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PGP1-Term III- AY 2010 11

STRATEGIC MANAGEMENT II

Tea Industry Analysis


Instructor Prof. Saroj Kumar Pani
Submitted by
GROUP 11

Section: C
Arul Sood K S Santosh PoojaAgarwal PriyanjaliVashisht RishabhAgarwal SuneelNanduri YogeshYadav

TEA INDUSTRY ......................................................................................................................................... 4 Indian Tea Industry Features ................................................................................................................ 4 Market Trends ..................................................................................................................................... 4 Special Features of India Tea Industry: ................................................................................................. 5 Industry Size ........................................................................................................................................ 6 Market Growth Rate ............................................................................................................................ 6 Supply Determinants........................................................................................................................ 8 Major Tea Growing Regions: ................................................................................................................ 8 Characteristics of Indian Tea Industry .................................................................................................. 9 Competitive Structure ........................................................................................................................ 10 SWOT Analysis of Indian Tea Industry ................................................................................................ 11 PORTER'S 5 Forces Analysis of Indian Tea Industry ............................................................................. 12 Major Events ..................................................................................................................................... 13 TATA TEA LTD ........................................................................................................................................ 14 Global Footprints ............................................................................................................................... 15 Major Acquitions ............................................................................................................................... 15 Value Chain Analysis of Tata Tea ........................................................................................................ 16 Profitability Analysis of Tata Tea ........................................................................................................ 16 SWOT Analysis of Tata Tea: ................................................................................................................ 18 Present Business Strategy of Tata Tea ................................................................................................ 19 Problems at hand for Tata Tea ........................................................................................................... 20 Suggested Business Strategies for Tata Tea to follow ......................................................................... 20 Tata Tea s new Business Strategy ....................................................................................................... 20 Tata Tea Core Competency ................................................................................................................ 21 HINDUSTAN UNILEVER LIMITED ............................................................................................................. 21 Major events for HUL ......................................................................................................................... 21 Brands of HUL .................................................................................................................................... 22 HUL Segmentation of Indian Tea Market ............................................................................................ 22 Profitability Analysis of HUL ............................................................................................................... 23 SWOT Analysis for HUL: ..................................................................................................................... 24 2

Present Business Strategy of HUL ....................................................................................................... 25 Core Competency of HUL ................................................................................................................... 26 Recommendations: ............................................................................................................................ 26 Comparing the current market position of Tata Tea and HUL ................................................................. 27 References: ........................................................................................................................................... 28

TEA INDUSTRY
Tea plays a vital role in the lives of millions of Indians. They take it as a refreshing drink as part of daily ritual. Tea offers livelihood to millions of people who are associated with this industry. India produces some of the world s finest quality and also the largest variety of tea. Among the famous specialtyflavors are Darjeeling tea, Assam tea and Nilgiri tea, which are grown in the Bengal, Assam and Tamil Nadu. Tea is normally classified based on the processing, leaf size and grade. Fermentation creates two major classifications, black and green tea. Black tea is further classified into CTC (cut, tear and curl) and orthodox tea.

Indian Tea Industry Features


y y y y y y y y India is one of the largest producer and consumer of tea in the world, accounting for around 23% of world demand Tea is currently the second biggest in beverage category after the carbonated soft drink market Total turnover of package tea was approximately Rs 10,000 crores in 2009-10 In the packaged tea category, the unorganized sector accounted for over Rs 1500 crore The labor intensive tea industry directly employs over 1.1 million workers and generates income for another 10 million people approximately. Women constitute 50% of the workforce. Maximum production has been during July-Oct almost every year and lowest production during Jan-Feb Tea is an agro-based commodity and is subjected to vagaries of nature Tea trading in the domestic market is done in two ways - auction and private selling

