The
amber ambrosia
As
TFPJ continues its endeavour to zoom in on the various concerns of the
tea industry, Binny Sabharwal talks to Homi R Khusrokhan, Managing Director,
Tata Tea
Tata
Tea recently launched a new variant Tata Tea Gold and is positioning
it on the basis of “superior aroma and great taste”. Why the deliberate
emphasis on aroma while promoting the brand?
We
found from consumer research that aroma” was one of the qualities that
had not been emphasised adequately by other brands and here we have
a product, which is unique. It contains 15 per cent long leaf orthodox
tea, which gives off an excellent aroma. So we decided to position this
product on the platform of aroma. It is also a little more expensive
than our main brand Tata Tea and therefore attacks the upper end of
the popular segment as opposed to Tata Tea, which is immensely popular
in the bottom end of the segment.
What
was the idea behind the acquisition of Tetley and what is the nature
of the joint venture? And
how has it translated into growth for Tata Tea?
We
acquired Tetley 3 years ago because we decided that if we wanted to
move toward our vision of becoming a global tea company it was much
simpler to acquire an existing business, which already possessed a very
large and powerful tea presence in the world rather than starting from
scratch and building Tata Tea brands internationally. The added advantage
was that Tetley is not a plantation-based company and buys all it teas
and creates blends at the most economical cost. This model insulates
us from lower tea prices in the domestic tea market because a large
proportion of our business now comes from the international global Tetley
business model that gives us the additional stability we need in a difficult
tea environment. Tata Tea was suffering because of low tea prices but
nowadays we gain because of low tea prices as two-thirds of our worldwide
business is on the Tetley model. This gives us the additional stability
we need in a difficult tea-price environment. The acquisition has obviously
also translated into growth for Tata Tea. Tetley is a business which
is twice the size of Tata Tea, so we have now a global company, which
is three-times the size of what we used to be on our own. In the future
too, we do not rule out the possibility of acquiring more businesses,
but may be, not of the same scale and size as that of Tetley.
Why
did Tata Tea decide to separate its plantation and branded tea business
into two separate strategic business units?
I
think all businesses need to be assessed in terms of a value chain,
which can stand-alone. Disaggregating our business into two compartments,
plantations and brands, was done for two reasons. Firstly, worldwide
we now have a branded tea business, which is 86 per cent of the total
turnover so the importance of plantations is relatively smaller in terms
of value creation as the plantation revenues are continuously falling
and the costs keep rising. Brands require a separate focus. Secondly
we have adopted Economic Value Added (EVA) as a driver of decision-making
in the organisation. So on EVA principles plantations become one EVA
centre and brands become another EVA centre. This was the other reason
why we decided to bifurcate the two businesses. Teas are now transferred
between plantations and brands at transfer prices, which are equivalent
to the prices that those teas would fetch if sold in auction markets.
What
has been Tata Tea’s experience on the plantation front, especially with
the recent bonus issue and other law and order problems at the tea plantations?
The
major law and order problems happen due to inter-union rivalry and not
because of any problems with management. Fortunately we at Tata Tea
have not faced any such problems in the past few years. In case of bonus,
we negotiated with the workers and are paying 14 per cent bonus in the
south and 16 per cent in the north. We have also introduced a productivity
linkage with the bonus. The workers must earn their bonus by demonstrating
improved productivity
.....CONTD
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