

I am extremely grateful to my guide Dr. , who has been a motivator and source of
inspiration. His uninhibited guidance and valuable tips have been responsible to put in my best
efforts in working on this project. My special thanks to him for giving me a direction for the
project. I also thank my Co-guide Mr..for her constant support.

Date : Prashant M Relwani

4
 CONTENTS
Title of the Section Pages
Nos.

Objective Of Study 1

Methodology Of Study 2

Chapter 1 : Fast Moving Consumer Goods 3

1.1 : FMCG Industry In India 4
1.2 : Policies 7
1.3 : Key Players In FMCG Industry In India 8

Chapter 2 : Tea Industry 9

2.1: History Of Tea 10
2.2: Global Tea Industry 11
2.3: Types Of Tea 13
2.4: India Tea History 15
2.4.1: Characteristics Of India Tea Industry 20
2.4.2: SWOT Of Indian Tea Industry 22
2.4.3: Porter s Five Forces 23
2.4.4: Present scenario Of Indian Tea Industry 25
2.4.5: India Vs Other Tea Producing Countries 28
2.4.6: Areas Of Concern 33
2.4.7:Recommendations For improvement 39

Chapter 3 : Top 2 Players In India Tea Industry

3.1: Tata Tea 42
3.1.1: SWOT Analysis Of Tata Tea 44
3.1.2: Internal Environment Analysis 46
3.1.3: Business Level Strategy 47
3.1.4: Marketing & Promotional Strategy 48
3.2: HUL (Tea) 49
3.2.1: SWOT Analysis Of HUL(Tea) 50
3.2.2: Present Strategy 52
3.3: Recommendations To Top 2 Players To Increase Market Share 53

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6
 OBJECTIVES OF THE STUDY

The purpose of this study is to get familiarized with the Indian Tea Industry and its marketing to
International markets. In order to accomplish this objective, the present dissertation covers the
following objectives:

To highlight the present Market Scenario of India Tea Industry.

To examine the prospects of India Tea Industry in the International Market
To identify the problems of India Tea Industry Export to the International Market.
To know the scenario of World Tea Market.

To recommend some corrective measures to resolve the problems

7
 METHODOLOGY OF THE STUDY

This research is an elaborate study to enable us to understand the whole scenario of India Tea
Industry to the International market. Collected data and information were tabulated, processed
and analyzed critically in order to make the study more informative, fruitful and purposeful.

In preparing this report I have used secondary data and information .Most of the data have been
collected from secondary sources. The secondary information is collected from various books,
financial papers, and documents, articles related with the Tea Plantation, Tea Marketing,
Newspapers, India Tea Board, Web portal, International Tea Boards, EPB, Food and
Agricultural Organization (FAO) etc. Annual report,

Preparing the Dissertation on the India Tea Marketing beyond the boundary, the secondary data
was collected, corrected, organized, analyzed and interpreted to draw some findings and
recommendations.

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 CHAPTER 1

FAST MOVING CONSUMER GOODS (FMCG):

We regularly talk about things like tea, butter, potato chips, toothpastes, razors, household care
products, packaged food and beverages, etc. But do we know under which category these things
come? They are called FMCGs. FMCG is an acronym for Fast Moving Consumer Goods, which
refer to things that we buy from local supermarkets on daily basis, the things that have high
turnover and are relatively cheaper and there cost is relatively low.

FMCG industry, alternatively called as CPG (Consumer packaged goods) industry primarily
deals with the production, distribution and marketing of consumer packaged goods. The Fast
Moving Consumer Goods (FMCG) are those consumables which are normally consumed by the
consumers at a regular interval. Some of the prime activities of FMCG industry are selling,
marketing, financing, purchasing, etc. The industry also engaged in operations, supply chain,
production and general management. This project helps us understand the Tea Markets as part
of the FMCG industry.

Key Segments:

The FMCG sector consists of four product categories, each with its own hosts of products that
have relatively quick turnover and low costs:
Household Care
Personal Care
Food & Beverage
Household Care Personal Care Food & Beverage
Fabric wash (laundry soaps and Oral care, hair care, skin Health beverages; Tea; soft
synthetic detergents); care, personal wash drinks; products (biscuits,
Household Cleaners(dish/utensil (soaps); cosmetics and bread, cakes); snack food;
cleaners, floor cleaners, toilet toiletries; deodorants; chocolates; ice cream; coffee;
cleaners, air fresheners, perfumes; feminine soft drinks; processed fruits,
insecticides and mosquito hygiene; paper products. vegetables; dairy products;
repellents, metal polish and bottled water; branded
furniture polish)

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FMCG INDUSTRY IN INDIA:

The Indian FMCG sector is an important contributor to the country's GDP. It is the fourth largest
sector in the economy The US$ 21.1 billion FMCG (fast moving consumer goods) sector in
India is running full throttle and is expected to have a lot of action in 2010. As the fourth largest
sector in the Indian economy, it is distinguished by a good distribution network and a strong
competition between organized and unorganized segment. According to Financial Express, the
sector will witness a growth of 15 per cent in 2010, compared to last year. The industry also
creates employment for 3 million people in downstream activities, much of which is disbursed in
small towns and rural India.

This industry has witnessed strong growth in the past decade. This has been due to liberalization,
urbanization, increase in the disposable incomes and altered lifestyle. Furthermore, the boom has
also been fuelled by the reduction in excise duties, de-reservation from the small-scale sector and
the concerted efforts of personal care companies to attract the burgeoning affluent segment in the
middle-class through product and packaging innovations.

Unlike the perception that the FMCG sector is a producer of luxury items targeted at the elite, in
reality, the sector meets the everyday needs of the masses. The lower-middle income group
accounts for over 60% of the sector's sales. Rural markets account for 56% of the total domestic
FMCG demand. Many of the global FMCG majors have been present in the country for many
decades. But in the last ten years, many of the smaller run Indian FMCG companies have gained
in scale. As a result, the unorganized and regional players have witnessed erosion in market
share.

The Indian FMCG market has been divided for a long time between the organized sector and the
unorganized sector. While the latter has been crowded by a large number of local players,
competing on margins, the former has varied between a two-player scenario to a multi- player
one.

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Unlike the U.S market for fast moving consumer goods (FMCG), which is dominated by a
handful of global players, Indias US$ 21.1 billion FMCG market remains highly fragmented
with roughly half the market going to unbranded, unpackaged home made products This presents
a tremendous opportunity for makers of branded products who can convert consumers to branded
products.

At the macro-level, over the long term, the efforts on the infrastructure front (roads, rails, power,
and river linking) are likely to enhance the living standard across India. Till date, Indias per
capita consumption of most FMCG product is much bellow world averages. This is the latent
potential that most FMCG companies are looking at. Even in the much penetrated categories like
soaps/detergents companies are focusing on getting the consumer up the value chain. Going
forward, much of the battle will be fought on sophisticated distribution strengths.

Growth Potential:////////

Most of Indias population still lives in villages and hence, it is one area that cant be
overlooked. As an agricultural economy, which is gaining a lot of focus, rural income is bound to
increase. That will definitely provide a better growth prospect for the FMCG companies. The
growing demand in the market will also support the sector in an effective manner. Per capita
consumption of various products is very low in India and hence it will have varied growth
possibility. The new generation customer is brand savvy. However, now the companies need to
focus on rural customer to make them more aware of the kind of new products and services that
the FMCG basket can offer. The purchasing power of the people also plays an important role.
The urban area will continue to dominate the market share of the FMCG products, what with
increasing incomes and new categories. Currently urban populace has a 66 per cent share in
terms of consumption.

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Indian FMCG Market Progress.

India will continue to be a major FMCG player because of reasons like abundance of raw
material, labour costs and an effective value chain. The climatic conditions across India is varied
which gives it a huge raw material base for food processing industries. It is coming up as major
coffee market. For a long time it has been the largest producer of milk, spices cashew and
livestock. The production of caustic soda and soda ash also gives it a local advantage, since they
are the basic ingredients in soaps and detergents.

Indias FMCG Market Size (In USD Billion)

Sources: Naukri Hub, IBEF, Chennai Online

Competition:

Significant presence of unorganized sector Factors that enable small, unorganized players
with local presence to flourish include the following:
1. Basic technology for most products is fairly simple and easily available.
2. The small scale sector in India enjoys exemption/lower rates of excise duty, sales tax etc.
This makes the more price competitive vis--vis the organized sector.
3. A highly scattered market and poorly transport infrastructure limits the ability of MNCs
and national players to reach out to remote rural areas and small towns.
4. Low brand awareness enables local players to market their spurious look-alike brands.
5. Lower overheads due to limited geography, family management, focused product lines and
minimal expenditure on marketing.