Market Trends
The tea market in India is witnessing a sea change in recent times. Changes in the life style of Indians have influenced tea consumption pattern. In particular, it has caused the growth of the so-called branded or packaged tea category. Earlier, tea was mostly sold in a commodity form. However, now-adays the branded form has gained popularity and led to the entry of packaged tea and tea bags. Out of the 750 million kg of tea consumed in India, around 300 million kgwas sold in the branded form. The branded tea is now estimated to account for 60% of the annual turnover of the tea industry, valued at Rs 6400 crores. The major players in the branded tea business have been undergoing a restructuring process. Not long back, 80% of Tata Tea s income used to come from its plantations, but now the emphasis has almost reversed. After Tata Tea sold its tea plantations to its wholly owned subsidiaries, plantations contributed just 14% to the company s turnover. It is also making efforts to strengthen its brands, and its acquisition of Tetley in 2000 has helped a lot in this regard. Following a similar step, HUL had quit plantations business and concentrated on the branded segment alone. After the sale of Tea Estates India Ltd, HUL has totally withdrawn from the plantation activity. Unlike Tata Tea and HUL who sold off their plantations, smaller players are still holding their plantations business.

TYPES OF TEA

HERBAL TEA

BLACK TEA

GREEN TEA

CTC

ORTHODOX TEA

Black Teas are oxidized and fermented during processing, to give them their distinctive flavors. Black tea has a full, rich taste. Oolong Tea is tea that falls between a black and a green tea. It only undergoes a small amount of fermentation during processing Green Tea undergoes less processing than black teas, and have a much lighter flavor. The health benefits of green tea are seemingly endless. Since the leaves are not fermented, the taste is pleasantly fresh and herbal White Tea comes from the Camellia sinensis plant. But the leaves are picked and harvested before the leaves open fully, when the buds are still covered by fine white hair, hence the name. White tea is scarcer than the other traditional teas, and quite a bit more expensive. Loose Teas are typically whole leaves or at least large pieces of leaves Tea bag is a small, porous paper, silk or plastic sealed bag containing tea leaves for brewing tea

Special Features of India Tea Industry:


y y y y y y y Production dependent of agro-climatic conditions Same plant and same agro-practices give variations in quality in different regions Product Life is for limited period Labor intensive High Cost due to high input cost No priority for Scientific Cost Management Huge proportion old tea & Low Productivity

Industry Size
Indian tea industry stood at 979 million kg as of 2009, with the share to global supply accounting for 25 %. It is currently the second largest producer of tea in the world, following China which overtook it since 2006. In 2009, the size of the Indian tea industry was estimated at Rs 140 billion. Tea is a significant foreign exchange earner and total tea exports were approximately around Rs 26.2 billion in 2009.

Demand
Domestic Consumption Exports Total 844 191.5

2009 volume(Million Kgs)

1035.5

Supply
Production Imports Total 979 28 1007

Total Market Size

1035.5

India has over 13,000 tea estates with a combined acreage of about one million, most of it in northern India. The sector employs close to one and a half million people with foreign participation in the majority of tea plantations at 25-30% Registration with the Tea board: 1655 registered Tea Manufacturers 2008 registered Tea Exporters 5148 number of registered tea buyers Nine tea Auction centers

Market Growth Rate


MARKET GROWTH RATE (INDIA)

As can be seen from the above graph the market growth rate has been hovering around the 2% mark since the mid 90 s.

Change in Production(Million Kgs)

The traditional tea business has been witnessing stagnant growth for the company over the last three years since 2007.

Supply Determinants y Tea production and yield depend on the age profile of tea bushes. A tea plant is its most productive between 11-20 years after it is planted. Although the productive life of a tea bush starts declining after a period of 50 years. Around 45% of the tea bushes in India are above the productive age of 20-40 years. In Kerala and Karnataka, the age profile of tea is poor with almost 79% and 77% of the bushes above 40 years. y Yield or Productivity is the production per unit of land. It is directly related to the age of the tea bushes and the altitude at which they are grown In India, the effective yield per hectare declined from 1844 kg/hectare in 1998 to 1705 kg/hectare in 2007. This has been attributed to inadequate investments in re-plantation and rejuvenation activities, the age profile of bushes, indiscriminate use of fertilizers and problem of pest attack. y Climatic and soil conditions are crucial for the growth of the tea plant. Appropriate intensity and quantum of rainfall, temperature and humidity conditions are required.

