Tea drinkers may soon have more options for their morning cuppa

Bulk tea producers are looking to enter the packet tea business to improve profitability and de-risk portfolios.

Two of India’s largest producers of bulk tea — market leader, McLeod Russel India and the second-largest producer, Amalgamated Plantations (APPL) — are said to be exploring a possible entry into the segment.

According to industry experts, packet tea accounts for roughly 50 per cent of the country’s total tea consumption, pegged at one billion kg. The segment is currently dominated by brands such as Tata Tea (a product of Tata Global Beverages Ltd), Brooke Bond (Hindustan Unilever Ltd) and Wagh Bakri Tea.

India’s annual tea consumption has been growing at 2.5–3 per cent. Growth in the rural economy and demand for packaged products is also increasing. Hence, a rise in conversion from loose to packet tea is on the anvil, experts feel.

According to Kaushik Das, VP and Sector Head, Corporate Sector Ratings, ICRA, in the case of a bulk tea company such as McLeod, the costs are largely fixed and usually not within their control. On the realisation side, they are dependent on packeteers, where again they have little influence.

“An entry into the packet tea segment will de-risk their portfolio by giving them better control over costs and realisation,” he told BusinessLine .

While McLeod plans to ink a joint venture agreement with Willamson Magor Group arm Eveready Industries India to develop the packet tea business through a separate entity, Tata Global’s associate company APPL is looking to tie up with loose tea sellers and lend its brand name.

“We are contemplating an entry in the packet tea business and will appoint consultants in order to take the plan forward,” Aditya Khaitan, Vice-Chairman and MD, McLeod Russel, said on the sidelines of the company’s annual general meeting here on Wednesday.

Eveready, which has a 4,000-tonne packet tea business, will be hiving off the vertical into a separate subsidiary. McLeod will invest in that subsidiary, thereby, bringing in its expertise in tea plantations. Eveready will focus on the distribution front.

Meanwhile, Amalgamated Plantations has been present in the niche segment (packet tea) through organic tea variants such as ‘Hathikuli’ and ‘Anshi’.

According to Jagjeet Kandal, Managing Director, APPL, the plan is to enter the mass market segment and add value to the company’s bottom-lines.

“We are looking at working with a few players in this mass market segment by becoming back-end packers for loose tea sellers,” Kandal said.

In the past, companies such as Hindustan Unilever Ltd (erstwhile Hindustan Lever Ltd) and Tata Tea exited the plantation business to focus on marketing of beverages.

“The dynamics are completely different. Packet tea calls for significant investments in branding, distribution and marketing,” said DP Maheshwari, Managing Director, Jay Shree Tea and Industries Ltd.

A company may typically have to invest ₹10-20 crore annually on advertising and marketing individual brands, he said.

The company, which sells close to 5 mkg of packet tea annually, expects to double sales to 10 mkg in the next one-to-two years.

While profits may look lucrative, a lot will depend on how these new brands of packet tea push themselves through in different geographies.

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