In Search of the Larger Cup of Tea

– Company Growth Strategy

Mr. Avinash Krishnan, CEO of TTC CPD (Travancore Tea Corporation Limited- Consumer
Products Division) placed his cup of tea on the table and pondered, not just about the tea prepared
with a new blend but also about the road ahead for the company. He gazed through the piles of paper
about the previous quarter results and felt quite happy. The quarterly sales result of 2012-13 was
promising. The company had in fact shown decent performance with a year on year (YoY) growth
in line with the category growth. However, the reports submitted by the consultants as future
prospects for the company left him a little baffled. The major markets had hinted a change in the
consumption patterns of the customers. With increasing disposable income the consumer segment
showed an ascent from economy to premium segment. The established market for dust tea was
giving way to orthodox leaf tea. All these made him more anxious than happy.

TTC PRODUCT PORTFOLIO

The product portfolio of the packaged black tea division (dust & leaf tea) focuses on dust tea to cater
to the predominant regional preferences. The category is segmented by the company as Super-
Premium, Premium, Economy, Popular and Discount segment based on price-point of 250gm
package tea, which is the most preferred SKU among Indian household consumers (Exhibit 2). The
broader assumption is that, the Super-premium segment caters to the top upper class, premium
segment to the bottom upper class and top middle class, economy segment to the top and bottom
middle class, popular segment to the bottom middle class and top lower class, and discount segment
to the top and bottom lower class. The lower classes are also catered to by loose tea traders and
contribute to a significant proportion of total tea sales by volume. Under dust category, TTC Garden
Fresh is targeted for the economy class of consumers reflecting their need for a consistently strong
blend. Brand TTC Darjeeling is a rich blend of dust tea grown in Darjeeling, targeting the premium
class of consumers. TTC Rajah is a dust blend of south Indian teas targeting the popular segment
consumers.

In the leaf tea category, TTC Royale brand characterized by its unique taste was launched in 2005
to serve the exclusive premium segment leaf tea connoisseurs. TTC Supreme was launched for its
economy class leaf tea consumers. In the dust and leaf tea variant, Malabar Chai brand catered to
the discount segment largely constituting the High Tea Shops (HTS) that procured higher volume
packs (5kgs/pack). In addition, Tea bags variant of TTC Garden Fresh dust tea was launched in
2004 to satisfy the need of convenience amongst customers. In 2009, Vending machines were
introduced to serve on-the-go customers. TTC also forayed into Roast & Ground (R&G) Coffee in
early 2000’s to cater to the traditional coffee drinkers in Kerala market.

FUTURE GROWTH OPTIONS

The premium segment targeting upper and middle class consumer contributes to 28% volume share
of dust tea. Among the 5 states, the premium segment share out of total dust tea varied (Exhibit 5)
with higher volume share in Kerala signaling the need for a premium dust brand. TTC Darjeeling
blend was a pilot brand launched in 2005 to test these markets and it had limited success. Since then
it had built an exclusive set of loyal customers for its taste in few places of southern Kerala. The
proposed plan was to upgrade the brand in terms of enhanced value proposition and re-launch in
this segment with a newer brand name in major TTC markets. The re-launch was to be supported
with additional marketing and promotional activities. The new brand name was to be a reflection of
the things that people value but simultaneously connecting with tea category as well. Though the
loyal customers were expected to resent, this move enabled the company to reach a wider customer
audience with the desired value proposition. The word “Gold” was resonating in the minds of the
marketing team. The craze for gold among Indians provided a perception of regality for the
associated brand as proved by the success stories of brands like Gold Winner Sunflower oil and
Gold Flake cigarette). The strengths of TTC in support of re-launching the brand were its well-
defined distribution set up in major markets like Tamil Nadu and Kerala, acceptance of TTC brand
among retailers and higher market control through its sales force. While the flip side is the high
customer loyalty for competing premium segment brand which impedes the acceptance of the new
brand. The other challenge was the reaction to such a brand launch by the bigger established players
with deep pockets and with a significant proportion of loyal customer mass in established markets.