Major Tea Growing Regions:


Tea plantations in India are mainly located in rural hills and backward areas of North-eastern and Southern States. Major tea growing areas of the country are concentrated in Assam, West Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim, Nagaland, Meghalaya, Mizoram, Bihar and Orissa. Unlike most other tea producing and exporting countries, India has dual manufacturing base. India produces both CTC (Cut, Tear, Curl) and Orthodox teas in addition to green tea. The weightage lies with the former due to domestic consumer s preference. Orthodox tea production is balanced basically with the export demand. Production of green tea in India is small. The competitors to India in tea export are Sri Lanka, Kenya, China, Indonesia and Vietnam.

Characteristics of Indian Tea Industry


1) Productivity and quality: The art of plucking requires two fresh leaves and a bud to be plucked manually. Tea productivity can be measured as per unit of labor and per unit of land (hectare). Mechanized plucking enhances productivity, but with compromise on quality, as coarse leaves alsoget plucked. When premium for quality rises, producers improve the quality by compromising on productivity. The productivity also depends on the age of tea bushes, genetic material, irrigation, fertilizer, cultivation techniques, etc. Replantation to replace old bushes is done to improve productivity. 2) Labor intensity: This industry is very labor intensive. Labor cost is generally fixed and therefore lower production would result in higher unit cost of production. The proportion of variable elements in labor cost depends on labor legislation and extent of casual and temporary workers employed. 3) Commodity nature: Tea prices fluctuate widely with demand supply imbalances. The commodity is perishableand demand is relatively inelastic to price. While demand has a secular growth rate, supplycan vary depending on climatic conditions in the major tea growing countries. Unlike othercommodities, tea price cycles have no linkage with the general economic cycles, but withagro-climatic conditions. 9

4) Long gestation: Tea bushes mature for commercial exploitation in 5-7 years and remain productive for an average 50 to 60 years. Major part of capital expenditure is to be incurred in first five years, which then yields return over the next 100 years. 5) Domestic Competition: The major share of tea market is dominated by unorganized players. There are about 1000 of tea brands in India, of which 90% of the brands are represented by regional players while the balance of the 10% is dominated by Tata Tea, HUL, Wag Bakri Chai, Duncans, Goodricke and others. With the growing shift from loose to branded tea, regional players are now expanding their reach and also getting premium with their offerings.

Competitive Structure
Tea industry is highly fragmented with a large number of small companies. The branded tea market in India is dominated by two major players Hindustan Unilever Ltd (HUL) and Tata Tea with a combined market share of more than 50%. Other players include Duncans Tea, Goodricke and some well-known regional players like Jivaraj and WaghBakri

MAJOR TEA PLAYERS

TATA TEA

HUL

DUNCANS GROUP

GOODRICKE GROUP

OTHERS

Tata Tea Agni Tata Tetley Chakra Gold

Red Label TajMahal Taaza Lipton Green Label

Sargam Double Diamond Shakti 10

Goodricke Zabardast Castleton Caddy

WaghBakri Tez Jay Shree Tea

SWOT Analysis of Indian Tea Industry

Strength:  Demand for tea has been growing at some 2% per annum  Technical & Manpower Skill: Due to a huge population base in India Technical & Manpower Skill is available in abundant  Good Research Support by tea growers has will help industry grow further

Weaknesses:  Labor intensive industry: The second generation labors are reluctant to join this industry hence it could pose a problem of skilled labor in the near future  No Effective Cost Management system adopted by companies and other regulatory bodies  Supply from more efficient players like Kenya, China, Sri Lanka  Declining Export of India over the years Opportunities:  Export Potential if India can increase its production capacity  To make tea more acceptable and fashionable like coffee  To come up with new flavors/formulation of the tea, tea houses etc. to popularize the concept of tea in India  Large untapped rural market for branded tea companies like HUL and Tata Tea