12
POLICIES:
India has enacted policies aimed at attaining international competitiveness through lifting of the
quantitative restrictions, reduced excise duties, automatic foreign investment and food laws
resulting in an environment that fosters growth. 100 per cent export oriented units can be set up
by government approval and use of foreign brand names is now freely permitted.

Food laws:

Consumer protection against adulterated food has been brought to the fore by "The Prevention of
Food Adulteration Act (PFA), 1954", which applies to domestic and imported food commodities,
encompassing food colour and preservatives, pesticide residues, packaging, labeling and
regulation of sales.

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KEY PLAYERS IN THE INDIAN FMCG INDUSTRY IN INDIA:

Name Of Company
1. Hindustan Unilever Ltd.
2. ITC (Indian Tobacco Company)
3. Nestl India
4. GCMMF (AMUL)
5. Dabur India Ltd
6. Asian Paints (India)
7. Cadbury India
8. Britannia Industries Ltd.
9. Procter & Gamble Hygiene and Health Care
10. Marico Industries Ltd.

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 CHAPTER 2

HISTORY OF TEA:
Little did Chinese Emperor Shen Nung realize that in 2737 B.C., when dried leaves blew into
his cup of hot water, the beverage he discovered would cause sensations around the world.
During this time, water was always boiled for hygienic reasons. The pleasant aroma and
refreshing taste enchanted him and soon everyone in the realm was drinking tea.

Japan was introduced to tea by Yensei, a returning Buddhist priest residing in China at the time
of the discovery. Tea was immediately embraced by Japanese society and resulted in the creation
of the intricate Japanese Tea Ceremony, elevating tea to an art form.

Tea continued to travel throughout the Orient and it was during the time of the European
explorers tea made its cultural broad jump. The East India Tea Company brought tea into
Holland but its prohibitive cost of $100 per pound kept tea as a rich man's beverage until so
much was imported that tea prices fell and was sold in small food shops.

In 1650, Peter Stuyvesant brought tea to the American colonists in New Amsterdam, later called
New York. Soon the colonists were drinking more tea than all England.

In England, tea gardens, ornate outdoor events with fancy food and tea, fireworks and gambling,
seemed to sprout up overnight as entertainment centers of the day and many British enjoyed the
festivities offered there.

Russia discovered tea when ornate chests of the dried leaves were sent to Czar Alexis by the
Chinese Embassy in Moscow in 1618. It became Russian custom to sip heavily sweetened tea
from a glass in a silver holder. Russians also enjoyed honey or strawberry jam stirred into tea as
their ethnic contribution. Even today, vodka and tea are the national beverages of Russia.

To recover extensive expenses from the French and Indian War, England levied a huge tax on tea
imported to the colonies, mistakenly believing the colonists were so hooked on it they'd pay

15
anything to keep their supply coming in. One night the men of Boston dressed as Indians,
reminiscent of the French and Indian War stole aboard the ships docked in the Boston harbor and
threw the expensive tea cargo overboard and into the harbor. England reacted by having a raging
fit, closing Boston's port and sending Royal troops into occupation of Boston. Because of this,
colonists met to discuss these events and declared a revolution.

At one point, England even gave The John Company the power to not only import tea but to coin
its own money, make peace, declare war and other privileges previously only held by countries.

In the 1880's, America came to the forefront as the biggest importer of tea due to faster clipper
ships and the ability to pay its debts in gold.

A tea plantation owner introduced iced tea to the St. Louis World's Fair in 1904. It was an
extremely warm day and his hot tea booth was being passed up by the crowds in favor of cold
drinks. As desperate measure, since he was out time and money for even coming to the Fair, he
added ice to the vats of liquid hot tea and in the process made it one of the highlights of the 1904
World's Fair.

The tea bag came along as a surprise. Samples of tea at the turn of the twentieth century were
given out in small silk bags and instead of opening the bags, the tea bag in its entirety was being
dropped into hot water by consumers. Quickly, a tea company sprang into action and patented
the tea bag. Thomas J. Lipton was responsible for designing a four-sided tea he dubbed the 'flo-
thru' tea bag, which allowed tea to steep more quickly in the cup than the customary two-sided
bag.

Today tea is grown on tea estates and 70% of the tea we drink is grown in Sri Lanka, India,
Indonesia, Kenya, Argentina and China. The best climates for growing tea are those that are
tropical or semi-tropical and tea can be grown on soil that is not fit for growing much of anything
else. Today there are three basic types of tea: black, oolong and green and from these three types
spring over 3,000 cultivated varieties. The leaves are picked at just the right moment designated
by the tea estate manager, then crushed to start the oxidation process.

16
GLOBAL TEA INDUSTRY:

The global tea industry is largely dominated by India the second largest producer and the
largest consumer of tea. India is succeeded China and followed by Kenya Sri Lanka, Vietnam
and Indonesia in the production hierarchy of countries.

The tea industry is peculiar, the soil characteristics, the climate and the rainfall determine the
character of the tea and its taste. Tea affects the taste buds; therefore, it is difficult to replace a
particular variety with a substitute. This explains why certain types are favored by certain
countries: for example, the CIS (commonwealth of independent states i.e. Russia) countries favor
Indian and Sri Lankan teas. UK and Pakistan favour Kenyan teas.

India accounts for 26 per cent of world's production. While Sri Lanka, Kenya and Indonesia are
the other leading producers; their combined production is lower than that of India. What makes
India an interesting object of study is that its size is no millstone around its neck; its production
growth between 1996 and 1998 at 5.63 per cent was way ahead of the increase in world
production of one per cent only.

In 2008, world tea production reached over 4.73 million tones. Producing 1.16 billion kilos (2.56
billion pounds) of tea per year, China is the number one source for tea on the planet. At 980
million kilos (2.16 billion pounds), India stands at number two. Kenya and Sri Lanka follow.

When it comes to exports, China ships out 297 million kilos (654.78 million pounds) of all types
of tea whereas India, with primarily black tea, moves 203 million kilos (429.9 million pounds).

This ranking is fairly recent. Prior to the 1960s, India was the top producer and exporter. For
example, in 1955, India shipped out 165 million kilos (363.77 million pounds) of her total
production of 301 million kilos (663.59 million pounds). The fierce rivalry with Sri Lanka saw
the two jockeying back and forth for top exporter position from the 1960s through the 80s. But
in 1991, Sri Lanka surpassed India for good with 211 million kilos (465.12 million pounds).

17
China caught up in 1993 with 201 million kilos (443.13 million pounds) to Indias 175 (385.81
million pounds). Kenyas exports exceeded Indias that same year with 188 million kilos (414.47
million pounds). For total production, India has taken second place to China since 2006. (All
figures come from respective countries' tea boards.)

So, while other sources are ever more aggressive in their outputs, India seems to be lagging. It is
no surprise that China has made fast gains on the rest of the pack, given the increases the country
has made in its other industries. But why is this happening in tea, specifically? What is the
fundamental reason, if there is one, for Indias slip in tea supremacy? In my presentation and
during the lively question-and-answer that followed, I offered a few ideas that seemed to catch
the audiences attention.

The follow table shows the amount of tea production (in tones) by leading countries in recent
years. Data is generated by the Food and Agriculture Organization (FAO) of the United
Nations as of January 2010.

Country 2006 2007 2008

China 1,047,345 1,183,002 1,257,384
India 928,000 949,220 805,180
Kenya 310,580 369,600 345,800
Sri Lanka 310,800 305,220 318,470
Turkey 201,866 206,160 1,100,257
Vietnam 151,000 164,000 174,900
Indonesia 146,858 150,224 150,851
Japan 91,800 94,100 94,100
Argentina 72,129 76,000 76,000
Iran 59,180 60,000 60,000
Bangladesh 58,000 58,500 59,000
Malawi 45,009 46,000 46,000
Uganda 34,334 44,923 42,808
Other countries 189,551 193,782 205,211
Total 3,646,452 3,887,308 4,735,961

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TYPES OF TEAS:
All true tea comes from the Camellia sinensis plant. But the different types of tea stem from the
processing. Main varieties: Black, Oolong, Green, White, Loose teas and Tea Bags.

Black teas are oxidized and fermented during

processing, to give them their distinctive flavors. Black
tea has a full, rich taste.This particular variety of black tea
is called Keemun

Oolong Tea is tea that falls between a black and a green

tea. It only undergoes a small amount of fermentation
during processing.
The variety of oolong tea in this photo is infused with
jasmine

Green teas have undergone less processing than black teas,

and have a much lighter flavour. The health benefits of
green tea are seemingly endless. Since the leaves are not
fermented, the taste is pleasantly fresh and herbal.

