TATA’S TEA PARTY

It is an interesting story to demonstrate, how a struggling Indian tea plantation

company in one deft move became one of thee biggest branded tea player. Over
the past five year, tea prices in India have fallen from Rs 76 to Rs 54 per Kg., while
the per capita consumption has been stagnant at 650 gm. The market share of the
branded tea after dropping to 32% in 1999 has increased again and it is at 37% at
present. Net profit has been shrinking as

Year Total income (Rs Net profit (Rs in % of net profit to

in crore) crore) total income
1999- 974.5 124.6 12.8
2000
2000- 891.2 100.2 11.2
2001
2001- 816.1 72.0 8.8
2002
2002- 812.0 70.6 8.7
2003

Therefore, company had to expand to the market and segments with the high
growth. Tata tea owns 35 tea estates in India and produces over 60 million Kg of
black tea. Thus, it had a strong backward linkage as the largest integrated tea
company in the world, while Tetley was the second largest tea brand in the world
having very strong presence in major tea bag market. Tata tea had mainly been a
plantation dependent company, whereas Tetley did not own a single plantation and
sourced all its leaves. Tetley had been the market leader in UK and Canada, and a
vibrant player in other major tea market, such as the US, Australia, Poland, and
France. Therefore combining the strengths of the two companies had a highly
synergic effect. In 1994 Tata tea limited and Tetley group, UK, formed the joint
venture company with the paid-up share capital of Rs. 10 crore with 50% holding by
each joint venture partner. In 2000, Tata tea limited acquired Tetley for US$ 400
million and subsequently the joint venture Tetley tea limited became a subsidiary of
the Tata tea limited. With the presence in over 35 countries world wide, Tata tea
limited is one of the largest tea companies in the world. In the UK and Canada,
Tetley already leads the market with 29.4% and 43.4% share, resp. in Australia, it is
the fastest growing tea brand, and in the US it has 11.5% of the black tea bag
market. And after moving into Pakistan and Bangladesh, both big tea consuming
markets. Tetley is getting its act together in the Middle East, Africa, and Russia,
where it is giving the touches to the new distribution network.
1. What prompted Tata Tea Limited and Tetley to enter into joint-venture?

2. What advantage do they have after the joint-venture?

3. According to you, what may be the reason/reasons for the break-up of the
joint-venture and acquisition of Tetley by Tata Tea Limited?

4. Is this acquisition proved to be advantageous for the Tata tea limited? Give
reasons.

5. Summarize the case along with your suggestions.