Threats:  Global competition  Low Cost in some countries like China, Sri Lanka and Kenya  Import of Tea from other countries  Cost escalation on account of increase in the cost of production

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PORTER'S 5 Forces Analysis of Indian Tea Industry


Industry Rivalry (High):  There are approximately700 tea companies in India hence there is intense rivalry amongst them  Market is dominated by a large number of unorganized players  Industry growth is slow Bargaining Power of Buyers (High):  There are a large numbers of buyers purchasing the product  The bargaining power of buyers is extremely high as the buyers have many options available  Not much product differentiation in terms of taste also low switching cost  Buyers purchase a large proportion of the industry s total output

Bargaining Power of Suppliers (Low):  There are a large no of producers of tea in India  Supplier s product creates low switching cost

Threat of Substitutes (Moderate):  Substitutes available are coffee, juice, cold drinks  Existing customers are loyal  Substitute s price may be lower. As there are so many players a price war is unavoidable  The substitute products quality & performance may be better

Threat of new Entrants (High):  Large untapped rural market for branded tea segment in rural India  Encouraging government policies like food and beverage act

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Major Events
y y The domestic tea industry is governed by the Tea Act, 1953. And Tea Board is the apex body in charge of the development of the tea industry. Government policies in the form of the Land Ceiling Act, 1956 and the National Forest Policy have affected growth in the area under the cultivation of tea. In the past decade, significant expansions were made in India o During 1994, 7000 hectares were added o During 1998-2000, 70000 hectares were added o Following a strong price trend in 2004, 35000 hectares were added in 2005 In the 1960s, India was predominantly an orthodox tea producing country. Due to the domestic demand, since the mid 70s most tea producers have shifted to CTC tea manufacturing o Given the constraint on increasing the land area under cultivation, CTC cultivation turned out to be more lucrative due to its low cost of production o However, this shift to CTC cultivation has negative impact on exports, as Russia (India s largest export destination) has slowly reverted back to the consumption of the orthodox variety. India s tea imports are minimal, meant chiefly for re-export. Imports for domestic consumption are insignificant because of the 100% import duty levied on tea. In 1994, the Commerce Ministry Promulgated the Tea Making Control Order (TMCO), which required tea producers to sell 75% of their output through seven auction centers located at Guwahati, Siliguri, Cochin, Calcutta, Cunoor, Coimbatore and Amritsar. However, in 2003 a new TMCO order was formulated in order to regulate the market and improve the price discovery mechanism. In 2001, tea has been shifted from the restricted items category on the negative list of imports to the free list in line with India s commitments to the WTO. As a result, all the quantitative restrictions on the imports of tea have been removed. In 2002, the Indian Government has allowed FDI up to 100% in tea sector. EXIM Policy: In order to safeguard the domestic tea industry, India s tea import policy has been reframed and tariff rates have been progressively hiked from 19.6% in 1989-99 to 100% currently (2004-05) Tea companies are required to pay Corporate Tax on a specified percentage of profits, while the balance profits are subject to the state agricultural tax. o Tamil Nadu has abolished agricultural income tax recently. o However, in Assam, companies pay corporate tax on 40% of profits and state agricultural income tax of 30% on the balance 60% profits In case of export of tea, the exporter is eligible for a refund of VAT paid in the state of export.