White Tea comes from the Camellia sinensis plant. But the
leaves are picked and harvested before the leaves open fully,
when the buds are still covered by fine white hair. Hence the
name. White tea is scarcer than the other traditional teas, and
quite a bit more expensive.
This variety of white tea is called Silver Needle

19
Loose teas are typically whole leaves or at least large
pieces of leaves

A tea bag is a small, porous paper, silk or plastic sealed

bag containing tea leaves for brewing tea

20
INDIA TEA HISTORY:

Tea is an agro-based commodity and is subjected to vagaries of nature. Despite adverse agro
climatic condition experienced in tea growing areas in many years, Indian Tea Plantation
Industry is able to maintain substantial growth in relation to volume of Indian tea production
during the last one decade.

Tea is an essential item of domestic consumption and is the major beverage in India. Tea is also
considered as the cheapest beverage amongst the beverages available in India. Tea Industry
provides gainful direct employment to more than a million workers mainly drawn from the
backward and socially weaker section of the society. It is also a substantial foreign exchange
earner and provides sizeable amount of revenue to the State and Central Exchequer. The total
turnover of the Indian tea industry is in the vicinity of Rs.9000 Crs. Presently, Indian tea industry
is having (as on 18.12.2009 )

1692 registered Tea Manufacturers,

2200 registered Tea Exporters,
5848 number of registered tea buyers,
Nine tea Auction centers.

The tea industry in India is about 172 years old. It occupies an important place and plays a very
useful part in the national economy. Robert Bruce in 1823 discovered tea plants growing wild in
upper Brahmaputra Valley. In 1838 the first Indian tea from Assam was sent to United Kingdom
for public sale. Thereafter, it was extended to other parts of the country between 50's and 60's of
the last century. However, owing to certain specific soil and climatic requirements its cultivation
was confined to only certain parts of the country.

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 Market Growth Rates

1990-91 - 1996-97 1.30%

1996-97 - 2001-02 2.70%
2001-02 - 2006-07 2.20%
2004-05 - 2009-10 1.80%
2009-10 - 2014-15 2.00%

MARKET GROWTH RATE

Market Growth Rate(India)

3.00%

2.50%

2.00%

1.50%

1.00%

0.50%

0.00%
1990-91 - 1996- 1996-97 - 2001- 2001-02 - 2006- 2004-05 - 2009- 2009-10 - 2014-
97 02 07 10 15
Series1 1.30% 2.70% 2.20% 1.80% 2.00%

As can be seen from the above graph the market growth rate has been hovering around the 2%
mark since the mid 90s.

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Major Tea Growing Regions:

Tea plantations in India are mainly located in rural hills and backward areas of North-eastern and
Southern States. Major tea growing areas of the country are concentrated in Assam, West
Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are
Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim,
Nagaland, Meghalaya, Mizoram, Bihar and Orissa.

Unlike most other tea producing and exporting countries, India has dual manufacturing base.
India produces both CTC (Crush, Tear, Curl) and Orthodox teas in addition to green tea. The
weightage lies with the former due to domestic consumers preference. Orthodox tea production
is balanced basically with the export demand. Production of green tea in India is small. The
competitors to India in tea export are Sri Lanka, Kenya, China, Indonesia and Vietnam.

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Consumption Trends:

There has been a dramatic tilt in tea consumption in favor of domestic market since fifties. While
at the time of Independence only 79 M.Kgs or about 31% of total production of 255 M.Kgs of
tea was retained for internal consumption, in 2009 as much as 812 M.Kgs or about 82% of total
production of 991 M.Kgs of tea went for domestic consumption. Such a massive increase in
domestic consumption has been due to increase in population, greater urbanization, increase in
income and standard of living etc. Indian tea export has been an important foreign exchange
earner for the country. There was an inherent growth in export earnings from tea over the years.
Till 70s, UK was the major buyer of Indian tea Since 80s USSR became the largest buyer of
Indian tea due to existence of the trade agreement between India and erstwhile USSR. USSR
happened to be the major buyer of Indian tea accounting for more than 50% of the total Indian
export till 1991. However, with the disintegration of USSR and abolition of Central Buying
Mechanism, Indian tea exports suffered a setback from 1992-93. However, Indian Tea exports to
Russia/CIS countries recovered from the setback since 1993 under Rupee Debt Repayment
Route facilities as also due to long term agreement on tea entered into between Russia and India.
Depressed scenario again started since 2001 due to change in consumption pattern, i.e. switch
over from CTC to Orthodox as per consumer preference and thus India has lost the Russian
market. Another reason for decline in export of Indian tea to Russia is offering of teas at lower
prices by China, South Asian countries like Indonesia and Vietnam.

Global competition:

The major competitive countries in tea in the world are Sri Lanka, Kenya, China and Indonesia.
China is the major producer of green tea while Sri Lanka and Indonesia are producing mainly
orthodox varieties of tea. Kenya is basically a CTC tea producing country. While India is facing
competition from Sri Lanka and Indonesia with regard to export of orthodox teas and from China
with regard to green tea export, it is facing competition from Kenya and from other African
countries in exporting CTC teas.

Because of absence of large domestic base and due to comparatively small range of exportable
items, Sri Lanka and Kenya have an edge over India to offload their teas in any international

24
markets. This is one of the reasons of higher volume of export by Sri Lanka and Kenya
compared to India. Another important point is that, U.K has substantial interest in tea cultivation
in Kenya. Most of the sterling companies, after Indianisation due to implementation of FERA
Act started tea cultivation in Kenya. So, it makes business sense for U.K. to buy tea from
Kenya and Kenya became the largest supplier of tea to U.K.

India's share in world production

1
11 China
2 8
India
4 Sri Lanka
31
Kenya
4
Turkey
4 Indonesia
Vietnam
9 Bangladesh
Malawi
9 Uganda
26 Tanzania
Others

India is the second largest producer of Tea in the world second only to China who overtook
India as the largest producer of tea in 2006.

25
CHARACTERISTICS OF THE INDIA TEA INDUSTRY:
1) Productivity and quality:
The art of plucking, fine-tuned over the last 200 years, requires two fresh leaves and a bud to
be plucked manually. Tea productivity can be measured as per unit of labor (man year) and
per unit of land (hectare). Mechanized plucking (when labor is in short supply or expensive)
enhances productivity, but with compromise on quality, as coarse leaves also get plucked.
When tea is in short supply, some producers increase productivity by allowing plucking of
coarse leaves with fresh ones. When premium for quality rises, producers improve the quality
by compromising on productivity. The productivity also depends on the age of tea bushes,
genetic material, irrigation, fertilizer, cultivation techniques, etc. Replantation (typically 2%
of crop pa) to replace old bushes is done to improve productivity.

2) Labor intensity:
This industry is very labor intensive. Labor cost is generally fixed and therefore lower
production would result in higher unit cost of production. The proportion of variable elements
in labor cost depends on labor legislation and extent of casual and temporary workers
employed. If the production suffers on account of bad weather or pests, the per unit cost of
production goes up significantly
.
3) Long gestation:

Tea bushes mature for commercial exploitation in 5-7 years and remain productive for an
average 50 to 60 years. Major part of capital expenditure is to be incurred in first five years,
which then yields return over the next 100 years.

4) Commodity nature:
Tea prices fluctuate widely with demand supply imbalances. The commodity is perishable
and demand is relatively inelastic to price. While demand has a secular growth rate, supply
can vary depending on climatic conditions in the major tea growing countries. Unlike other
commodities, tea price cycles have no linkage with the general economic cycles, but with
agro-climatic conditions.

26
5) Inconvenient but healthy drink:
Tea is a very inconvenient drink to brew. The tendency to form a creamy layer of caffeine -
tannin adds to the inconvenience. Tea besides having properties of fatigue amelioration has
chemicals, which help in maintaining cholesterol levels and in preventing cancer. However,
research work on the subject is not conclusive.

6) Organized industry:
Tea industry is an organized agro industry. This implies that labor laws exists and since the
dominant mode of tea trade is through auctions, a large number of small producers get fair
prices.

7) Domestic Competition:
The major share of tea market is dominated by unorganized players. There are about 1000 of tea
brands in India, of which 90% of the brands are represented by regional players while the
balance of the 10% is dominated by Tata Tea, Hul, Wag Bakri Chai, Godrej, Sapat International
and others. With the growing shift from loose to branded tea, regional players are now expanding
their reach and also getting premium with their offerings

Special Features of India Tea Industry:

Production dependent of agro-climatic conditions
Same plant and same agro-practices give variations in quality in different regions
Product Life is for limited period
Labour intensive
High Cost due to high input cost
No priority for Scientific Cost Management
Huge proportion old tea & Low Productivity
Low investment in Development Programme

27
SWOT ANALYSIS OF TEA INDUSTRY OF INDIA:

Strength:

Demand for tea has been growing at some 2% per annum and should accelerate further
Technical & Manpower Skill: Due to a huge population base in India Technical &
Manpower Skill is available in abundant.
Good Research Support by tea growers has will help industry grow further.

