ECONOMICS PROJECT WORK ON

INDIAN TEA INDUSTRY

(FMCG SECTOR)

WITH RESPECT TO MICROECONOMICS: FIRMS,

MARKETS & BEHAVIOUR

ABSTRACT
Indian tea has virtually lost all global markets because it continues to be traded as a commodity.
The much talked about value addition is limited and rather late. Only the markets that have
consumers with shallow pockets buy tea as a commodity and that share is fast depleting. The
industry needs to be competitive in production, marketing, logistics and product forms. India,
despite being a large producer of tea, lacks properly organized production systems in which
small tea producers find a respectable place. The industry must have access to capital at globally
competitive rates. The subsidies in any form are undesirable.
The Indian tea industry must face the market realities, redefine its business strategies and
reposition its products. The first step in that direction is a complete restructuring of the tea
industry, redefining the roles of various agencies like the Tea Board and Producers
organizations, and developing a healthy partnership with the labor. There are the problems of
market access and discriminatory treatments through non-tariff trade barriers such as maximum
residual limits (MRL) and social clause.

FMCG:
FMCG is acronym for Fast Moving Consumer Goods. Also known as the Consumer Packaged
Goods or CPG Industry, this multi-million dollar sector is made up of a huge range of famous
brand names the kind that we use every single day. These fast moving consumer goods are the
essential items we purchase when we go shopping and use in our everyday lives. FMCG goods
are referred to as 'fast moving', quite simply, because they're the quickest items to leave the
supermarket shelves. They also tend to be the high volume, low cost items.

Cleaning and laundry products, over the counter medicines, personal care items and food stuffs
make up a large bulk of the goods in the FMCG arena, but it doesn't end there. Paper products,
pharmaceuticals, consumer electronics, plastic goods, printing and stationery, drinks and tobacco
can all be considered as fast moving consumer goods.

The top FMCG companies are characterized by their ability to produce the items that are in
highest demand by consumers and, at the same time, develop loyalty and trust towards their
brands.

This is a list of major Indian FMCG companies:

Hindustan Unilever

ITC Ltd.

Amul

Godrej Consumer Products Limited

Dabur India Ltd.

Emami

Colgate Palmolive India Ltd.

Zydus Wellness

Britannia

GlaxoSmithKline Consumer Healthcare Ltd. (India)

Wipro Consumer Care & Lighting Ltd.

Marico

Future Consumer Enterprises Ltd.

 CavinKare

Parle Agro

Jyothy Laboratories

Haldiram's

Nirma

Himalaya Healthcare Ltd.

FMCG in India:
The Indian FMCG sector is the fourth largest sector in the economy with a total market size in
excess of US$ 44.9 billion. It has a strong MNC presence and is characterized by a well-
established distribution network, intense competition between the organized and unorganized
segments and low operational cost. Availability of key raw materials, cheaper labor costs and
presence across the entire value chain gives India a competitive advantage. The FMCG market is
set to treble from US$ 11.6 billion in 2003 to US$ 50 billion in 2015.
Penetration level as well as per capita consumption in most product categories like jams,
toothpaste, skin care, hair wash etc. in India is low indicating the untapped market potential.
Indian population, particularly the middle class and the rural segments, presents an opportunity
to makers of branded products to convert consumers to branded products. Growth is also likely
to come from consumer 'upgrading' in the matured product categories.
This industry has witnessed strong growth in the past decade. This has been due to liberalization,
urbanization, increase in the disposable incomes and altered lifestyle. Furthermore, the boom has
also been fuelled by the reduction in excise duties, de-reservation from the small-scale sector and
the concerted efforts of personal care companies to attract the burgeoning affluent segment in the
middle-class through product and packaging innovations.
The lower-middle income group accounts for over 60% of the sector's sales. Rural markets
account for 56% of the total domestic FMCG demand. Many of the global FMCG majors have
been present in the country for many decades. But in the last ten years, many of the smaller run
Indian FMCG companies have gained in scale
The industry has witnessed healthy foreign direct investment (FDI) inflow, as the sector
accounted for 3 per cent of the countrys total FDI inflow in the period April 2000 to October
2013. Organized retail share is expected to double to 1418 per cent of the overall retail market
by 2015.
The Government of India has approved 51 per cent FDI in multi-brand retail, which will boost
the nascent organized retail market in the country. It has also allowed 100 per cent FDI in the
cash and carry segment and in single-brand retail.
India will continue to be a major FMCG player because of reasons like abundance of raw
material, labor costs and an effective value chain. The climatic conditions across India is varied
which gives it a huge raw material base for food processing industries. It is coming up as
major coffee market. For a long time it has been the largest producer of milk, spices cashew and
livestock. The production of caustic soda and soda ash also gives it a local advantage, since they
are the basic ingredients in soaps and detergents.

