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Tata Tea Limited A Case Solution
Tata Tea is the second-largest player in India's tea industry. In recent years, due to high competition in the Indian market because of increased regulations and taxation by the native government, Tata tea is planning on expanding into the international market. Now, the CEO, Krishna Kumar is faced with a dilemma: It can either plan to build its international presence on its own or it can seize the opportunity of acquiring Tetley Tea (the World's second-largest tea company), which is up for sale for $300 million. The company now faces the following issues:
Either to buy or build the brand
The pros and cons of acquisition in general and specifically in regard to Tetley
Assessing Tetley’s brand value and acquisition price.
The challenges to the road of becoming an international player from a local one.
The changing trends in the tea industry: specifically related to branding and marketing the product.
Following questions are answered in this case study solution
Analyze the industry scenario.
Evaluate Tata Tea Limited and Tetley Tea.
Evaluate the Global and Indian Tea Industry.
Motives for the deal.
Which Tea Industry is attractive?
Is the acquisition good for Tea Industry? How does it help the Indian Tea Industry? Global Tea Industry?
Case Analysis for Tata Tea Limited A
1. Analyze the industry scenario.
The Indian tea industry enjoyed a perfected monopoly for several years due to the imports of tea products. During this time, the industry flourished, and companies showed exponential growth catering to the rising demand for tea in the Indian industry. However, considering the changing political and global conditions as the world moves towards becoming a global village, the countries have opened their doors to trade. In light of these changing trends, the government of India has decided to deregulate the industry and impose higher taxes. These taxes have the potential of taking away more than 50% of the income. Furthermore, deregulation means that the international players can enter the market well-meaning saturation and higher competition. Tata tea’s nemesis, Hindustan Lever which already controls 40% of the domestic market share and contributes 30% share to the exports can take advantage of the contemporary circumstances.
Between 1970 and 1990 the exports of tea by India had remained somewhat constant at around 200000. However, in the recent 1990s, it grew exponentially, almost ten times. Indian tea's major importers are the middle east, CIS, and Poland. The early regulations also meant that the Indian tea industry was never really for the competition from international competitors. The government also levied extensive taxation on the tea industry and the minimum wages law also affected the industry putting immense pressure on the manufacturing sector. Another problem that India faces is that its tea bushes have grown old over the years and their production has decreased. The replacement of these tea fields means that the maturing of the new plantation will take more than four years and the companies will be deprived of production in that period of time.
2. Evaluate Tata Tea Limited and Tetley Tea.
Tata is part of the Tata group of companies. Right now, Tata tea is the second-largest player in the Indian tea industry, second to Unilever company, Hindustan Lever. Specifically, it has 25700 hectares of land under cultivation comprising 54 estates. 48 of these estates have processing facilities and only six have a proper packing facility as well. Additionally, tata owns six other packing facilities off-site to cater to the rising demand from its numerous estates. The tea bought at auctions is also blended and packaged at these facilities. Cumulatively, these estates generate a revenue of around $125 million. 88% of the production at its estates is used for its own blending and packing purposes domestically. The rest of the 12% is auctioned and exported. Tata Tea also has the privilege of owning the largest instant tea facility outside the United States. The different blends of tea manufactured at this facility cater to different markets in India, incorporating a total marketing strategy. The vast network of products is marketed through numerous outlets like supermarkets and roadside stalls.
Tetley tea is right now the second-largest tea company in the world. It dominates in the UK which contributes 54% of its revenues and the US market contributes almost 26%. They mainly target retail outlets and have collaborative ties with the food service industry. They cumulatively amass a total of $323 million dollars in revenue. Their exports are spread across more than 30 countries. Their five manufacturing facilities based in the UK, US, and Australia cater to the needs of these 30 countries around the world. Furthermore, Tetley already has collaborative ties with Tata tea as well. Tetley enjoys the reputation of a premium brand due to the quality of its products; its employees have a grading system to ensure and maintain the quality of its products. 92% of Tetley's products are teabag based with over 60 blends of black tea.
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