y y

y y

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TATA TEA LTD


Tata Tea Limited, also known as Tata-Tetley, is the world's second largest manufacturer and distributor of tea. Owned by India's Tata Group, the Tata Tea Limited markets tea under the major brands Tata Tea and Tetley. Incorporated in 1964 as a joint venture with UK-based James Finlay, it has product and brand presence in 40 countries. Plantation activity is in India and Sri Lanka. Its 86% profit comes from branded tea sale, while rest comes from bulk tea, coffee and investment income. It owns 27 tea estates in Assam, West Bengal and Kerala. It is accorded Super Brand recognition in the country. It boosts of 38 C&F agents, 2500 stockiest and over 1.7 million retail outlets. It is competing primarily on taste and aspiration basis. It has a current market share of 21.4% in the branded packet tea segment and had annual sales of Rs 16.9 billion in2010. TTL is a market leader in terms of both value and volume and has been aggressively expanding globally through M&A. Recently, rechristened itself as Tata Global Beverages in conjecture to its strategy of becoming a world leader in global beverage market. Tata Tea Limited, together with its subsidiaries, engages in processing, producing, marketing, and distributing tea products primarily in India. It also involves in the cultivation and manufacture of black tea and instant tea, tea buying/blending, and sale of tea in bulk or value added form. The company has five major brands in the Indian market: y Tata Tea Premium  Flagship brand, started in 1987  Promise of freshness  Created product redefinition by introducing polypackaging Tetley  Founded in 1837 in England, acquired by Tata Tea in 2000  Flavored teabags and green tea  Premium brand, the face of innovation for the company KananDevan  Started in the late 19th century and acquired by Tata in 1976  Owing to its unique taste preferred in the Southern India  Principal markets- Tamil Nadu, Kerala, Karnataka and Goa  Market share in the south zone 9.8% Chakra Gold  High quality Assam Dust tea  Tea with `golden taste' that acts as a catalyst in creating golden moments  Laminated pack with inner gold foil, which maintains the aroma Agni  Packaging with a deep rich red connoting strength and an affordable price  To take on the loose tea market prominent in the villages 14

 Competitive pricing and attractive packaging able to attract price-sensitive customer

Global Footprints

Major Acquitions
y y y y y y Formed an export joint venture with Britain's Tetley Tea in 1992 Acquired Tetley for 271 million in 2000 Good Earth, a US maker of green and herbal teas in 2005 US firm Eight O Clock Coffee for $220 million in 2006 Bought a third of Joekels, South African tea producer for 0.9 million, in 2006 Czech-based tea company Jemca for 12.4 million, in 2006

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Value Chain Analysis of Tata Tea

Tea growers (Supplier)

Blended cost (85%)

Transportation (2%)

Warehousing (1%)

Purchased by Tata Tea

Wholesaler Margin (2%)

Transportation (5%)

Packaging, S&D, other costs (13%)

Sold to retailer

Retailer margin (7%)

Profitability Analysis of Tata Tea

Profitability Analysis 2001

2002

M 2003

M 2004

M 2 2005 2006

M 2007

M 2008

M 2009 2 27.57 11.68

M M 2010 1 2 23.05

Profit margin (%)

1 12.36 9.59

9 9.53

9 1 1 2 2 11.86 14.53 19.26 29.03

Basic earning power (%)

13.83

1 9.35 8 6.09

9 1 1 1 1 1 1 1 2 10.28 11.34 14.12 17.52 16.59 17.47 11.84 21.27 6 5.86 5 7.82 7 1 1 1 1 10.39 13.33 12.98 12.21 6.23 6 1 15.19

ROA (%)

8.82

EPS (Rs)

17.82

1 1 1 1 2 3 5 5 2 6 12.80 12.55 16.28 22.93 33.25 51.93 50.59 25.72 63.30

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Analyzing the profitability of Tata Tea Ltd for past 10 years, we observe that the profit margins are suffering for last few years, along with the other profitability ratios.

If we plot the operating profit margins and net profit margins, we can infer these values are downward sloping since FY 2007.

