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Tata Coffee
Tata Coffee is the largest integrated coffee plantation company in the world. Tata Coffee is
involved in every aspect of coffee making process, with business activities ranging from
growing and curing of coffee and tea to the manufacture and marketing of value-added coffee
products. Tata Coffee grows coffee on its own estates, processes the beans, manufactures and
exports instant coffee and retails coffee with its own branding and the domestic market. Tata
Coffee owns 19 coffee estates in Coorg, Chickmaglur and Hassan districts amongst others.
Tata Coffees uniqueness lies in its ability to produce large quantities of estate specific, strain
specific, specialty and premium coffee, while maintaining strict consistency in quality.
Tata Tea
Tata Tea is the market leader in India and has strong brands in its portfolio such as Tata Tea
Gold, Tata Tea Premium, Kannan Devan, Chakra Gold, Agni and Gemini. In 2009-10, Tata
Tea Limited made bold strategic moves to take its business in new directions and transition
from a tea plantation company to a global beverages company. In order to reflect this
transformation, the board decided that the company name should be changed to Tata Global
Beverages Limited.
Brands
Tetley: enjoyed in 70 countries worldwide and is the second largest tea brand
globally; Market leader in Canada; Brand leader in decaffeinated tea in UK; and
Tetley Green is the fastest growing green tea brand in UK; Acquired in 2000
Tata Tea: a household name in India; Market leader; in existence for over 27 years
Good Earth: Herbal and specialty tea business on the US west coast; Acquired in
2005
Eight OClock Coffee: One of the Americas greatest brands; fourth largest coffee
brand by volume in the US; Acquired in 2006
Himalayan: a premium lifestyle mineral water brand in India; Acquired in 2007
Grand: Russias leading beverage brands, known for its great value coffee and tea
products; Acquired in 2009
Vitax: a well-recognized brand in Poland, for its flavored fruit and herbal teas;
Acquired in 2007
Jemca: leading tea brand in Czech Republic; a strong portfolio of black, green and
fruit and herbal teas; Acquired in 2006
Laagar: South-Africas most popular rooibos (redbush) tea brands; 2nd largest selling
brands in South Africa; Acquired in 2011
Tata Water Plus: brought to the Indian market through NourishCo Beverages Ltd, a
JV with PepsiCo India; In 2011
Tata Starbucks: Starbucks Coffee a Tata alliance; a 50:50 joint venture;
Launched in India in 2012
MAP: R&G coffee and coffee in Pods segments in Australia; Acquired in 2014
supply-demand balance situation due to higher production in Brazil and Vietnam. The global
production for 2006-07 was estimated at 72,000,000 Tonnes (120 million bags) while the
consumption stood at 70,200,000 Tonnes (117 million bags). The industry was also plagued
by weather related problems such as Hurricane Katrina, which led to lower consumption in
2005-06.
The demand for certified coffees had also been growing steadily with buyers worldwide
becoming more conscious of the type of coffee they bought. The awareness that low prices
led to harmful environmental practices, poor standards etc. resulted in buyers seeking
responsible producers who are environmental conscious. They were willing to pay a
premium for such coffee certified by independent audit bodies for the practices adopted.
2000, Tata Global Beverages have been continuously looking out to expand into the global
market, which led to a series of acquisitions of brands in various countries. It has thus
reduced its dependence on a particular geography and at the same time also moved into
differentiated products to protect itself against price fluctuations of Tea and Coffee, which are
basically commodities.
The Acquisition
Tata Coffee Ltd., a 51% owned subsidiary of Tata Tea Ltd., signed a definitive agreement to
acquire Eight OClock Coffee Company (EOC), USA from Gryphon investors for a total
acquisition price of $220 million (Rs.1,015 crores).
J.P. Morgan acted as an exclusive financial advisor to Tata Coffee on this acquisition, while
Rabo Bank arranged the funding.
TO fund this deal along with the Glaceau deal, Tata Tea borrowed heavily about $600
million. This boosted up Tata Teas Debt-to-Equity ratio up to 2.5 (a ratio over 1.5 is
considered high). It was estimated that servicing that debt load would cut earnings per share
by 3% for the fiscal year 2006-07. But the management was optimistic, as they had witnessed
a similar situation during the acquisition of Tetley when the Debt-to-Equity ratio was even
higher. It dropped to below one before Eight OClock coffees deal due to refinancings and
rising earnings.
Tata Coffee was non-existence in the global coffee industry and was looking to
become an international and fully integrated player in the coffee industry
With the backing of Tata Group, TGB wanted to leverage their brand equity to capture
new markets and new geographies
The acquisition gave Tata Coffee a large and instant presence in the US, where people
preferred Coffee to Tea as their morning beverage
The acquisition was significant for Tata Coffee as within the road US food category,
EOC was then the third largest coffee brand by volume, behind Folgers and Maxwell
House
EOC presented a sizable entry platform and an established brand to Tata Coffee in the
$21 billion US Coffee market
Tata Coffee had been primarily been a Coffee Plantation Company which had been
striving to establish brands in India, this acquisition made sense as it was an attempt
to move up the value chain
Eight OClock Coffee had a brand presence of over 100 years and an established
distribution network, instead of launching their own product their and investing
humongous amount in setting up a distribution network
Tata Coffee found it difficult to make an impact in branded coffee with wellentrenched players like Nestle and Brooke Bond, they though it would be easier to
move out of India
Tata coffee saw its PBT grow by 67%, PAT by 27% and EPS by 15%. During FY 2006,
EOC was the fastest growing brand when compared to its competitors baring Folgers.
With the acquisition of Eight O'Clock, consolidated turnover of Tata Tea Ltd. increased from
Rs 3124.56 crores to Rs 4043.24 crores in 2006 and in 2007. The increase in turnover was
recorded due to higher sales and effect of full years turnover as against about eight months in
the previous year partly impacted by adverse exchange rates. The turnover growth was 921
crores (29%) out of which Rs. 558 crores (61%) was on account of new acquisitions
(Jemca, Good Earth and Eight OClock Coffee).
Conclusion
Tata Global Beverages has always had a vision to become a global beverage brand and they
believe that the way to do this is via large acquisitions worldwide. They did this with Tetley
in 2000, which was much larger than Tata Tea Ltd. They acquired Tetley by borrowing huge
amounts and increased the debt to equity ratio of the company substantially. But through
refinancing and higher sales each passing year they successfully brought down their Debt to
Equity ratio below one. They replicated this strategy again in 2006 with the acquisition of
Eight OClock coffee.
Their strategy also includes moving away from being only a plantation company to marketing
brands which was witnessed when they sold away quite a few of their plantations to the
workers in 2005.
At no point in time can anyone say that Tata Global Beverages suffered from Marketing
Myopia. They accurately envisioned the change of consumer preference from Tea and Coffee
to more healthy beverages. They complimented this vision by acquiring Glaceau. They also
understood the consumer preference for brands certified by auditors against mal-practices in
labor management.
Since the acquisition of Tetley, Tata Global Beverages have had a string of acquisitions
including brands such as Good Earth, Vitax, Himalayan Water and the most recent Maps.
Their future strategy is to make these brands truly global as only Tetley is present in countries
across continents and the others being strong brands in their original markets. This strategy
can be seen in their move to launch Himalayan Water in Singapore and relaunching Eight
OClock Coffee in the UK.
They are also looking at building a strong presence in the complete value chain by buying out
coffee plantations in Uganda and supermarkets in the US (ShopRite retailers cooperative, as
part of EOCs branding and distributing division).
Concluding, the figure on the next page depicts the pillars of Tata Global Beverages strategy