Weaknesses:

Labor intensive industry: The second generation labors are reluctant to join this industry
hence it could pose a problem of skilled labour in the near future.
No Effective Cost Management system adopted by companies and other regulatory
bodies.
Supply from more efficient players like Kenya, China, Sri lanka
Declining Export of India over the years.

Opportunities:

Export Potential if India can increase its production capacity

To make tea more acceptable and fashionable like coffee
To come up with new flavors/formulation of the tea, tea houses etc to popularize the
concept of tea in India.
Large untapped rural market for branded tea companies lile Hul and Tata Tea

Threats:

Global competition
Low Cost in some countries like China, Sri Lanka and Kenya.
Import of Tea from other countries.
Cost escalation on account of increase in the cost of production

28
PORTER'S FIVE FORCES:

Industry Rivalry (High):

There are approximately 700 tea companies in India hence there is intense rivalry
amongst them.
Market is dominated by a large number of unorganized players
Industry growth is slow.
There are low switching costs.

Bargaining Power of Buyers (High):

There is a large numbers of buyers purchasing the product

The bargaining power of buyers is extremely high as the buyers have many options
available.
Not much product differentiation in terms of taste also low switching cost.
Buyers purchase a large proportion of the industrys total output

29
Bargaining Power of Suppliers (Low)

There are a large number of produces of tea in India.

There are substitutes like coffee available
Suppliers product creates low switching cost.

Threat of Substitutes (Moderate)

Substitutes Coffee, Cold drinks, juice (young generation new to tea)
Existing consumers are loyal
Substitutes price may be lower. As there are so many players in the industry a price war
is unavoidable.

The substitute products quality & performance may be better.

Threat of new Entrants (High)

Large untapped rural market for branded tea segment in rural India and Indian tea in
global markets
Encouraging government policies like food and beverage act.

30
PRESENT MARKET SCENARIO OF INDIAN TEA INDUSTRY:

The tea industry occupies a place of considerable importance in the Indian economy, producing
a fourth of the worlds annual tea outputamong them some gardens producing high quality
teas - and employing around 1.26 million people at tea plantations and 10 million persons derive
their livelihood from tea. In Northeast India alone, the tea industry employs around 900,000
persons on permanent rolls.

With domestic demand at an estimated 825 million kg (MKg) as of 2009, India is one of the
largest consumers of tea globally. However, as domestic demand accounts for over 86% of the
countrys tea output and since tea imports are permitted only for re-export, Indias share of the
global tea trade is on the lower side. Nevertheless, exports have a critical role to play in
maintaining the demand-supply balance in the domestic market. Although tea is produced in 14
States in India, five of themAssam and West Bengal in North India, and Tamil Nadu, Kerala
and Karnataka in South India account for over 98% of Indias tea production. Within that, North
India alone accounts for around 75% of Indias total tea production, of which 85-90% is
consumed in the domestic market. The balance, much of it of high quality, is exported. Tea is
among the most labour-intensive of all plantation crops. On an average, around 65% of the cost
of production is incurred on labour.

The recent buoyancy in tea prices, which started from 2006, has come as a relief for bulk tea
players, who have had to cope with depressed prices for almost a decade since 1999. Tea prices,
after reaching a peak in 1998, went into a steady decline thereafter, with average domestic prices
dwindling from around Rs. 76.43 per kg in 1998 to a low of around Rs. 58.05 per kg in 2005
(Refer Chart for trend in tea prices over the period 1998-2008). Although global tea prices also
declined 1999 onwards, driven primarily by oversupply, the decline in average prices was
sharper and of a longer duration for Indian teas vis--vis the teas from Kenya and Sri Lanka,
Indias two main rivals in the exports market. This was on account of a number of factors: lack
of marketing initiative by the Indian players to look for export markets beyond the CIS1
countries; proliferation of small growers and bought-out leaf factories (which led to a decline in
the quality of tea produced), and failure to check spurious varieties of tea from being traded as
premium tea (which affected the image of Indian teas in the export market); higher cost of

31
production of tea in India (as compared with that in Sri Lanka and Kenya) on account of the
higher social costs here; and existence of certain non-tariff barriers like residual-pesticide (in
tea) specifications imposed by a number of importing countries. All these factors led to the loss
of key export markets, which in turn increased supplies in the domestic market, thereby bringing
a downward pressure on prices. This apart, tea prices also came to be affected by the quality
factor, which came into play during the early part of the current decade when the delay of re-
plantation activities in the latter half of the 1990s began to tell on quality and hence on prices.
Most players had deferred re-plantation during the latter half of the 1990s to cash in on the
buoyancy in tea prices during 1997-98, but when the sharp price decline happened subsequently,
their financial position got so weakened that they were unable to make the required investments
in their tea estates.

Trend in Domestic Tea Prices

Source: ICRA research

Increasing domestic consumption, and exports to an extent, behind current buoyancy in

prices

The gradual depletion in pipeline stock since 2003, following a secular increase in domestic
consumption on the one hand and muted increase in production on the other, has been the main

32
factor supporting the increase in tea prices from 2006 onwards. According to ICRAs estimates,
while the average growth in production during the period 2003-08 was just 2.0% or so, domestic
consumption would have increased annually at around 3.5% during the same period. The steady
increase in domestic demand, range-bound export volumes and low growth in production
absorbed the pipeline stock over the years and left virtually no carry-forward stock at the end of
the 2008 season. Chart presents the trend in Indias production, consumption and export of tea
over the period 2003-08.

Trend in Indias Production, Consumption and Exports of Tea

Source: ICRA research

Climatic conditions taking there toll on Tea Industry

Unfavorable weather conditions for tea plantations coupled with global slowdown have badly
affected tea exports of Assam. Statistics say that India, the second-largest tea producer in the
world experienced a slump by 25 per cent in January 2009. The tea industry is going through a
rough patch for last three years due to rain deficiencys a result. This along with several other
problems is the major reason why the Indian Tea industry is growing at a snails place. Let us
have a look at the various problems faced by the Industry in India.

33
INDIA Vs OTHER TOP TEA PRODUCING COUNTRIES:

Major tea exporting countries of the world are Kenya, Sri Lanka, China, India and Indonesia.
However, prior to evaluation of export performance of major tea exporting countries of the
world, it is necessary to analyze the production and domestic demand of tea in these countries.
On the production front India is the second major producer of the tea in the world .Other major
producing countries include China, Sri Lanka, Kenya and Indonesia. During 1951-60, India was
producing around 40 percent of world production, declined to 26 per cent in 2008.The declining
trend can be observed in case of Sri Lanka as well. Only China and Kenya are able to increase
their share in world production considerably. The share of China and Kenya during 1951-60 was
13.59 per cent and 2.67 per cent respectively, increased to 31 per cent and 9 per cent in 2008.In
recent years China emerged as major tea producer in the world. Fig-1 shows, during 2004 and
2005, China became number one tea producer in the world pushing India into number two
position. India had doubted Chinas emergence as a top raking producer, citing limitations in
field level statistics and under reporting of the tea production in India. Tea board of India was
then engaged in revising the production.

Since 1985, even though Chinas area under tea cultivation is lower than earlier period due to
improvement in yield, production increased by 3.28 per cent per annum during 1984-94, further
increased by 4.13 per cent per annum during 1995-05.In India production increased by 1.83 per
cent per annum and 1.07 per cent per annum respectively during the same period. In Kenya,
production increased by 5.53 per cent per annum and 3.12 per cent per annum respectively
during the same period. Production in Sri Lanka and Indonesia also increased during this period
with improvement in supply conditions in Kenya, China and Indonesia, Indias share in world
production declined even though its total production increased.

Domestic consumption is calculated by deducting export from production. In case of India, there
is continuous increase in share of domestic consumption in production, it increased from 32.06
per cent during 1951-60 to 66.92 per cent in 1981-90, further increased to 78.26 per cent in
2001-04. We can observe that, whatever additional production is taking place, it is almost

34
entirely consumed internally leaving export surplus to remain stagnant and sometimes export
even shows declining trend. In contrast, Kenyas domestic consumption share in production is
very low and declined over a period of time shows that except for a few years, the increase in
production of tea in Kenya is almost entirely used for export

In Sri Lanka, domestic consumption in production is very low and is declining. In 2001-04,
around 94 per cent of tea production in Sri Lanka is used for export. In recent years, tea export
and production are almost same in Sri Lanka .In china, share of export in production of tea
increased over a period of time. From Fig .1 one can observe that in China, production, export
and consumption shown increasing trend. In Indonesia, share of consumption in production
increased, but it is lower than India.