The flagship brand TTC Garden Fresh is offered to the consumers at economical prices in various
SKU sizes (20g, 40g, 100g, 250g, 500g, 1 Kg) that are packed in pouches. And the premium brands
like BB 3Lotus, Circus Gold, TTC Darjeeling are packed in cartons. The packaging in carton format
provides a snob effect perception of regality in the consumers mind thereby providing a premium
feel. Since the major change is from the package front, it costs relatively less to implement and no
major changes from the product front. The feedback from market was that the consumers are slowly
moving from a price driven decision to value driven decision making. Also other categories like
chocolate and biscuit are showing an upward mobility of consumers, also termed as
“premiumization” of consumers, in recent years. Mr. Avinash pondered “If the consumers are
moving upward to a premium segment from economy segment, shouldn’t we micro segment and
provide a value added option for the transitioning consumers?” From his point of view, in addition
to the strength of tea that acts as the core benefit, the consumers are looking for taste as well. So, he
thought to increase taste along with existing blend strength and subsequently communicate the new
and improved product through the marketing activities, change the packaging to cartons and sell at
a price in between economy and premium segment. The marketing team suggested that the cartons
will provide a refreshing feel for the brand and act as an entry strategy for less established markets
in Andhra Pradesh as strong brands like Taurus were availed in cartons though expected to be less
impactful in Tamil Nadu and Kerala. He also hinted that launching the carton pack would alienate
the regular TTC Garden Fresh consumers due to the implied inferiority of the regular TTC Garden
Fresh in pouches. There was neither adequate feedback about the product acceptance from the
retailer and he was very sure that the big players would retaliate by announcing trade and consumer
offers.

Mr. Pratyush– Management Information System (MIS) Manager stated that the idea to enter green
tea market was always hovering around the corner. As per company reports, though Green Tea
market contributes only around 0.2% of total tea market in India, it has a staggering year on year
growth rate of about 40%. In addition, the profit margin in green tea is manifold in comparison to
black tea. The major growth driver for this segment is due to the increasing interest in health and
wellness products coupled with increased disposable income and willingness to spend by the
consumers. South India contributes to about 35% of Green Tea sales, growing 50% annually. The
major pack formats are tea bag, carton and tin. Carton contributes to about 74% and tin pack
contributes less than 3% of total sales (Exhibit 6). The marketing team has identified from their
research that the major SKU in plain Green Tea is packs containing 10 tea bags and 30 tea bags (2
gram per tea bag), with share of 37% and 20% respectively (Exhibit 7). Based on price, green tea is
segmented into high-price point, mid-price point and value for money (Exhibit 8A & 8B). Mr
Avinash, after going through the report submitted by his marketing team, was perplexed about
entering green tea market. He felt that it was advantageous to add green tea to his product portfolio,
as it provides a premium effect for the company brand TTC with good profit margin and the existing
sales and distribution set up was an added advantage. On the flipside, the economy image associated
with TTC might hinder entry into this niche segment.

The consumption of orthodox leaf tea increases in proportion as we ascend up from the state of
Tamil Nadu to Jharkhand. TTC has its presence in premium segment under the brand name TTC
Royale, with presence in select markets that is majorly driven by market acceptance. The major leaf
tea brands in this region are lined up with bigger brands like Qutab Minar and BB Rose Label
(Exhibit 9A & 9B). If TTC Garden Fresh leaf variant is launched, this would give TTC an attractive
product portfolio and explore less established markets. Though there is indication of leaf tea
acceptance in major markets, it is not well reflected by the figures shared by Vignesh. The plan to
launch a leaf brand under their flagship name TTC Garden Fresh might help them capture some
additional leaf tea consumers. This might lead to brand dilution of its flagship brand but at the same
time induces a halo effect of catering niche leaf tea consumers by their wide portfolio. Though it
seems to be a good idea, he felt a need for an appropriate time to launch the brand in their established
markets, Tamil Nadu and Kerala as these markets still had more dust tea preferring customers.
Mr. Avinash joined TTC in 1984. Being a tea aficionado, and one of the most trusted advisors of
the company, he had played crucial roles in the development of CPD since its inception. So, he is
well aware that this meeting for quarterly results would end up in a discussion of the strategic options
put forth by the consultants. He was contemplating about the four options but was a challenge to
link them and come up with the ideal choice. As his secretary Ms. Sarah reminds him of his flight
to Chennai, he grabs some of the key papers and sighs with a deep breath “We are swimming with
the sharks and need to stay alert in the present to stay alive. But for a better future the decision needs
to be made now”. She was bemused by his comment but could sense that some important decision
was being made and wished with a pleasant smile “Au Revoir”. Given that all the options were
equally appealing, it was critical for him to be decisive at this juncture.
EXHIBIT 1: Procurement & Distribution Flowchart

