Tata Global Beverages Ltd., the world’s second largest tea maker, will cut costs and launch premium and herbal products to offset falling demand for black tea, especially in the developed markets.
The maker of Tetley tea is “witnessing degrowth in traditional segments” in the matured markets, Ajoy Misra, managing director and chief executive officer of Tata Global Beverages, told BloombergQuint. Green tea, and fruit and herbal flavours are “showing a strong growth” in all markets, he said.
The contribution of black tea to its sales in the U.K., the largest market for Tetley, has fallen from 85 percent to 70 percent now over the last three to four years. Tea contributes nearly 85 percent of the Tata Global’s revenues, with nearly a third of total sales coming from overseas.
“We are bringing the balance between black and non-black tea in favour of the growth segment,” said Misra.
Tata Global’s revenue from tea sales in international markets declined 2 percent in the quarter ended June due to tough competition, while its domestic tea business reported strong growth in volumes and revenue. The company’s revenue fell 2 percent to Rs 1,704 crore in the year-ago period and its net profit climbed 13 percent to Rs 119.3 crore.
Premiumisation and an increase in the share of non-black tea portfolio will play a major role in “our strategy along with cost”, he said.
The company is test-marketing ayurvedic iced green tea in the National Capital Region. It hopes to roll out the product across India over the next couple of months and price it against the traditional cold drink products.
India’s largest tea producer is also looking at every possible avenue to cut costs, and it’s not just driven by Brexit in the U.K., said Misra. Part of the cost-cutting steps has already played out in financials in recent past, he said.
The company sold its businesses in China and Russia in the quarter ended June. “We either have to turn around some of the stressed businesses or take a hard view, said Misra.
Tea prices rose in the first quarter. Prices remained firm in southern India but were soft in the north-east. “Overall, our blended cost is under control in India,” said Misra.
Tata Coffee, a subsidiary of Tata Global, posted muted growth. Tata Coffee launched Tata Grand as an attempt to expand the coffee market. “I expect it to be a good stable year for Tata Coffee,” said Misra.
Misra denied any merger talks between Tata Global and Tata Coffee. “We have enough synergies and are very optimum in the way we are functioning.”
He said Tata Global’s joint venture with Starbucks has inched towards profitability. It operates around 94 stores in six cities in India. “Most stores have turned profitable”, said Misra.