Major Tea Exporting Countries

Country 2003 2004 2005 2006 2007 2008 % Change Share

Kenya 269.3 332.5 348.3 312.2 343.7 383.4 11.55 23.3
Sri Lanka 290.6 290.6 298.8 314.9 294.3 298.8 1.53 18.2
China 260 280.2 286.6 286.6 289.4 296.9 2.59 18
India 173.7 197.6 199.1 218.7 178.8 196 9.62 11.9
Vietnam 60.3 99.4 87.9 105.1 110.9 115 3.7 7
Indonesia 88.2 98.6 102.3 95.3 83.7 95 13.5 6
Argentina 58.2 66.4 66.4 70.7 74.2 75.5 1.75 4.6
Uganda 34.1 29.7 33.1 32.7 43.6 42.4 -2.75 2.6
Malawi 42 46.6 43 42 46.6 40.1 -13.95 2.4
Tanzania 20.4 24.2 22.5 24.1 29.1 24.8 -14.78 1.5
Bangladesh 12.2 13.4 9 4.8 10.6 8.4 -20.75 0.5
Zimbabwe 17.1 14.9 8.5 11.4 7.6 5.5 -27.63 0.3
Sub-Total 1326.1 1494.1 1505.5 1518.5 1512.5 1581.8 4.58 96.1
Others 72.2 68.7 64.6 62.5 62.5 64.4 3.06 3.9
World 1398.3 1562.8 1570.1 1581 1575 1646.2 4.52 100

Source: Global Tea Brokers Fig.2

35
 Indias share in world exports

0.003 % share in world exports

1
2 2 3.997 Kenya
2 Sri Lanka
China
5 23 India
6 Vietnam
Indonesia
7 Argentina
18 Malawi
12 Uganda
18 Tanzania
Bangladesh
Zimbabwe
Others

Over the years India has been slipping on productivity and quality parameters. Industry is
sensitive to productivity and quality which matters most for the survival of tea companies.
Evident that during 2000-2002, although total land under cultivation improved marginally by 2.5
percent, tea production actually dropped by 1.3 percent due to ageing life of plantations. Even,
yield showed a sharp drop of 3.9 percent from 1679 Kg/Hectare to 1614 Kg/Hectare.

36
Reasons for decline in exports:

1) Fall of Soviet Union, main trading partner of India. Tea exports have come down by 70
percent from 44 Mn/Kg in 2000 to 12.5 Mn/Kg in 2003.

2) Exports to trading ally Iraq, Iran and Afghanistan was affected during the same period due to
tension and war in middle-east. Exports came down by roughly 70 percent between 2000 and
2003.

3) Quality has always been the biggest consideration in tea exports. Other emerging countries
like Sri Lanka and Kenya are scoring high due to modern methods of production and branding.
Whereas, India is on continuous slippage in terms of quality and branding thereby giving away
its share of exports.

4) Concern over quality has resulted in exports of high margins value added tea (Tea Bags and
Branded Tea) come down from 45 percent of total tea exports in 1999 to 33 percent in 2003
(value terms). In volume terms, came down from 86.8 Mn/Kg in 1999 to 39.8 Mn/Kg in 2003.

Global tea industry has witnessed a paradigm shift with emergence of stronger countries like Sri
Lanka and Kenya. These countries captured large shares in global tea exports at the cost of older
players like India. Infact, these countries are eating away the premium grade tea export market
and value added tea export market on platform of superior quality and aggressive branding.
Impact on India is evident from Sri Lankas tea exports which increased from 262.9 Mn/Kg in
1999 to 298.8 Mn / Kg in 2008 whereas Indias reduced from 191.7 Mn/Kg to 196 Mn/Kg
during the same period.

Sri Lanka and Kenya are able to increase their productivity at constant pace which helped it
divert higher produce in the export markets. Higher exports were achieved by these economies as
a result of persistent efforts towards quality betterment and brand building. This exercise actually
helped economies towards driving high margin value-added tea exports.

37
It is witnessed, Indian tea is increasingly been displaced by tea of other Asian and African
countries. Trend indicates that although land under cultivation in India has increased at CAGR of
1 percent in last 3 years, yield has actually come down from 1679 Kg/Hectare in 206 to 1614
Kg/Hectare in 2009. Sri Lanka witnessed a complete reversal to India with yield increasing by 40
Kg/Hectare between 2006 and 2009 with no increase in land under cultivation. Even in Kenya
yield increased more than 10 percent or 242 Kg/Hectare in the same time period. Although, India
is regarded as Goliath of tea industry its position is slipping to smaller countries like Sri Lanka
and Kenya on quality and productivity parameters.

Middle-east countries like Iran, Iraq, Afghanistan and UAE were Indias main trading ally and
contributed 35 percent (volume-based) of total Indian tea exports. But, 9/11 terrorist attacks and
war in Afghanistan and Iraq led to sharp decline in tea exports to these nations.

38
AREAS OF CONCERN:

Despite Indias historical success with the tea industry, in recent years, the industry has faced
serious competition in the international and national market which has lead to the present crisis.

Many factors have been cited as causing the crisis in the Indian tea sectorsince the late 1990s.
Analysts agree that the dramatic fall in prices is one of the most significant causes of the crisis.
The worst affected are plantation workers and small growers; many estates failed to withstand
the downward slide of price and hence moved out of business leading to the closure of tea
estates that employ thousands of workers and of factories (BLF) to which small growers might
sell their products. Tea prices in India are being driven down by many factors:

a) Decline in demand for Indian tea in the global market

b) Defects in auction system
c) Poor price realization
d) Defective market structure
e) Increase in cost of production

a) Decline in demand for Indian tea in the global market:

The decade of 90s has been quite depressing for the Tea Industry in India. The major cause of
depression in the industry was the decline in the international demand of Indian tea. The
traditional markets of Indian tea like USSR and UK have drastically reduced the import of tea
from India. Changed global situations like disintegration of USSR, WTO agreement,
globalization of markets across the nations, etc. have proved to be adverse to India. In the year
2004, India lost its eminent position of the largest producer of tea to China. Kenya has already
taken over Sri Lanka in export pushing India to third position (Table 1). There is a fierce
competition abroad. Indian tea has lost its competitive advantage to other countries on account of
high cost and poor quality. However, one new development, i.e., India becoming the largest
consumer of tea next to UK, has provided a lifeline to the tea industry. While tea production of

39
India grew by about 250 percent since 1947 but the rate of growth of export remained
insignificant .It appears that, India grows tea mainly for Indians. However, the exports of all
other leading tea exporting countries have grown rapidly over the same period. The fact remains
that whatever the size of the domestic demand, there is still sizeable surplus amounting between
180 and 200 million kg that needs to be sold.

(b) Defects in auction system:

Indias tea market is facing yet another paradox which could be explained in terms of glaring
gulf between the price charged by dealers and retailers. A report for the International Labour
Organization (ILO) notes that the large tea companies are benefiting from fall in auction prices
and rise in retail prices for tea. This widening gap between consumer and auction prices is
cutting into the margins realized by the tea producers but is not being passed on to the consumer
in the form of lowered tea prices. Similarly a report by the Government of Assam found it
unfathomable that the retail price of tea has not come down with the fall of auction price.
Certainly, the margins of intermediaries are far too high. Price paid to plantation and small tea
growers has fallen since 1998; retail prices for tea have increased . Average price for medium
quality tea sold in Indian market increased from Rs.85-90 per kg in 1999 to Rs.123.05 in 2009.
In 2008, a kg of tea used to fetch Rs 105.12 of tea and it continues to rise.

In India, nearly 55 percent of total tea produce is sold through auction houses, with the rest sold
through private sales. Even after the abolition of compulsory auction in 2001, the auction houses
are very important constituent of tea marketing structure. The important feature of tea auction
sale is that the producers/growers do not take part in the selling process directly. The brokers in
the market sell tea on behalf of producers. Brokers generally do not accept bid from unknown
buyers.

The large buying companies use their market power (as they have their own network of sales and
marketing all over the country and export tea after blending) to push down price and take the
advantage of depressed market to pay low prices; they are clearly benefiting from the current

40
situation. Hindustan Lever, Tata Tea, Wagh Bakri Chai, etc. are such powerful buyers having
enormous influence on the market and price of tea in India in general and Assam tea in
particular.

These big tea companies which are in monopolistic competition in consuming countries always
try to stabilize prices.

The longer transaction time and higher transaction cost (like warehousing charges, transportation
cost, brokerage charges etc.) are some other problems with the auction system. It takes about 35
days for the entire transaction processes to complete.

