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C. Raja Rajeshwari

IF TEA plantations are suffering from declining commodity prices and a glut in production, players in the branded (packet) tea market are not exactly having a good time either.

Small, local players, through regional brands, have been sipping away the market share of such bigwigs as Tata Tea and Hindustan Lever.

Packet the commodity

A decade back, packet teas were seen as a good diversification opportunity for the large national-level players in a business bruised by the swings in tea prices.

At that time, the loose tea market was dominated by the unorganised sector. But the packet tea market was the preserve of the large players such as Hindustan Lever and Tata Tea. The latter saw the marketing of branded and packet tea as a way to de-commoditise the business and free it from the underlying cyclical swings.

However, over the past couple of years, there has been many a slip between the cup and the lip. The packet tea players have had to grapple with lower margins and a shrinking market, which has made the going tougher for them.

Margins tossed out

The packet tea market has also come under the influence of the underlying commodity prices and, in the process, put paid to the objective of the bigwigs to seek higher margins through this strategy.

This situation has come about because of the spurt in the number of local players offering packet tea to capitalise on the wide gap between the wholesale (of loose tea, which declined sharply) and retail (of packaged tea, which remained stable) prices. Owing to the low wholesale prices, the small players have been able to offer low-priced teas.

In addition to pressures from this score, higher promotional outlays have also affected the profitability of large and medium-sized players.

Shrinking market size

Of the 680 million kg of tea consumed in India, about 44 per cent is in packet form and the rest, loose. Though this consumption level seems substantial, the packet tea segment has not grown over the past few years.

During 1999-2002, it shrunk by 8 per cent to 276 million kg. Owing to this and waning brand loyalty, players have been aggressively competing for market share.

Counteractive strategies

Large players have been combating the declining trends in market share by stepping up their marketing efforts and broadening their range of offerings to straddle different price points. The following are some of the key strategies employed by them:

The national-level players have rolled out new products straddling different price points. For instance, to combat price competition, Tata Tea launched Agni Sholay, a low-priced packet tea. It has been active at the premium end too, rolling out Temptation and Tetley, targeted at the quality-conscious consumer.

These launches have helped transform Tata Tea from a player with a predominant presence in the mid-priced segment to one with a broader presence across the price spectrum.

Hindustan Lever, on the other hand, has adopted the strategy of putting greater marketing muscle behind its tea business and rationalising its portfolio of brands. Recently, HLL relaunched and consolidated all its tea offerings under the umbrella brands — Brooke Bond and Lipton. The Brooke Bond brand now encompasses Taaza, Red Label Tea and Taj Mahal.

Taaza has been shifted from the Lipton to the Brooke Bond brand. This is an attempt at revitalising the tea business, which has suffered owing to the heavy price competition from the local players.

Players have also been trying to create new differentiators for their brands. For instance, Duncans launched a new tea brand — Marybong Mystique, positioning it as a handpicked premium Darjeeling tea. Duncans has also tweaked the brand's packaging. While its Runglee Rungliot brand is available in packet form, Marybong Mystique comes in higher-end chestlets.

Another approach has been to enter into retailing loose tea. Duncans, for instance, has opened Duncans Tea House, a retail outlet which allows consumers to blend different varieties of tea.

This is to cater to the consumers who prefer `bush-to-cup' tea. Restricted to West Bengal at present, there are plans to extend these outlets to Gujarat and Rajasthan the other big markets for tea.

More `organised' competition

Other players such as Terai Tea and Jay Shree Tea have also started offering branded tea in an attempt to diversify their product portfolio and boost margins. For the larger players, branded tea accounts for close to 70 per cent of total revenues. In the case of medium-sized players, revenues come mainly from exports and loose tea.

With declining exports, these players are also now focussing on selling more to the domestic customer in branded form. These players already have a good presence in the loose tea segment. Now with branding initiatives, many medium players have also entered the packaged tea segment. However, owing to cost constraints many prefer to operate in a restricted area.

For instance, Jay Shree Tea has introduced teas under different brand names — Sadabahar, Shaandar and Sangam — and Dhunseri Tea under the Lal Ghoda and Kala Ghoda brands.

Selling in bulk

In the bulk segment, players have been giving more importance to the consistency in the offerings. Hence, the efforts are now at building a loyal following for teas from specific estates.

More and more estate produce is being marketed through such branding (based on estate names) in the export market. This new initiative augurs well for the bulk exporters as this helps them retain their market share and acts as a stamp of quality in the exports arena.

Not everyone's cup

It is early days yet to evaluate whether these initiatives have paid off for the players in the packet tea market. True, a revival in commodity prices may help perk up realisations of these players and reduce the gap between commodity and retail prices.

However, even if such an increase does happen, the packet tea players are going to have a tough time wresting back market share from the low-priced offerings.

Now that price-sensitive consumers have had a taste of the cheaper offerings, the national brands may also have to re-align the value equation if they are to regain their customers.

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