Wagh Bakri Eats Into HLL, Tata Tea

Markets In Gujarat
For a state which has carved a niche for itself as a distinct market thanks to the spiced
preferences of its tea drinkers, it is not surprising that in Gujarat, it’s regional players
who are brewing a virtual storm in the tea cup, leaving domestic giants Hindustan Lever
Ltd and Tata Tea far behind.

And even among these regional tea traders, it is the 100-year old Gujarat Tea Processors
& Packers Ltd which is the undisputed morning chaiwallah with its Wagh Bakri brand of
packet tea topping the popularity sweepstakes.

With their uncanny perception of what comprises “local tastes”, the Desai brothers
triumvirate at the helm of affairs of the Rs 200 crore company has catapulted the Wagh
Bakri brand as the third largest selling tea brand in the country today.

While Hindustan Lever Limited’s array of tea brands sells around 90-100 million kg of
tea annually across the country followed by Tata Tea which sells around 60 million kg
annually, Wagh Bakri with a sale of 16-17 million kg comes in third.

Interestingly, while the HLL and Tata brands sell throughout the country, Wagh Bakri
sales are deliberately limited to the three states of Gujarat, Rajasthan and Madhya
Pradesh.

And while both the dominant national players are aggressively attempting to push up
sales and marketing through advertising blitzkreigs too, Wagh Bakri depends largely on
“consumer loyalties and sensibilities,” in a market where local flavour rules the roost.

Speaking to FE, Piyush Desai, Chairman & MD of GTPPL reveals the formula for his
company’s success. “We’re not only familiar with local tastes and preferences but also
provide consistent quality tea to consumers.”

For a person who single-handedly converted an estimated Rs 2-3 crore GTPPL from a
wholesaler and retailer of loose tea way back in 1980 to the present Rs 190 crore branded
packet tea selling company with brands such as Wagh Bakri and Good Morning Tea,
Piyush Desai himself is a tea taster of no mean repute. “Every morning I spend almost
two hours personally tasting over 200 types of tea. In my 35-40 years of experience in the
tea business, I must have tasted around 3 to 4 lakh cups of tea,” he discloses.

Not surprisingly then, for this self-confessed connoisseur of tea, the revised Tea
Manufacturing Control Order 2003 is tantamount to a loss of freedom of buying. “For our
tea supplies, we rely largely on tea procurement contracts with tea plantations and also
buy tea from the seven tea auction centres in the country,” says Mr Desai. TMCO,
however, in its present form has not only attempted to regulate tea purchases from
auction centres but is also empowered to dictate to buyers whom to buy from and how
much.

An aggrieved Desai as the current President of the Federation of All India Tea Traders
Association as well as President of the Western India Tea Dealers Association has not
only challenged the new TMCO directives legally but has also slapped a writ petition
against the order in his personal capacity as CMD of GTPPL.

Asked why the initial countrywide protests against the new TMCO have subsequently
grown feeble, Desai dismisses this on the grounds that the four state-level tea traders
associations are currently engaged in compiling data to prove that the implementation of
the new TMCO has been anything but beneficial to the country’s tea industry.

“By August, when the next hearing is scheduled to come up in the Supreme Court, we
should have collected enough ammunition to have the order shot down,” he maintains.

And going by the existing facts and figures of the country’s tea industry, his optimism
may not be far-fetched. To begin with, in the six months that the new TMCO has been in
force, the tea market has witnessed a down slide losing on the price front too with prices
moving southward by as much as 5 per cent for premium quality teas to 15 per cent for
average quality teas.

Even the clause of charging distributors an extra 5 percent premium for purchases made
from auction centres has dealt a lethal blow to an industry already reeling from the
crippling onslaught of dwindling exports and competition from other beverages including
coffee and soft drink concentrates.

“The levy of extra 5 per cent premium is sure to sound the death knell for small players,”
cautions Desai. At present, about 150-200 buyers each attend the auctions held at the
seven auction centres in the country taking the total figure of buyers up to around 1,400.

“If this extra premium is not abolished, all the small buyers would be forced to down
their shutters leaving only around 400 buyers in the fray ultimately thereby giving rise to
monopolistic trends” he warns. Worse, if the distributors are forced to pay “penalty
premium”, as Desai terms it, this would be an anti-consumer move too since it would
ultimately have a cost-push effect. What is also worrying tea traders in Gujarat is the
drying up of lucrative export markets.

While the disintegration of Russia played havoc with tea exports in the 90s bringing the
volumes down from a healthy 100 million kg to a mere 40 million kg now, the recent Iraq
war too has been bad news for the tea sector here.

Exports to Iraq used to be in the range of 30 million kg annually which has totally
stopped now, rues Desai. As if that were not enough, countries like Sri Lanka and the
African countries are giving Indian tea exports a run for their money too, offering quality
tea at competitive rates. “What we need is some really good export promotion schemes,”
opines Desai.

Also needed is “an atmosphere of trust between producers and buyers” which, of late, has
been missing since buyers are buying less quantities for lesser prices to minimise the
effects of the TMCO.

“Producers should not give up efforts to improve varieties and quality and we assure
consumers will be rewarded with better prices,” is the assurance held out by the President
of the All India Tea Traders Association.

Regional players like Desai’s Wagh Bakri, the Surat-based Jivaraj Tea brand and almost
30-40 other medium and small players selling anywhere between 0.5 million kg per
annum to 16-17 million kg though have nothing to fear in the short term - not large
players like HLL and Tata nor dwindling export markets nor the new phase being ushered
in by Dabur’s much-hyped tie-up with Sri Lanka’s Dilmah brand.

As Desai puts it, “Its just a strategy to entice and please the customer and encash on his
curiosity by offering something new and foreign. While we welcome such tie-ups since
they provide more choice to the discerning customer, the monopoly established by Indian
tea varieties, acknowledged as the most premium varieties produced anywhere in the
world, is unlikely to be snatched overnight by such developments.”