Figure: FMCG Categorization

This project helps us understand the Tea Markets as part of the FMCG industry.

TEA Industry in India:

The tea industry in India is about 170 years old. It occupies an important place and plays a very
useful part in the national economy. India produces 30% of the total tea supply of world. The
total turnover of Indian tea industry is around 10000 crores. Commercial production
of tea in India began after the conquest of large areas by the British East India Company, at
which point large tracts of land were converted for mass tea production. The widespread
popularity of tea as a recreational drink began in earnest in the 1950s, after a successful
advertising campaign by the India Tea Board.
Today, India is one of the largest tea producers in the world, although over 70 per cent of its tea
is consumed within India itself. A number of renowned teas, such as Assam and Darjeeling, also
grow exclusively in India. The Indian tea industry has grown to own many global tea brands and
has evolved into one of the most technologically equipped tea industries in the world. Tea
production, certification, exportation, and all other facets of the tea trade in India is controlled by
the Tea Board of India.
India was the top producer of tea for nearly a century, but recently China has overtaken India as
the top tea producer due to increased land availability. Indian tea companies have acquired a
number of iconic foreign tea enterprises including British brands Tetley and Typhoo. India is also
the world's largest tea-drinking nation.
As of 2013 the consumption of green tea in India was growing by over 50% a year.
The major tea producing states in India are: Assam, West Bengal, Tamil Nadu, Kerala, Tripura,
Arunachal Pradesh, Himachal Pradesh, Karnataka, Sikkim, Nagaland, Uttarakhand, Manipur,
Mizoram, Meghalaya, Bihar and Orissa.

Top Tea brands in India:

Following are the leading tea brands in India:
1) Tata Tea: Tata Tea is a product of Tata Global Beverages Limited, which was set up
during 1962 as a joint venture of James Finlay and Company, and Tata Sons. The
company presently operates in all the continents of the world. Its other brands are: Tetley,
Vitax, Good Earth, Jemca, Eight O Clock Coffee, Tata Coffee, Himalayan Water,
Joekels, Grand Society Tea.

2) Society Tea is a Hasmukhrai & Co product. The company was incorporated during 1933.
The company offers a wide range of tea products that may be enumerated are Leaf
Premium, Dust tea, Ice tea, Tea bags.

3) Duncans Double Diamond Tea is a product of the Duncan Goenka Group that started as
Playfair Duncan during 1859. At present the group has 20 functional companies and 40
thousand workers in all. It presently earns approximately INR 20 billion, which makes it
one of the leading industrial groups in India.

4) Brooke Bond Red Label Tea: Brooke Bond Red Label Tea is a Hindustan Unilever
(HUL) Product. HUL is one of the biggest names among the Indian companies that deal
in fast moving consumer goods. The company has been operating for more than 75 years.
Following are the different variations in this brand:

5) Taj Mahal Tea is also a Hindustan Unilever product. Following are the various products
available in this segment: Taj Mahal Tea, Taj Lemon Flavored Tea Bags, Taj Ginger
Flavored Tea Bags, Taj Cardamom Flavored Tea Bags.

6) Wagh Bakri Tea Group: Wagh Bakri Tea Group is a product of the Wagh Bakri Tea House
that was incorporated during 1892 in Ahmedabad by Sir Narandas Desai. Following are
the various categories of products on offer, in addition to Wagh Bakri: Instant Tea
Premix, Good Morning, Organic Tea, Tea Bags, WB Perfect, Mili.
 7) Lipton Tea is a Lipton product. The company was named Thomas J Lipton Co at its
inception during 1893. Its factory and head offices are at Hoboken in New Jersey. Now
the companys products are available in at least 150 countries across the world. Following
are its major products: Lipton Iced Tea, Lipton Green Tea, Lipton Fresh Brew Iced Teas,
Lipton Tea & Honey, Lipton Iced Tea Mixes.

8) Tetley Tea: Tetley Tea is one of the most preferred brands of tea in India.

9) Marvel Tea: Marvel Tea is the first and one of the biggest packed teas among the branded
teas that are available in northern India. The company, Marvel, was initiated during 1987
in Uklana. It is an ISO 9001:2000 certified company as well. Apart from Marvel Tea its
other major brand is Maryada Tea.

10) Pataka Tea: Pataka Tea is the main product of the beverages division of the well-known
Pataka Group. Pataka Tea was set up during 2000 so that the group could venture into the
business of packed tea.