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SWOT Analysis of Tata Tea:


Strengths:
y Market Leader: With a value share of 21.4% in 2010, Tata Tea is now the marketleader in the Rs7,000-crore branded teas market, having overtaken peer Hindustan Unilever (HUL) Resources & Capabilities:Tata Tea Limited owns approximately 51 tea estates in the states of Assam, West Bengal, and Kerala in India. Having plantations in varied agro-climatic zones enables Tata Tea to cultivate distinct tealeaves. In addition, it also have a big R&D infrastructure Brand Name: Tata tea Brand is ranked the second most trusted beverage brand in brand equity. The company's best-selling brand is Agni which caters to the mass segment and other brands include Tata Tea Gold, Chakra, Gemini and KananDevan Experience: Tata Tea has been one of the oldest companies in India and has the advantage of skill and experience on their side Strong Management: Tata tea has the access to highly efficient management pool from Tata group

Weakness:
y No product differentiation: One of the major problems Tata Tea faces is the lack of much product differentiation hence loyalty of consumers is a major area of concern Distribution Network: The distribution network of Tata Tea comprises on 1.25 lakh distributers this is not much when you compare to HUL who have the strongest dealer network in the country

Opportunities:
y New Product Development: The Company can move into energy drinks. This segment has not yet been tapped by any of the tea companies yet and this could give Tata tea the first mover s advantage if they decide to enter this segment Rural Market: There is a large untapped rural market which needs to be exploited. Although Tata Tea has made its presence felt in the rural markets this sectors is characterized by a large unorganized sector and local players are still rules the market Export Potential: Tata tea is present in 40 countries around the world and can exploit the untapped markets all over the world Mergers and Acquisitions: There are more than 1000 tea companies in India. Tata tea can increase its market share and penetration by acquiring these small companies and also forming mergers with other big MNC s like it did for Tetley Tea, Good Earth etc. 18

Threats: y Low Barriers: There are not many entry barriers by policy makers and this makes the Indian tea market extremely fragmented and unorganized. There are many regional players who hold small chunks of markets Globalization: Possibility of a big player entering into the Indian market is high due to globalization

PORTER 5 Forces Model Analysis Porter 5 Forces Model


Bargaining Power of Buyers (High) Low switching costs for buyers Large no of branded and local players with many brands Large pool of suppliers in the market Have its own plantation in India & SriLanka Players like HUL are big competitor Local Players are also eating up the market share Not easy to match Tata Tea s investments and resources Threat from functional drinks and nutrient drinks is high Brand Loyalty is high for Tata Tea

Bargaining Power of Suppliers (Low)

Industry Rivalry (High)

Threats of new Entrants (Moderate) Threat of Substitutes (High)

Present Business Strategy of Tata Tea


y y y Segment Tea market on several parameters taste , perception, location Strong focus on Urban & Rural Markets by introducing brands on Use of Emotional-Moral appeal like Jaago Re campaign as part of promotion strategy to target youth In India & countries with large Indian population, Tata Tea is the face Tetley is the company's global face In case of co-existence in one market, Tetley is positioned as the premium brand Moving from domestic Indian tea plantation business to global branded beverage business. Entering into the energy drink market.

y y y y

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Leveraging the brand value and strong infrastructure like R&D and distribution network

Problems at hand for Tata Tea


y Operating profitability has been declining for the company for over last 3 years since 2007 due to low productivity and lower exports Stiff competition from local players due to their low selling overheads and establishment costs. The ratio of selling costs is higher for branded players like Tata Tea Changing consumer profiles. More number of consumers are going for functional drinks like energy drinks or sports drinks Low Productivity of Indian tea herbs Falling export levels due to strong competition from countries like China & Sri Lanka

y y

Suggested Business Strategies for Tata Tea to follow


Investments in health & wellness beverages i.e. energy drinks and enhanced water Global functional drinks market growing at a compound annual growth rate of 9.7% between 2005 and 2009 Energy drink sales proved the most lucrative for the global functional drinks market in 2009, generating total revenues of $23.3 billion Estimated to be about $53.4 billion by 2014, an increase of 32.9% since 2009 Present market offers only a few real competitors

Tata Tea s new Business Strategy


Tata Tea is moving on the same path and is planned to move into branded beverages like functional drinks and nutrition drinks, in addition to their tea and coffee business. Their latest goal is to be the global leader in branded good for you beverages. In June 2010, they have rechristened themselves into TATA GLOBAL BEVERAGE from TATA TEA to reflect the change in business of the company.They have taken the following steps towards their new strategy:
y

Launch of a T!on brand - A niche product in the new good for you ready-to-drink cold beverage
sector in India.