(c) Poor Price realizations

The price of tea has been on long term decline while production costs have been rising, putting
pressure on tea growers and working condition of laborers. The decline in prices has been
primarily due to growth in production in the face of sluggish demand. Low prices for tea are
generally passed on to the plantation workers in the form of low wages and withdrawal of basic
facilities like food, health, education, etc. given that it is easier to cut cost by reducing labour
cost (as the labour has weak bargaining power) than raising the price of tea (difficult in the
competitive market economy) and in most of the cases producers have to remain competitive by
lowering wages. Major causes of poor price realization are due to following reason:

Competition between producing countries for a share of the world market was one of
the major causes of falling price of Indian tea. World production of tea is fairly
diversified and not concentrated in a particular area. Presently 36 countries of the
world produce tea and many of them are big producers. They prevent the establishment
of a monopolistic leader in the world tea market to ultimately allow fair and free
competition in the market.

Demand for tea is rising very slowly (1.5-2 per cent), therefore the only way to increase
market share of export by a country is at the expense of the competitors.

41
 Because of the dominance of auction system as a daytoday intermediary between
producers and buyers, the actual producers have been unable to maintain direct contact
with the ultimate customer of tea and thereby creating a long term relationship.

Tea is a perishable product. Its quality and flavor deteriorates very quickly. Therefore it
is frequently necessary to cut prices to clear stocks.

Tea producers have to stay in market despite cut in prices of their produces as they have
invested a huge sum of money; many people are dependent on it and lack of
alternatives for them.

It is forecasted that tea production will increase over next few years, despite a slower
growth in demand, a trend that can only undermine price of tea in the long run. The
present decline in prices was on the back of a 0.6 percent annual increase in production
during 19842008 is estimated at 2.8 percent .

There is a major shift in the consumption and thereby composition of demand for tea in
the developed (importing) countries which has had unfavorable effect on aggregate
export earnings from tea. The increasing use of tea bags and soluble instant tea
effectively reduces the quantity of tea needed per cup and also raise the demand for
plain cheaper tea. The tea bags accounts for 10 percent of the volume of world
consumptionand it is still increasing. Factors which help to motivate consumption of
instant tea include its ease of use as a cold dink and introduction of vending machines.
These changes in the consumption patterns of tea have also significantly contributed to
the decline in tea prices.

(d) Defective market structure:

The tea value chain comprises all the stages from green leaf production from the bushes to
finished product and sale to the customers. Value is added to the tea leaves at each stages of the
supply chain, each with associated cost. This includes the cost of plucking and sorting, factory

42
packing, internal transportation, ware housing, sales changes (auction or direct sale), freight,
insurance, interest, blending, packaging and retailers sales cost etc. In general most of the
agricultural produces, value addition is done at the downstream in the higher processing and
retail stages of supply chainthis is also true with tea. While tea is ready to drink item, the
downstream stages such as blending, packing and ultimate marketing are the most profitable one.
This part of the value chain is controlled by a handful multinational tea packers and brokers.
Concentration is extremely high in the downstream of tea supply chain where 90 percent of
western tea trade is controlled by 7 (seven) MNCs, 85 percent of world production is sold by
these MNCs.

As a result, these MNCs can considerably influence world retail price. These are the indications
that big companies have been influential in keeping world market price low, which affect the
sustainability of tea industry.

(e) Increase in cost of production:

While market prices for tea have been falling, the cost of production has been on the rise in
India, putting downward pressure on profitability and income.

One factor which is closely related to the cost of production is, of course, productivity in terms
of volume per hectare which is affected by change in climate, soil fertility, age of the tea bush,
high over-head cost, poor agricultural practices etc. The stagnation in productivity in many big
estates is compounded by high land labour ratio. Productivity declined in India from 1996 to
2008 in the large garden.

Labour cost accounts for around 60% of the unit cost of production and approximately 55 to 75
percent of that labour cost is on plucking. High fuel cost, dilapidated infrastructure including
transportation and unstable law and order situation in and around garden area etc. result in high
cost of production. Field and factory workers productivity is also considered low in India. The
impact of social cost (health, food, housing, water etc.) in the large estates in percentage terms
works out to about 5-8 percent of the total costs. It implies an additional Rs.4.12 per kilo for
manufactured tea in NE Region of India and Rs. 3.44 per kilo in South India. Therefore it is
assumed that around 80 percent of the cost of production goes towards fixed expenses like fuel,

43
power and labour .Inflationary pressures are now pushing up these fixed costs further. Labour
unrest is another major problem faced by planter/estates. Looking into the profitability of the
industry at the current price, does not provide the way to meet these costs. Rising costs and low
productivity can have negative consequences on social and environmental aspects of production
(sustainability problem), if these costs cannot be passed on to the ultimate buyer.

Table 1: MAJOR COUNTRY WISE EXPORTS OF TEA FROM INDIA

Name of 2006-2007 2007-2008 2008-2009

Country Qty Value Qty Value Qty Value
(M.Kgs.) (Rs.Crs) (M.Kgs.) (Rs.Crs) (M.Kgs.) (Rs.Crs)
Russia 39.36 322.21 42.02 355.29 36.75 392.65
Kazakhstan 9.69 104.67 9.57 96.92 9.76 131.49
Ukraine 1.15 8.75 1.54 11.49 1.58 15.31
Uzbekistan 0.22 1.65 0.03 0.33 0.06 0.71
Other CIS 0.21 3.06 0.27 5.6 0.55 8.5
Total CIS 50.63 440.34 53.43 469.63 48.7 548.66
UK 22.86 214.09 17.88 165.43 18.64 212.64
Netherlands 3.12 48 2.73 45.43 2.53 57.19
Germany 4.51 89.02 5.83 96.53 4.28 90.79
Ireland 2.37 46.73 2.01 36.85 1.49 33.58
Poland 3.94 35 4.4 35.97 2.99 38.33
U.S.A. 8.76 138.99 9.55 132.42 8.89 153.4
Canada 0.92 12.5 1.04 12.81 1.7 30.71
U.A.E. 22.77 231.22 24.55 243.75 21.66 275.85
Iran 9.91 105.79 13.14 145.7 13.92 196.22
Iraq 34.92 180.76 2.54 13.38 6.61 80.17
Saudi Arabia 1.12 11.04 1.56 13.64 3.11 35.93
A.R.E. 3.4 25.32 5.14 33.17 12.73 99.1
Turkey 0.2 1.27 0.14 1.13 0.08 1.05
Afghanistan 9.44 51.76 8.26 43.15 12.81 92.91
Singapore 0.47 7.22 0.41 6.91 0.3 7.03
Sri Lanka 3.08 29.14 3.93 32.48 4.37 48.28
Kenya 8.37 46.45 3.26 15.51 1.84 11.52
Japan 2.6 61.83 2.4 49.23 2.78 69.52
Pakistan 14.06 90.67 5.48 28.51 7.91 60.38
Australia 4.49 89.05 4.87 95.63 4.86 114.55
Other Countries 6.21 89.53 6.2 92.85 8.44 123.98
TOTAL 218.15 2045.72 178.75 1810.11 190.64 2381.79
Source : Tea Board of India

44
RECOMMENDATIONS FOR IMPROVEMENT:

The fact which emerges from the present crisis is that Indian tea has not been globally
competitive. It has concentrated more on building up its large estates what it should do is
it should given less attention to processing and improving the quality by proper blending
and marketingfor higher price realization of their products.

Unlike its key competitors, India does not have any powerful brand to support its
promotion drive in the international market. To win back the confidence of lost foreign
markets, Indian tea producers have to identify the need to revitalize the image of Indian
tea in that international market. A vigorous campaign which include Indian tea logos and
making Indian brands acceptable in those most major markets.

Further, an inspection agency should be appointed to keep a quality check on the tea that
is exported, and the major thrust should be made to improve quality for the long term
sustainability of tea industry of India.

There is an urgent need for reducing the unit cost of production through productivity
gains, capacity building of small growers, streamlining marketing channels, improving
infrastructure, tailoring marketing activities to individual countrys demand, propagating
health benefits of tea and promotion of organic tea using the tea mark. This is exactly
what the domestic tea companies should do for their long term survival.

International brands like Liptons, Brooke Bond of HUL and Tetley tea of Tata Tea; and
Wagh Bakri Chai etc are the market leaders and have great power in price determination
in both domestic and international market. This needs to be stopped and proper
investigation is needed to curb the wrong practices in the tea market by introducing new
laws to regulate the price movements.

45
 Improvement of supply chain management inside the country and global tea marketing
network is absolutely essential to compete with countries such as China and Sri Lanka
who are Indias biggest competitors.