Indian Tea Industry:

Total turnover - Rs. 10,000 crores
Since independence tea production has grown over 250%, while land area has just grown
by 40%
Total net foreign exchange earned per annum - Rs. 1847 crores
Labor intensive industry
Employs over 1.1 million workers
Generates income for another 10 million people approximately
Market Structure:
Monopolistic Competition
Market Leaders : Tata Tea and HUL
Numerous small players
Number of Buyers : Large
Marketers try to differentiate their product by varying marketing mix
Price is varied
Catering to regional tastes
Various Promotional Campaigns

One of the oldest beverages, Tea makes one of the most competitive and challenging market both
in terms of product and competition. The branded tea segment is one of the most highly
penetrated branded products in India. In terms of product classification, the tea is usually divided
into black and green tea primarily and internationally there is some variants of fruit/herbal tea,
Instant tea, etc. which has negligible penetration in the Indian market. Further in black tea, there
are variants of standard and speciality black tea both in loose and packed form.
With increasing disposable income and awareness on product differentiation (aroma, origin, taste
etc.), the loose/ standard tea is making way for more premium variants and flavors. At the same
time, the increasing consumer health quotient is boosting sales for the green tea and its variants
mint, lime/ lemon, classic etc. Green tea has been marketed for many health benefits such as
weight loss, effective against diabetes and cancer, healthier skin, stronger immune systems and
assisting in hair growth. This has not only resulted in consumption of premium segments but also
given an overall push to the unit consumption price point per kg.

To look at the market play, the total branded or the packaged tea (in various forms) market in
India is ~10,000 crores growing at a CAGR of 5 percent. The branded tea in India can be
classified into the packed, tea bag, and flavoured tea segments whereas the unbranded segment is
usually the loose tea both in unpacked or tea bag form. As per industry estimates, unpackaged tea
accounts for over 45% of value sales of total tea sold in India and has a dominance presence in
the rural market. With the aggressive marketing and promotional schemes along with wide
distribution system, the rural market is opening wings to the branded or the packed tea brands
national or regional alike.

In terms of packaged or branded tea distribution, almost the entire urban India is deeply
penetrated by various brands. As a typical FMCG product, the kiranas or independent smaller
merchants account for the major channel accounting for as high as 65-70 percent of the sales
followed by supermarkets and hypermarkets. The other slow emerging segment is the on-trade
sales of tea through food service formats such as tea lounges or tea cafes along with hundreds of
chai shops. Most of these formats use packaged or branded tea either of the manufacturer (Wagh
Bakri Tea Lounges, Goodricke Tea Caf) or smaller packs of established brands. Another channel
of on-trade sales for packaged tea is the tea vending machines increasingly been installed in large
office complexes and hospitals etc., but this channel shall witness crawling growth due to the
smaller street chai shops that appeals more to the Indian palate.
Packet tea market is extremely penetrated with multiple brands with more than 300 brands in the
country, dominated by HUL and Tata tea which have a deep presence in both urban and rural
market, across pack and variants and hence together account for 40-50 percent of the total market
in the packaged tea segment. The other regional / national players are Waghbakri, Duncan's,
Eveready, Goodricke, GPI, Girnar,Sapat, Dhunseri, Mohini, Society, Marvel etc.
Among the brands, Brooke Bond, Taj Mahal, Red Rose, A1, Tata Tea Premium, Tata Tea Gold,
Tata Tea Agni Dust, Waghbakri, Duncans, Tata Tea Chakra Gold etc are among the key brands
sold in the branded, packaged segment though Unilever was the only prominent multinational
player present in the Indian tea category and continued to be the market leader in the industry

New introductions are being increasingly witnesses amongst various brands and notably by
Twinnings green tea variants, such as Green Tea and Mint, Green Tea and Lemon, Elaichi, and
Green Tea Jasmine. Also, A. J. Tea House launched new flavors under its GAIA brand such as
Green Tea and Ginger and Green Tea and Lemon. The trend is expected to catch up with other
brands and one shall witness more variants and flavors being launched in green as well as
standard tea. Apart from the new products, the packaged tea brands are also experimenting with
pack sizes from HORECA large packing to 5-10 rupee sachets, swiftly targeted at various
consumer segments. This is coupled with new innovations being made in packaging, from thin
standard packs, tea bags, pet jars, and tetra packs to wooden and ceramic exotic gift packing for
some of the premium variants offered by players such as of Dilmah, Infinitea etc.
 Major Tea Brands Market Share