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y y

Acquired minority stake in US-based beverage and bottled water firm Activate Joint Venture with PepsiCo in the area of non-carbonated ready-to-drink beverages, focused on health and enhanced wellness

Tata Tea Core Competency


 Resources and capabilities  Acquitions& Joint Ventures  Developing people s brand

HINDUSTAN UNILEVER LIMITED


HUL is a subsidiary of Unilever and is a leader in FMCG sector with a strong presence in more than 100 countries. HUL have annual sales of about 44.3 billion in 2010. Unilever has about 52% shareholding in HUL.Unilever owns two of the most widely recognized product lines Lipton and Brooke Bond. The major competition facing Lever at present is from Tata Tea, who is a big market player.HUL have a wide range of consumer products:  Food Brands  Personal Care  Home Care  Water, Nutrition  Health, Hygiene & Beauty

Major events for HUL


Unilever acquired Brooke Bond in 1984 and Lipton in 1972 1977 incorporation of Lipton Tea (India) incorporated Backward Integration 2 plantation companies of Unilever merged with Brooke Bond 1994 formation of Brooke Bond Lipton India Limited (BBLIL) Greater Focus and Synergy in Traditional Beverage Business Today the consumption of Tea in India stands at 7mn tones and is largely driven by Brook Bond & Lipton brands 21

Lipton comprises of Yellow Label which is designed for upper middle, upper lower and upper middle class, which is a market leader in the industry, it comes in all the packages including hard packs, jars, and teabags. Lipton yellow label although the direct competitor of Brooke Bond Supreme comes in the family of Unilever so it is prone to its competing attacks. Lipton follows a massive promotion scheme to hold its share. Richbru is designed for middle and lower upper classes, and Pearl dust is designed for rural areas, mostly districts of Sindh where consumption of dust is extensive

Brands of HU

HUL Segmentation of Indian Tea Market y Premium brands


 TajMahal  Lipton Yellow Label

y Popular brands Brooke Bond


 3 Roses  Red Label  Taaza

y Economy brands
 Brooke Bond Sahetmand 22

Profitability Analysis of HUL


Profitability ratios Operating Profit Margin (%) Net Profit Margin (%) ROA (%) EPS (Rs) Mar '05 14.14 Mar '06 14.74 Mar '07 14.95 Mar '09 14.46 Mar '10 15.74

12.42 20.91 6.4

14.94 24.45 8.41

12.58 6.61 8.12

12.09 9.45 11.47

12.29 11.84 10.09

Analyzing the HUL profitability, we can see that operating profit margins are growing.

*Data for FY 2008 is not available / considered (source: www.moneycontrol.com)

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SWOT Analysis for HUL:


Strength:
y Brand Name: HUL has the largest number of brands in the most trusted brands List and thus can leveragethis benefit of a very strong brand name in the Indian market. Strong Distribution Network: Hindustan Unilever's distribution covers over 1 millionretails outlets across India directly and its products are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail outlets in India. It has 39 factories in the country. HUL products have the largest consumer reach being available in over 80 % of consumer homes across India. Innovative approach: Wide product range with technological superiority and availability in many sizes
Investment Capacity: Huge cash surplus for big investments

Weakness:
y Huge Marketing Expenses: Large amount of money is being spent into marketing and promotional activities and thus puts HUL into a disadvantage on price compared to local and regional players Brand Dilution: Having too many brand extensions can dilute and confuse consumer perception and give fresh and new competitors to seize market share

Opportunities:
y Alliance: Alliance with Pepsi to access massive distribution network. Presence of big, well known partners drives demand further Rural Market: There is a large untapped rural market which needs to be exploited as currently only regional player have market share in these markets

Threats:
y Competition from local players: Large number of branded and unbranded tea in the market with ample price difference. HUL need to increase its advertising and promotional budget to get a better shelf space and more retailer patronization for the company's brand. Govt. Policies to discourage tea consumption: This rise in import duty on tea by government is intended to discourage its consumption, which possess to be a threat as it has resulted in higher prices for the consumers.

