Tata Tea's next expansion through acquisition

Tata Tea Ltd., which bought London-based Tetley Group for 271 million pounds ($475 million) five years ago, may be scouting for another acquisition. This time, the target could be better known for its chamomile tisane and citrus mint instead of the standard tea bag.

Demand for specialty and herbal teas has risen as much as 50 per cent the past three years in the U.K., the second-biggest nation of tea drinkers per capita. In the U.S., where 50 grams of Imperial Tai Ping Hou Kuian green tea cost $31, the market for specialty leaves is worth $750 million and is growing 6 to 10 per cent a year -- double the growth in regular tea.

“Our main growth is going to be in the non-black tea arena, especially in green tea, herbals, fruit-flavored infusions,” Tata Tea's Managing Director Percy Siganporia, 54, said in an interview. “We are looking at opportunities there.”

Like market leader Unilever NV's Lipton unit, and the Twinings business of Associated British Foods Plc, Tata Tea is adding blends to counter slowing black-tea sales.

Tata Tea's next big expansion will probably come from an acquisition, said Nikhil Vora, vice president of research at SSKI Securities Pvt., a Mumbai-based stock brokerage. Kolkata, India-based Tata Tea's major shareholder is the 126-year-old Tata Group, with about 29 per cent.

“I don't think anything is beyond their reach with the backing of the Tata Group,” Vora said in a July 13 interview. “There is room for growth and room for funding.”

Tata Family

Tata Group, owned by one of India's richest families, had sales of $14 billion in the year ended March 31, 2004. The group's acquisitions since 2000, financed mostly from its own funds, include a maker of bus components in Spain, a truck maker in South Korea, a steel producer in Singapore, and Tetley.

Tata Tea is under pressure to match the expansion of Lipton and Twinings, the 299-year-old supplier of such teas as English Breakfast and Earl Grey to Queen Elizabeth II.

London- and Rotterdam-based Unilever has introduced items such as Quietly Chamomile and Ginger Twist to tap growing consumer demand for healthy drinks, as well as higher profits.

“Green tea is catching on quite a lot in the Western world, and probably linked to the health fad,'' Visvajit de Alwis, 49, general manager of tea-buying for Unilever's Indonesian unit, said today in an interview in Bali. “It's a good margin business. In black tea, you're dealing in a mass market where there are so many players'' and more competition.

U.K. Sales

U.K. tea sales have fallen 12 per cent to 623 million pounds in the past five years, according to Mintel International Group, a London-based consumer research company.

“Competition has been what's impacted tea,'' Mintel analyst Ellen Shiels said in an interview. “Part of it is competition from coffee, part of it is competition from other drinks, such as bottled water and juices.''

Starbucks Corp., the largest U.S. coffee-shop chain, is also a threat, serving its own brand of Tazo chai tea lattes and green tea lemonades alongside caffe lattes and Frappuccinos. Brews including Organic Iced Green Tea and juiced Passion Potion tea are found in more than 8,500 stores worldwide.

“Tea is the most widely consumed prepared beverage in the world, with the exception of the U.S.,'' Starbucks said in a Dec. 2 media release. The Seattle-based company doesn't separately report earnings for Tazo, which it bought in 1999.

The U.S. tea market was worth $5.4 billion in 2003, according to the Tea Association of the U.S.A., up from $1.84 billion in 1990. It estimates specialty tea sales grew 178 per cent in the same period.

Doubling

“This segment has the capability of doubling its volume over the next 10 years,” said Joseph Simrany, president of the New York-based association. “The move to specialty tea is triggered in part by the lure of high profits.”

Franchia, a tea-bar-cum-vegan-restaurant in Manhattan's Murray Hill, sells 3 ounces of Korean Wild Green Tea for $100. An 8-ounce box of 100 Lipton teabags sells for $4.39 on the Internet.

U.S. tea imports jumped 5.3 per cent to 99,000 tons last year, according to the United Nations' Food and Agriculture Organization. European Union imports rose 2.4 percent.

Demand is growing “reportedly in response to promotional efforts on the health benefits of tea,'' the Rome-based organization said July 14. “Medical research suggests that moderate consumption of tea offers protection against heart and blood vessel disease, some cancers, and bacterial infections.''

Gourmet

Specialty gourmet teas sell for 50 to 500 per cent more than regular black leaves, said Ashok Panjwani, managing director of Bombay Burmah Trading Corp., a 142-year-old Indian tea supplier.

“The specialty and organic tea market has been more a niche market and has been the domain of smaller specialized companies that offer attractive, innovative products and tend to sell at a really high price,'' Panjwani said.

“Major tea companies could use the mergers-and-acquisitions route to combine niche, high-end products with their mass teas.''

Lipton, Tata-Tetley and Twinings have less than 40 per cent of the global market, leaving opportunity for further consolidation, said Vora at SSKI.

“The black tea market is saturated,'' Vora said. “Growth is going to come from the specialty and herbal teas, not just in Western Europe, but also in the U.S. and even India.''

Unilever

Unilever, which has about 15 per cent of the global tea market, doesn't need to acquire new tea brands, said de Alwis of P.T. Unilever Indonesia, after the company acquired the Lipton, Brooke Bond and PG Tips businesses more than 20 years ago.

Unilever has “already consolidated and that is enough,'' he said. “We are that much ahead of the rest of the tea world.''

“While Tata Tea has done a lot of right things in the black tea market, they've not yet got their act together in specialty and herbal teas,'' said SSKI's Vora. “They'll look at addressing that through acquisition. Twinings is a pretty strong player in the specialty and herbal tea market, and is a potential target for a company like Tata Tea." (mes)

Source :  www.financialexpress.com