32%
35%

7%
2% 22%
3%

HUL Ltd TATA Tea Ltd Wagh Bakri Ltd

Goodricke Industries Ltd Duncans Ltd Others

Market Share Of Major Tea Plantations

25%

50%

14%

6%
5%

Tata Global Beverages Ltd. Mcleod Russel India Ltd. Rungamattee Tea & Inds. Ltd.
Jay Shree Tea & Inds. Ltd. Others
Cost principles:
Major Cost Components of a Tea Company:
1. Cost of Green Leaf
2. Labour Cost
a. Holiday wages
b. Feeding and schooling
c. Concessionary grants,
d. Sanitary, medical and maternity benefits,
e. Contribution to E.P.F.
3. Cultivation and Maintenance
a. Labour wages including all allowances
b. Weeding and upkeep of fences,
c. Control of pests and diseases,
d. Manure, plucking, pruning,
e. Supply of vacancies, field watchers, miscellaneous.
f. Materials and tools-fencing,
g. Control of pests and diseases,
h. Other materials and tools.
4. General Charges
a. Supervisory staff,
b. Monthly paid salaries, allowances, etc.
c. Directors visiting charges.
d. Up-keep of bungalows, roads, minor buildings, etc.,
e. Interest, bank charges and commission, insurance, depreciation of fixed
assets.
 f. Stationery, postage, etc., Auditors' fees, rent, acreage fees, and local taxes,
other general expenses.
5. Manufacturing Costs
a. Factory labour,
b. Fuel for engines, fuel for driers,
c. Electricity
d. machinery up-keep,
e. Packing materials, factory sundries.
6. Transport Costs
a. Wages of drivers and cleaners,
b. Repairs to vehicles,
c. Fuel
7. Marketing cost and agency house expenses
a. Transport to auctions or port of shipping,
b. Storage and handling brokerage, agency charges, and other expenses.
This data is obtained from the department of census and statistics.

Future Outlook:
Future trends for managerial decision making
Indian tea industry is expected to touch a turnover of nearly Rupees 33000 crore by 2015 driven
by an upsurge in demand from domestic market. Consumption of tea has increased as compared
to production and this will help in better price realization. However, India needs to draw a
number of initiatives in order to strengthen the stand in the global market and tap the potential
market by improving the standards of plucking thereby enhancing the quality of the product sold.
The export growth of the tea has been on a decline and this has resulted in lack of
competitiveness in the global market.

Tea production in India is expected to grow by around 5 per cent this year and is likely to end
above 1,180 million kg due to adequate rains. Tea exports have picked up as well, with the tiny
landlocked north-eastern State of Tripura inking a deal to export tea to Iran.

India exports 12 million kg of tea to Iran each year. The Golakpur Tea Estate in Tripura has
signed an agreement to export 10 tons of tea in the current financial year to an Iranian importer.
The total turnover of the tea industry in India is likely to touch Rs 33,000 crore by 2015 from the
current level of about Rs 19,500 crore, as per a study titled Indian Tea Industry, released by
industry body ASSOCHAM.

Challenges foreseen for the Tea Industry

1. The world's population is set to grow by a third by 2050, increasing demand for food by
up to 70%, according to the United Nations. And much of this population growth will be
in rapidly-developing countries such as China and India - precisely those that produce the
most tea.
 2. Pressure on agricultural land will inevitably rise, and tea will have to compete with other,
more staple, crops.

3. Traditionally, wages have been low in the tea industry, with many workers struggling to
survive on less than a realistic living wage. The attraction of service-sector jobs in the
city can be hard to resist.

4. Climate change is another major threat to tea production. Tea is a relatively delicate plant,
sensitive to changes in temperature and rainfall, and is grown in regions particularly
vulnerable to extreme weather events.

5. For example, in the past 60 years rainfall has fallen significantly in Assam, the main tea-
growing region of India, while forecasts suggest Sri Lanka will experience more intense
rain and higher temperatures in the future.

6. Tea crops the world over are facing multiple threats, from climate change and water
shortages to rural de-population and low wages. So serious are these threats, that some of
the world's biggest tea companies are joining forces to combat them.

"Unless we manage these issues, we're looking at a very different future for tea," Says Sally
Uren, chief executive of Forum for the Future, which is coordinating the Tea 2030 initiative.
Latest Trends:

The trends are expected to run the market for next couple of years. Premium variants, green tea
and its flavours and new flavours and fruit variants shall be launched to target consumers looking
for indulgence products. Not only new products, but existing players entering into various price
and variant segments and new player entry shall also be expected in packaged tea market.
Consumers will also continue to shift from unpackaged to branded tea offerings. Growth is also
expected via expansion of modern retail and penetration of branded or packed tea in rural market
among other factors. The RTD segment shall also witness a boom and many more players shall
be expected to create products with lesser differentiation. On-trade sales of packaged tea shall
also be another area to watch out for as new players shall enter with various product and format
offerings.