Top-Rated Free Essay

Tea Industry in India

Topics: Tea / Pages: 8 (1970 words) / Published: Sep 13th, 2013
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India is the second-largest producer of tea in the world. It comes next only to China, which produces more than a third of the world's tea output.

Tea can be broadly classified in two ways: crop growers' classification market classification

The first approach is based on cultivation of tea and the plucking season in different regions. Market classification, on the other hand, is done on the basis of the manufacturing process used, and the final form of sale - black tea, green tea or oolong tea. Black tea is further classified into various grades based on the extent of processing and the final leaf size in the end product.


Classification by crop growers:


Market Classification:


Classification based on final form of sale:

Tea is either sold in bulk, loose or packaged form. Bulk tea is generally sold at auctions in 35-kg chests. The loose tea market is fragmented and demand for the same is regional. Packaged tea is sold in polypacks, containers, polythene bags or in corrugated cardboard boxes and is generally sold in retail outlets. Tea sold in containers (up to 1 kg) is termed as packet tea by the Tea Board.Packaged teas is also available in smaller formats such as instant tea and tea bags.

Classification based on black tea grades:

Orthodox and crush-tear-curl (CTC) black tea varieties can be further classified into grades. While orthodox tea comes in all grades -whole leaf, broken leaf, fanning and dust, CTC tea is either available as fanning tea or dust tea. Fannings are 1-1.5 mm in dimension, while broken grades are slightly larger. Particles that are less than 1 mm are classified as dust. Fannings and dust grades have a much stronger flavour than the leaf grades.

|Sr.No. |Name of Company |Year of incorporation |Ownership |
|1. |Harrisons Malayalam Ltd. |1978 |RPG Enterprises Group |
|2. |Tata Global Beverages Ltd. |1962 |Tata Group |
|3. |Hindustan Unilever Ltd. |1933 |Unilever Group |
|4. |Jay Shree Tea and industries Ltd. |1945 |Birla B.K. Group |
|5. |Dhunseri Petrochem and Tea Ltd. |1916 |Dhanuka S.L./C.K. Group |
|6. |Goodricke Group Ltd. |1977 |Goodricke Group |
|7. |Mcleod Russel India Ltd. |1988 |Williamson Magor Group |

We shall look into the two major players in the Indian industry

Tata Global Beverages Ltd.
Hindustan Unilever Ltd.



Tata Global Beverages Ltd. was incorporated in 1962 as Tata Finley Ltd.
The name was changed to Tata Tea Ltd in 1982,and subsequently, to TGBL in July 2010,as the company transitioned from being an integrated tea company to a global beverage player.
Its product portfolio includes tea, coffee, bottled water and ready-to-drink beverages.
TGBL, which includes both Indian as well as international tea business, is the world's second largest branded tea company with a presence in around 40 countries.

Vision: To become the leading ‘good-for-you’ beverage company.


Major Brands:

Evolution Timeline:

|Year |Events |
|2012 |TATA Starbucks Ltd. – Joint venture with Starbucks |
|2011 |Acquires stake in the The Rising Beverage Company,LLC which owns Activate brand |
| |Nourishco – Joint venture with Pepsico. |
|2010 |Brand new “jelly drink” concept launched in UK. |
| |Caffeine free - hot beverage ,specially blended for kids, launched in UK. |
|2009 |Group acquires Grand Coffee, Russia. |
|2007 |Investment in the ‘Mount Everest Mineral Water’,which owns the ‘Himalayan Water brand’ |
| |Tetley Group acquires the Polish Tea brand, Vitax. |
|2006 |Group acquires 8 O’Clock Coffee,USA. |
| |Tetley Group acquires Jemča, in Czech Republic |
| |Tetley Group acquires 33% share in Joekels Tea, South Africa |
|2005 |Tetley Group acquires Good Earth, USA |
|2000 |TATA tea acquires the Tetley Group Ltd. |
|1991 |Tata Tea enters brands business. |

Segment wise operating income Brand wise operating income


Hindustan Unilver Ltd. was incorporated as Lever Brothers India Ltd. in 1922.Two Unilver subsidiaries, Hindustan Vanaspati Manufacturing Comapny and United Traders, were merged with Lever Brothers India in 1956 and the merged entity was rechristened 'Hindustan Lever Ltd' and further to Hindustan Unilever in 2007.HUL is a subsidiary of Unilever.Unilever acquired Brooke Bond and Lipton India and merged it with HUL in 1996.

Unilever products touch the lives of over 2 billion people every day – whether that's through feeling great because they've got shiny hair and a brilliant smile, keeping their homes fresh and clean, or by enjoying a great cup of tea, satisfying meal or healthy snack.

Major Brands:
Evolution Timeline:
|Year |Events |
|1903 |Brooke Bond Red Label tea launched. |
|1966 |Taj Mahal tea launched. |
|1988 |Launch of Lipton Taaza tea. |
|2006 |Brooke Bond 3 roses launched. |

Other Brands

Despite a considerable number of regional tea brands, national brands such as Tata Global Beverages (formerly Tata Tea) and Hindustan Unilever Ltd jointly account for over 50 per cent of the packaged tea market (in volume terms).

Domestic auction prices of tea are influenced more by the domestic supply situation, and less by international prices. There is no direct linkage between Indian auction prices and international prices. Roughly 15-20 per cent of India's total tea output is exported with the balance being domestically consumed.