The tea industry in India has a legacy of corporate farming right from the day of British
rule. The current situation in the sector has given ample reason for a rethink on whether
corporate farming can really boost agriculture. Time has come when tea companies
should sell out their large estates to farmers for cultivation, for ensuring more
competitiveness and make the industry viable. This will reduce production costs also. In
return big companies should enter into contract with tea growers by giving them technical
and marketing support and all that is needed for backward and forward linkages. Indian
farmers have done wonders by ushering in the green revolution and ensuring food
security in this country. They will replicate the same in the tea sector also.

As it is observed, retail price of tea have not declined when prices at the local auction
centers have fallen so dramatically since 1990s, noting the larger profit by the
packers/retailers who are mostly at the end of the value chain. The issue here is the role
played by these companies in their own plantation, implications of direct purchases by
them from other growers and their relationship with brokers at the tea auctions, where
price manipulation is widely suspected. These defects at the auction centers should be
investigated and remedial measures like bringing more transparency at the auction
market; introduction of online auction practices for tea, etc. should be taken which will
lead to changes in the structure of tea auctions to limit the manipulation by the big
players in the industry.

Despite being the largest producer and consumer of tea, the Indian plantation sector lacks
appropriate mapping of production and consumption levels. Due to absence of accurate
estimates the formulation of long term industry wide action plans have been affected.
Hence in order to rectify this an the Tea board of India must set up a committee to keep a
check on this issue.

46
 It has been observed that the actual producer of tea has no direct link with the ultimate
consumer. Tea producers sell their products to the bulk purchaser through direct sale or
through auction to big buyers. Therefore, the producers do not understand the market
demand choice of the customer, it is very important in todays market economy for long
term sustainability of the industry. With the withdrawal of sales restriction, the growers
can directly go to the market by building their own brand. As the margin of profit is very
high at the present domestic retail market, Indian tea growers should invest and take this
opportunity for the promotion of their brand at the retail market and also by reducing the
prices of tea and passing on this benefit to the customers.

Fresh capital inflow is needed right at this moment for the tea industry of India.
Investment in new plantations and production machineries must come immediately to
compete in the international market. Since tea industry has to compete globally, it is
necessary that they should have access to global capital at competitive rate. This can
bring life to the industry and those who live on it, especially workers

Recognizing the fact that the tea industrys crisis in India has multiple causes, which
require a variety of solutionsone of the most important steps from the government part
shall be to introduce a stronger competition law to curb the misuse of corporate buying
power and promote social objectives at the garden level. I believe that focusing on the
role of the larger tea companies, which hold a great deal of power in Indian tea market
can have a significant influence over conditions for workers on plantations and small
growers.

47
 CHAPTER 3

TOP 2 PLAYERS IN INDIAN TEA INDUSTRY:

TATA TEA:

Company Profile:

Tata Tea Limited, also known as Tata-Tetley, is the world's second largest manufacturer and
distributor of tea. Tata Tea is the largest vertically integrated tea firm in the world, from its
plantation activity through to its packaging and marketing initiatives.

Tata Tea Limited, together with its subsidiaries, engages in processing, producing, marketing,
and distributing tea products primarily in India. It also involves in the cultivation and
manufacture of black tea and instant tea, tea buying/blending, and sale of tea in bulk or value
added form. It offers tea primarily under the following brand names:

TATA TEA

Tata Tea Tata Tea Tata Tea Tetley Kanan Chakra Gold
Premium Gold Agni Devan

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Tata Tea Limited owns approximately 51 tea estates in the states of Assam, West Bengal, and
Kerala in India. It also has operations in Australia, the Middle East, west Asia, North Africa,
Poland, Russia, and Kazakhstan. The company was founded in 1964 and is headquartered in
Kolkata, India.

Set up in 1964 as a joint venture with UK based James Finlay and Company to develop value-
added tea, the Tata Tea Group has now product and brand presence in 40 countries. It is one of
India's first multinational companies. The operations of Tata Tea and its subsidiaries focus on
branded product offerings in tea, but with a significant presence in plantation activity in India
and Sri Lanka.

The consolidated worldwide branded tea business of the Tata Tea Group contributes to around
86 per cent profit from branded tea sales while the remaining 14 per cent coming from bulk tea,
coffee and investment income. Tata tea Brand is ranked the second most trusted beverage brand
in brand equity.

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SWOT Analysis Tata Tea:

Strengths:

Market Leader: With a value share of 22.6% in November, Tata Tea is now the market
leader in the Rs 7,000-crore branded teas market, having overtaken peer Hindustan
Unilever (HUL) which has a value share of 21.3% (Source: AC Nielsen).

Resources & Capabilities: Tata Tea Limited owns approximately 51 tea estates in the
states of Assam, West Bengal, and Kerala in India.. The crop at each of these plantations
imbibes the characteristics of the region where it grows. In that respect, tea is much like
wine. Having plantations in varied agro-climatic zones enables Tata Tea to cultivate
distinct tealeaves.

Brand Name: Tata tea Brand is ranked the second most trusted beverage brand in brand
equity. The company's best-selling brand is Agni which caters to the mass segment and
other brands include Tata Tea Gold, Chakra, Gemini and Kanan Devan.

Experience: Tata Tea has been one of the oldest companies in India and has the
advantage of skill and experience on their side.

Weakness:

No product differentiation: One of the major problems Tata Tea faces is the lack of
much product differentiation hence loyalty of consumers is a major area of concern.

Branding: Due to lack of branding activitied my the organized palyers amd low
switching cost of consumers retaining consumers becomes a challenge as they switch
over to cheaper brands.
Distribution Network: The distribution network of Tata Tea comprises on 1.25 lakh
distributers this is not much when you compare to HUL who have the strongest dealer
network in the country.

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Opportunities:

New Product Development: The Company can integrate into fruit & herbal teas. This
segment has not yet been tapped by any of the tea companies yet and this could give Tata
tea the first movers advantage if they decide to enter this segment.

Rural Market: There is a large untapped rural market which needs to be exploited.
Although Tata Tea has made it s presence felt in the rural markets this sectors is
characterized by a large un organized sector and local players rule the rusts of the day in
these markets.

Export Potential: Tata tea is present in 40 countries around the world. There are a lot
more opportunities it can exploit if they can increase their production capacity to exploit
these untapped world markets all over the world.

Mergers and Acquisitions: There are more than 1000 tea companies in India. Tata tea
can increase its market share and penetration by acquiring these small companies and
also forming mergers with other big MNCs like it did for Tetley Tea, Good Earth etc

Threats:

Low Barriers: There are not too many entry barriers put by policy makers this makes
the Indian Tea market extremely fragmented and unorganized. There are many regional
players who hold small chunks of markets. By imposing Entry barriers the existing
players will be in a better position to exploit the existing situation.

Globalization: India is opening it s doors to MNC s and with that comes the threat of
globalization of the economy. The small and regional players will face intense
competitions from big MNC s.

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INTERNAL ENVIORNMENT ANALYSIS:

1) Resources:
51 tea estates in states of Assam, West Bengal, Tamil Nadu, Kerela.
Area of 26,500 hectares under tea cultivation.
Produces about 60 million kg of black tea annually.
Subsidiaries & Associated companies
Overseas business

2) Capabilities
Distribution system.
Strong and trusted management.
Research and development.
Marketing.

3) Core competencies.
Brand name

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BUSINESS LEVEL STRATEGIES:

Bought leaf factories & co-operatives to change the structure of green leaf production

Identified branded tea as its thrust area

To exit the beverage retailing business to focus on branded products

Tata Coffee sold off its stake in Barista, no plans of re-entering the business

Introducing drinks like TiON, all over India

Jaago Re campaign followed by the 'Aaj Se Khilana Bandh, Pilana Shuru' campaign to
target the youth for voting and work against corruption

Focus on brands like Chakra Gold, Gemini and Kanan Devan in regions where they are
strong.

MARKETING STRATEGY:

In spite of a global presence, the brands are distributed differently depending on the location. As
Tata tea is far better known in India and a powerful brand there, it is pushed on this market and
countries with a large Indian population. Therefore Tetley is the company's global face and the
largest markets focus on the Tetley brand. Where both brands co-exist in one market, Tetley is
positioned as the premium brand.

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PROMOTIONAL STRATEGY:

The new campaign Jaago Re will migrate Tata Tea from being a physically and emotionally
revitalizing tea experience to one that will challenge the consumers intellect to awaken to
what is around them. It will motivate people to internalize the tea experience and externalize
their social awakening. It is probably the first time that any brand is taking on the mantle of
social responsibility in such a manner. The campaign will also provide a poignant platform for
connection with the youth.

