With the advent of globalisation, there is a need to relook at the competitive strengths of the tea industry, both internal and external. There is a strong feeling that industry needs to overhaul itself in terms of efficient lines of production, harness the economics of costs, product innovations and concentrate on value-chains vis-a-vis global standards.

The WTO fallout
With the tariff barriers being lifted, it is perceived that the industry is heading for a shake-out. It is assumed that there could be a change in the ownership patterns with the big companies acquiring gardens in the post WTO regime. The stakes will definitely not be high as the auto industry. But, could be gradual an d over a period of time.

Internal restructuring
It is perceived that companies will have to look into the process of production and the costs involved therein. With increasing competition, companies will have to adopt policies that control the production and manufacturing costs. International benchmarking in terms of production and yields would play a vital role. Smaller companies with rising costs of production may wither away or may get merged with bigger companies.

Brand development
One of the major strategic shifts inevitable will be a gradual consolidation of Indian brands. In fact, with increase in the value-added segments over the years, the share of this segment has seen a rise. Although the current market for loose tea is gaining ground, it is expected that tea in loose form available through retail trading processes will decline. Value-additions through changes in the product forms and delivery systems have been part of the winning formula in the international markets and is bound to get replicated in India down the years.

As Indian Institute of Management, Calcutta (IIMC) professor, strategic marketing, Ranjan Das puts it, "Quality is an important factor. But, the real differentiator is the way a company sells the product. Companies interested in brand development should have a long-term strategic view of it as a capital investment. An upfront of Rs 20 crore a year for five years is needed to sustain any tea brand positioning itself in the Indian market, he feels."

"In an open competition, brand becomes very important, as when a commodity has no value, the minimum that can be offered is the commodity itself. Over the years, it is expected that only four to five brands will dictate the domestic market. Regional strong brands will remain, but I perceive good brands which are largely unsupported may be purchased by the bigger players," says Das.

Market segmentation
The market share of a product cannot get protected by serving the commodity market alone. Branding requires segmentation. According to Das, there are almost 950 micro-market segments in India and mass customisation is almost essential these days. It is extremely important that a company keeps segmenting the market into tangibles which is measurable, quantifiable and observable and can be copied as well. The intangibles come with better imagery, belief and reputation, cashing on the emotional element.

In this context, it may be worth mentioning the recent launch of Tata Tea’s Agni brand which exploited the psychographics of the consumer on a regional basis. Says Tata Tea, Sr vice president, Percy Siganporia,"the empathy levels were tracked on a state-wise basis and it was found that West Bengal which has the largest numbers of loose tea drinkers related to empathy levels at variance with the national trend."

Product innovation
There is a need to take a relook at the product profile and work up a strategy to ride the trend worldwide. The accent is on convenience and innovation in flavour forms. Although most of the companies feel that it may be still a long way for such products, a beginning of some kind could be made, says Das. Many industry analysts feel that there is a need to strive targetted groups including to woo them away from cola consumption. Brand spenders argue that there is a market for everybody as long as it can be sold. There also has to be a strategic shift towards portraying tea as a youthful drink. For this the traditional barriers may have to be breached. There has been no prior history of ready-to-drink (RTD) tea marketing in India. But, the market is bound to demand a change from the conventional aspects of tea drinking few years down the line.

HLL, which has been in the forefront of innovations in the tea industry in India has gone in for a number of initiatives, says HLL divisional vice-president (marketing) beverages, VS Sitaram, "Lipton Tiger, the popular tea mixture is a proprietary food comprising 70 per cent tea and 30 per cent nutritious edible ingredients (tapioca, jaggery and chicory). It is primarily meant for the low income consumers in the rural and urban markets whose daily earnings are less than Re 0.50 and for whom tea is a food substitute.

"HLL has also identified out of home consumption of tea as a significant way to grow the tea market. Vending machines have been set up to provide good quality tea. Mobile vending carts powered by solar energy are under test," adds Sitaram.

Strategic plantation management
This happens to be the latest keyword for all scientifically managed plantations in India; not to leave out the tea industry. To this effect, the tea industry has joined hands with the Bangalore-based Indian Institute of Plantation Management (IIPM) for evolving new technologies for improved management systems at the plantation levels.

Says IIPM professor, A Damodaran, "This management system encompasses a whole gamut of traits pertaining to the tea industry including estate performance, strategic cost management, enlightened leadership, forward engineering and global competitiveness of tea. The plantation managers need to be sensitised to the concept and operational essence of plantation management which is economically viable and environmentally sustainable.

"Sound labour deployment strategies is the key element of increasing productivity for both plucking and non-plucking operations," feels Damodaran. According to IIPM profesor of finance and strategy, MP Vithalcontinuing with a traditional management system will lead to a strategic failure cost.

Alliances
Alliances are expected to shape the tea trade. According to many industry observers small estate executives will often admit in private that they must grow in strength via alliances or die. As market strategist Randy Altman says, "Some of the smaller elite estates will eventually band together, regionally based in structures never before seen in tea business. This does not imply loss of owners’ control nor loss of generations old brand prestige".

Across the bridge: FMCGs
With branding of tea in an increasingly conscious consumer market getting a headway, tea corporates are seeking to widen their scope to attain FMCG status. Channelising a whole range of products into the distribution lines will be one of the main objectives of top tea companies. As Tata Tea vice chairman, RK Krishnakumar puts it, "In a few years time we intend being a FMCG company, for which we would be looking at a whole lot of products primarily in the food sector." Duncan Industries, a big name in the branded packet tea market aspires to be on the same track down the years. Eveready, already into tea has battery operations as well and may explore other possible areas of branding as well.

Global positioning
A major concern lies in that the grower countries are just getting a transfer price which is effectively the commodity trading price, feels Indian Tea Association joint secretary, Monojit Dasgupta.

The actual value added is in product development, branding and consumer awareness. The entire game seems to be happening in our backyard, he says. The moot question is why should India remain content with selling green leaves only? Hence, the urgent need to bridge the divide between the primary transfer price and share of the traded value. How it will happen is difficult to say. The Tata takeover of Tetley is a possible way.

Are takeovers then an easier process to establish a multinational presence. The leverage for acquiring production facilities, gardens, brands, etc., is prohibitive. Perhaps, it is beyond the reach of the Indian companies. The total industry size is Rs 6,600 crore and a plethora of units contribute to this revenue.

With such a large number of dissipated units, a global intention of this kind is impossible perhaps. "Leveraging in terms of finance is also a big issue. Even for the recent Tetley deal, it would be possible only through accessing the combined resources of the Tata group," opine a few analysts.

Aspiring for value
One has to move from being a producer to becoming a value aspirant. Not everyone can be a brand player. But definitely, one could seek to move up the value chain.

According to the Tea Board chairman, SS Ahuja, the new paradigm that governs the global tea industry hinges not on the efficiency of individual forms, but mainly on consumer satisfaction. South Indian tea offers the best opportunity for innovation.

To help the tea corporates to be prone to more competition and to adopt a faster process of market integration, government policies need to be more lenient. Most tea companies agree with this: "We are being forced to take a beating from both the demand and supply sides. On the one hand, we are bound to comply with market regulations in prices and a plethora of socio-economic factors at the industry level on the other, the industry is criticised for lapses in production, export or price levels."Import relaxation needs to be juxtaposed with a lifting of regulations on prices, production and sale of tea by domestic companies. Perhaps this could become an easier process with imports getting freed from the tariff barriers.