In India, tea is primarily sold through two primary channels: auctions (bulk sales) direct sales (ex-factory/ex garden sales)
Of these, auctions account for more than half of total sales. Primary marketing channels help in moving tea from the growers to the bulk tea buyers.

Marketing Channels for Tea in India

The proportion of tea sold through auctions shot up in 1985 with the introduction of the Tea Marketing Control Order (TMCO), which mandated all tea manufacturers to sell 75 per cent of their output through auctions. However, exported tea and packaged tea was exempted from this rule. In 2001, the TMCO was revoked. Since then, the percentage of tea sold through auctions declined to 53 per cent in 2011.

Trend in auction tea prices
North Indian auction tea prices depend largely on demand-supply variations in the domestic market, while South Indian auction tea prices are determined by fluctuations in global-demand supply. North Indian tea prices are driven by the domestic market as more than 90 per cent of the region's output is consumed within the country. On the other hand, 50 per cent of South Indian tea production is exported, and therefore, its prices are largely influenced by the international market - especially Kenya. This is because both Kenya and South India are predominantly CTC tea producers.



The Indian tea industry is highly fragmented with over 200 players in the fray. While many players in the organised sector have integrated operations (with captive plantations), the number of bought leaf factories (BLFs) are also increasing as the labour and raw material costs here are lower as compared to plantations. Most of the integrated players are in the bulk tea market and the branded tea segment is dominated by Hindustan Unilever Limited (HUL) and Tata Tea. The packet tea sales constitute about 40 per cent of total domestic consumption.

Grower: A grower incurs about Rs 80-85 per kg for growing tea, which constitutes about 85 per cent of his selling price. Of his total costs, 45-50 per cent is incurred on labour. In addition, he incurs 2 per cent for transportation and another 1 per cent for warehousing. The grower then sells his produce to a wholesaler or at the auction, thereby earning a 12 per cent margin. The grower's margins are most sensitive to auction prices.

Wholesaler: A wholesaler buys tea at the auction or from the grower. He then incurs around 5 per cent transportation cost, and after adding his margin of about 5 per cent, he sells the tea to the packaging company. His margins are largely unaffected by the fluctuations in tea prices.

Packaging company: The packaging company procures tea from the wholesaler or directly from the auction. Thereafter, it packages the tea, incurs selling and distribution (S&D), branding and other costs, and sells it to the retailer. Together S&D,packaging, and other costs account for about 13 per cent, and the tea packaging company earns a margin of around 17 per cent. As the packaging and S&D costs do not fluctuate often, the margins of the packaging company are largely affected by the auction/wholesale prices. In a scenario of falling prices, a packaging company would enjoy high margins; whereas in the case of rising prices, its profitability will depend upon the pricing flexibility it enjoys.

Retailers: A retailer buys from a packaging company and sells to the final consumer. He incurs costs like storing and stocking (accounting for about 3 per cent), and usually adds a fixed percentage of margin (of around 7 per cent) before selling the packet tea.Thus, his margins are largely unaffected by the variations in tea prices.

Thus, wholesalers and retailers usually earn a fixed percentage as margins and their profitability remains stable even with fluctuating tea prices. Packaging companies earn higher margins than those of wholesalers and retailers and they generally pass on the price rise to the final consumer. Tea growers sell tea at auctions, where prices are determined by the forces of demand and supply.Further, their cost of growing tea also rises moderately every year. During periods of high auction prices, their margins improve and in periods of low prices, their margins shrink. The profitability of tea growers is therefore most sensitive to tea prices.

|Common promotion |Description |Tata Tea |HUL |
|techniques | | | |
|Emotional Messages |Emotional messages connect more to consumers and try |Eg:Badey Badlav ki Choti |Eg: Aisi Taazgi aur Kahan |
| |to build a relationship with some emotion of the |Shuruat | |
| |customer. | | |
|Hoardings |In malls, along roadside. Basically used to spread |Yes |Yes |
| |awareness. | | |
|Television Ad's |Advertisements on television are the most prominent |Yes |Yes |
| |part of communication. | | |
|Promotions on Radio |Declarations on Radio about products. Basically ads |Yes |Yes |
| |only. | | |
|Promotions through print |Ads in magazines or newspaper etc. |Yes |Yes |
|media | | | |
|Event |For ex, Promotion through musical events, etc. |Yes |Yes |
|Promotion | | | |
|Brand Ambassador |Changes from product to product. |Shah Rukh Khan for Tata Tea |Trisha Krishnan for Brooke bond |





The Indian tea industry is seasonal in nature, as tea crop is highly sensitive to changes in climatic conditions. Hence, production and quality of tea differs across months in a year.

In India, tea has a wide consumer base, ranging across income levels, thus the beverage is marketed in different price bands. It is therefore important for manufacturers to establish their presence across different price segments.

Given the attractiveness of the branded tea segment and numerous regional players, it is imperative for manufacturers to differentiate their brands to sustain competition. One method is value addition by introducing new variants in the form of special blends (different combinations of CTC and orthodox tea), products like iced tea, flavoured tea, herbal tea, diet tea, green tea and organic tea.

Tea consumption in India varies across regions in nature, given the differences in taste and preferences. Therefore, small regional players need to assess the preferences of their target markets combat competition.

A right pricing strategy, proper understanding of the target region and an effective selling & distribution network are of prime importance to branded tea manufacturers.


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