The campaign in keeping with the magnitude of the strategy also plans to deploy a mega
approach to connect with the consumer at all possible touch points. Television will be the
lynchpin of the campaign. There will be one main commercial and six short duration
commercials. Each of the commercials will touch upon one relevant social issue. As part of the
campaign Tata Tea brand has also tied up with the Jaago India foundation. The foundation and
Tata Tea have launched a website that each month will cover a socially relevant issue. The site
will provide all the required information on the issue, will allow consumers to interact and
provide solutions. To generate interest and create empathy the site will feature four short film on
the topic of the month. Other than television and the website the campaign will also use radio,
press, shop level visibility and the new outdoor medium of malls and multiplexes to drive home
the message of Jaago Re. Many of the communication tools being planned at the malls and
multiplexes will be used for the first time in the country.

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HINDUSTAN UNILEVER LIMITED:

Company Profile:

Unilever owns two of the most widely recognized product lines Lipton and Brooke Bond. The
major competition facing Lever at present is from Wagh Bakri Chai Tea, who is truly a market
challenger.

Lipton comprises of Yellow Label which is designed for upper middle, upper lower and upper
middle class, which is a market leader in the industry, it comes in all the packages including hard
packs, jars, and teabags. Lipton yellow label although the direct competitor of Brooke Bond
Supreme comes in the family of Unilever so it is prone to its competing attacks. Lipton follows a
massive promotion scheme to hold its share. Richbru is designed for middle and lower upper
classes, and Pearl dust is designed for rural areas, mostly districts of Sindh where consumption
of dust is extensive.

Brooke Bond comprises of:

Brooke Bond

Supreme Taj Mahel 3 Roses Red Label A1 Karak Tea

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SWOT Analysis for (HUL):

Strength:

Brand Name: According to Brand Equity, HUL has the largest number of brands in the Most
Trusted Brands List.HUL has a very strong Brand name in the Indian market. Its brands are
strength for the company.

Strong Distribution Network: Hindustan Unilever's distribution covers over 1 million

retails outlets across India directly and its products are available in over 6.3 million outlets in
India, i.e., nearly 80% of the retail outlets in India. It has 39 factories in the country. Two out
of three Indians use the companys products and HUL products have the largest consumer
reach being available in over 80 per cent of consumer homes across India.

Unique sizes have been introduced for various segments including teabags, stir ready.

Product Range: Wider product range with technological superiority, e.g. Brooke Bonds
hot tea can

Weakness:

It is a product being introduced in an already existing tea market with established brands.

No competitive advantage can be brought in this industry. Only massive advertising and
promotional activities may entice consumer for trial.

Brand Dilution: Having too many brand extensions can dilute and confuse consumer
perception and give fresh and new competitors to seize market share.

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Opportunities:

Alliance with Pepsi to access massive distribution network. Presence of big, well known
partners drives demand further.

Declining markets for other beverages such as soft drinks

Rural Market: There is a large untapped rural market which needs to be exploited.
Although Tata Tea has made it s presence felt in the rural markets this sectors is
characterized by a large un organized sector and local players rule the rusts of the day in
these markets.

Greater awareness of health benefits of tea.

Threats:

A rigorous threat is the increasing number of branded and unbranded tea in the market
with ample price difference. For that, established companies need to increase their
advertising and promotional budget. There is a need to get a better shelf space and more
retailer patronization for the company's brand.

Unilever presently pays 80% as taxes on imported tea. This rise in import duty on tea by
government is intended to discourage it's consumption, which possess to be a threat as it
has resulted in higher prices for the consumers.

Low Barriers: There are not too many entry barriers put my policy makers this makes
the Indian Tea market extremely fragmented and unorganized. There are many regional
players who hold small chunks of markets. By imposing Entry barriers the existing
players will be in a better position to exploit the existing situation.

Presence of other major players such as Coca-Cola and Nestle leading to tough
competition

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PRESENT STRATEGY:

Ownership:

The owner of the premium Brooke Bond and Lipton tea brands in India, Hindustan Unilever Ltd
(HUL), has taken a decisive step towards regaining absolute market leadership from Tata Tea
Ltd by entering the so-called economy segment of the market as well.

Value Leadership:

HUL already leads the domestic tea market in terms of value and has been narrowing the gap in
volume sales, where Tata Tea's economy brand Agni, priced at around Rsl50 per kg, gives it the
edge.

New Variants:

HUL launched its Brooke Bond Sehatmand tea in Madhya Pradesh, Chhattisgarh and Bihar in
late January, using non-governmental organizations among other channels in a low-profile
promotional campaign.

The new tea, priced at Rs.l70-180 per kg, includes folic acid, calcium and other vitamins as part
of its ingredients.

HUL expects Brooke Bond Sehatmand to create a new segment in the 850 million tonnes (mt) a
year tea industry. Of this, packaged tea accounts for less than 350mt.

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RECOMMENDATIONS TO TOP 2 PLAYERS TO INCREASE MARKET SHARE:

Increase number of service outlets: In recent times there have been numerous coffee
shops springing up in Tier A cities like Mumbai, Delhi, Bangalore etc Tea house shpul be
set up in a smililar fashion and premium quality teas should be served at these outlets.

Strategic alliance: Tie up with their own range of five star hotels to supply premium
quality tea and coffee as also with lower end three star hotel n also local eateries(Udipi
joints etc). Tie-up with airlines, rajdhani, shatabdi, caterers etc to promote their tea coffee
n also mineral water brands

Own Depots: To start own depots of Tata Tea and HUL tea so that they can sell loose tea
thus reducing cost of packing which will also reduce the Vat & additional charges. Thus
masses from lower income group would be effectively targeted.

Penetration: Deeper penetration in rural markets by using self help women groups for
door to door selling.

Profit margins for retailers: Increase profit margins for retailers to achieve higher sales
volume as they are the main influencing factors in lower income group people.

Promotional activities: More number of ads which are equally effective as middle class
people from towns get influenced by ads to a large extent g) Jago Re campaign.

Product Innovation: Enter new market segment with product innovation like tea
flavored ice-creams, tea wine, tea chewing gums etc

Flavors: Launching of flavored teas bamboo cups in china bring it to India too.
Launching of more flavors in India (lemon tea, black tea).

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 Related Diversification: Future strategy of entering childrens drinks like Complan,
Bournvita, Horlicks.

Bundling: Providing a bundle pack like a small tea sachet free with 100 Gms pack of
biscuits.

New Markets: Explore new and untapped markets not only in India but also in different
countries.

Branding: The top 2 players i.e. Tata Tea & HUL should focus their attention on proper
branding of their products and should try to create a brand loyalty among the consumers
of their products.

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 BIBLIOGRAPHY

Books

The Marketing white book,2009-2010,Statistics for FMCG sector

4 P s ,December issue,2009, Living the GLOCAL life (Pg.72,73)

References
Articles (online):

Mr. Daipayan Lodh, Motilala Oswal,2008,A Equity Research on FMCG Sector.

Mr Gaurav Kumar,2008,An Industrial Analysis Report On Growth & Prospects Of Tea

Industry In India

Mr. Shashank.Chauhan ,2008, Benchmarking Of FMCG Industries In India

Mr.Muhammed Alee Mansur, 2006, Bangladeshi Tea In The International Market-

Problems And Prospects

A report by PricewaterhouseCoopers for IBEF, 2004, Fast Moving Consumer Goods.

Mr. Sunil Bhat,2008,Managerial Microeconomics FMCG Sector At Crossroads

Federation of Chambers of Commerce and Industry(FCCI),2008 FMCG-The Road Ahead

India Business Information & Consulting Service,2009, FMCG Sector Report

ICRA,2009, Indian Tea Industry: Outlook Positive For The Short To Medium Term

Mr.Nirmal. Pandey,2008, Tea Report

Mr.Jayanta Roy,2009, Tata Tea Limited

Mr.Ritwik.Raje,2009,Tata Tea Limited

Dr. V.N. Asopa,2007, Tea Industry of India The Cup That Cheers has Tears

Mr. Mandeep Saini,2008,The Integrated Excellence

Mr.Ashim Kr. Das, 2009, Sustainability In Tea Industry: An Indian Perspective

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 WEBSITES

http://www1.american.edu/TED/indiatea.htm

http://beacononline.wordpress.com/2008/10/23/marketing-problem-faced-by-the-tea-
industry/

www.gmsworldnet.com/.../vision_2020_reinventing_indian_tea_industry

http://www.financialexpress.com/news/tata-tea-hul-war-brews-in-tea-mkt/496631/

www.hindustantimes.com

http://www.indiatea.org/teascenario/teascenario.html (Financial)

www.naukrihub.com

www.teaboard.gov.in

http://www.scribd.com/doc/24393545/FMCG-Project

http://www.scribd.com/doc/26195273/Lipton-Yellow-Label-tea-survey

www.wikipedia.com

teaboard.gov.in/pdf/tea_statistics/Tea_Statistics_1955.pdf

http://www.thehindubusinessline.com

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