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Low Barriers: There are not too many entry barriers put by the policy makers and this makes the Indian tea market extremely fragmented and unorganized. Big players such as Coca-Cola and Nestle could be potential competitors.

PORTER 5 Forces Model Analysis Porter 5 Forces Model


Bargaining Power of Buyers (High) Low switching costs for buyers Large no of branded and local players with many brands Large pool of suppliers in the market Have access to other countries supply Players like Tata tea are big competitor Local Players are also eating up the market share Not easy to match HUL distribution network and marketing know how Threat is less as HUL has products in most of the beverage categories Brand Loyalty is high for HUL

Bargaining Power of Suppliers (Low) Industry Rivalry (High)

Threats of new Entrants (Low) Threat of Substitutes (Low)

Present Business Strategy of HUL


Volume Leadership:HUL has taken a strong step towards attaining Volume Leadership by targeting mass market. Rising from 33% to 100 % consumer base in terms of reach Diverse Portfolio: A Product line with Vertical as well as Horizontal Spread in Beverages Market catering to tastes and needs to every consumer - Differentiated Product Mix Experiential Marketing: Reaching consumers through trains, shops, door to door campaigns and influencing purchase decisions. Launch of Experiential Kiosks under Lipton with Health & Wellness as the theme Nutritional Profiling: Developing Healthier innovative products with minimum impact on environment Investment in Diverse Categories & Channels: Modern Trade & Out of Home Market. Sustaining leadership in Tea Bag segment ( more than 39% ) Introduction of Functional Teas Leveraging the HUL Brand and strengthening it on Health & Wellness platform Segment Indian Tea market on several parameters Taste & Perception

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Strong focus on Urban & Rural Markets Dominance in Supply Chain Management with an effective Distribution Network Project Shakti workers used for promoting Brook Bond Sehatmand in rural areas Sustained Raw Material supply:Close collaboration with key tea plantations and Rainforest Alliance (RA),an international certification body in the area of sustainable agriculture. In addition they have also taken steps to source raw materials from agriculture and forestry in a sustainablemanner

Core Competency of HUL


 Distribution Channel  Effective Marketing & Promotional Strategies

Currently, Hindustan Unilever Ltd is doing good and is profitable. By leveraging all the above strategies HUL has been increasing its market share. Following strategies are recommended to further improve its standing.

Recommendations:
Strategic alliances:Tie-up with airlines, railways, caterers etc. to promote their beverages Acquire local players: To counter competition from cheap regional players Target Rural Markets: Deeper penetration in rural markets to access newer markets Beverage Outlets: Open outlets in Tier II cities serving tea along with other functional drinks, on a scale similar to service outlets in big metros

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Comparing the current market position of Tata Tea and HUL


PARAMETERS
Profitability SWOT Analysis

TATA TEA
Positive but declining High threat from substitutes. Opportunities in functional drink market Less Profitable Strong Distribution network Resource and Capabilities

HUL
Profitable Already exist in functional drink market

Porter Analysis Value Chain Analysis Core Competency

Profitable Strong Value Chain Supply chain including the distribution network and marketing strategies Price Cash Cow

Selling USP BCG Matrix Analysis

Brand Name Cash cow moving towards dog

Comparing the HUL and Tata Tea on a BCG Matrix

TTL TT

Stars

???

HUL

Cows

Dogs

High Market Share

Low Market Share

Tata Tea is moving from Stars to Cash cows with reducing growth while HUL is enj

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References:
      


http://www.reportlinker.com/d012116209/Tea-Market-in-India.html http://indiaearnings.moneycontrol.com www.teaboard.com http://www.tataglobalbeverages.com http://www.teaboard.com/ http://www.hul.co.in/ Case Study Series, FMCG Sector Vol. II Indian Tea Industry: Outlook Positive For The Short To Medium Term

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