TEA GARDEN

AUCTION

PACKAGED TEA
MANUFACTURER

CARRYING AND
FORWARDING
AGENT

REDISTRIBUTION
STOCKISTS

LOOSE TEA WHOLESALE MODERN TRADE

RETAIL OUTLET HIGH TEA SHOP
TRADER OUTLET OUTLET

CONSUMERS

Source: TTC Company Records

EXHIBIT 2: TTC - Black Tea Price Segmentation

SEGMENT PRICE RANGE (INR/Kg)

CTC Dust Tea
Super Premium 451 and Above
Premium 361-450
Economy 240-360
Popular 239 & Below
Orthodox Leaf Tea
Super Premium 401 & Above
Premium 300 – 400
Economy 200-299
Popular 199 & Below
Source: TTC Company Records, Q3-2012-13
Note: The price range is calculated based on cost per kilogram of the major stock keeping unit,
which is 250 gram pack here.
 EXHIBIT 3: State-wise Tea Segment Share (%)
Dust Tea Leaf Tea
No. State Super Super
Premium Economy Popular Premium Economy Popular
Premium Premium
All 5 states 3 32 34 6 7 10 4 5
1 Kerala 3 61 23 6 4 2 1 0
2 Tamil Nadu 0 5 82 7 2 3 1 0
Andhra
3 1 29 33 5 17 12 3 0
Pradesh
4 Karnataka 6 15 23 7 8 18 9 14
5 Jharkhand 0 5 35 3 9 29 16 3

Source: TTC Company Records, Q3-2012-13

EXHIBIT 4: TTC Garden Fresh Dust Tea & State-wise Competitors

TTC Garden Fresh - ECONOMY DUST SEGMENT
MARKET KEY COMPETITOR(S) SECONDARY COMPETITORS
TN KRISHNA DEVAN, BREEZA 3 LOTUS, CIRCUS GOLD
KRISHNA DEVAN, KRISHNA DEVAN
Kerala ROSE LABEL, 3 LOTUS
STRONG
Andhra
TAURUS, SOCIETY CIRCUS GOLD & 3 LOTUS
Pradesh
Karnataka KRISHNA DEVAN, BREEZA (DUST) ROSE LABEL, 3 LOTUS
Jharkhand ADDA Premium, ADDA TEA ROSE LABEL
Note: The key competitors are from the economy segment while the secondary competitors are
the state-wise major brands, Q3-2012-13
EXHIBIT 5: CTC Dust Tea- State wise Premium Segment Share
NO STATE Dust tea out of Black Premium Major Premium Market Leader
Tea in South India Segment Share Segment Brand Brand (Segment)
(%) out of Dust Tea
(%)
All 5 states 75 28 BB 3-Lotus BB 3-Lotus
(Premium)
1 Tamil Nadu 94 6 BB Rose Label TTC Garden
Fresh (Economy)
2 Kerala 93 62 BB 3-Lotus BB 3-Lotus
(Premium)
3 Andhra Pradesh 68 15 BB 3-Lotus Taurus (Popular)
4 Karnataka 50 18 BB 3-Lotus Krishna Devan
(Economy)
5 Jharkhand 43 <1 BB 3-Lotus Adda Premium
(Economy)
Source: TTC Company Records, Q3-2012-13
EXHIBIT 6: Green Tea Packing Based Segmentation- South India
Segment YoY
No Segment
Share (%) Growth %

Tea Bag 24 68%

1 Plain 63 90%
Flavored 37 40%
Carton 74 14%
2 Plain 98 13%
Flavored 2 102%
Tin 3 20%
3 Plain 11 -25%
Flavored 89 31%
Source: TTC Company Records, Q3-2012-13
EXHIBIT 7: South India SKU Share in Packing Variants –Green Tea Bags

S. No. SKU SKU Share (%) Growth %

1 Plain 105%
10 Nos. 37% 66%
20 Nos. 14% 81%
25 Nos. 15% 72%
30 Nos. 20% 471%
50 Nos. 2% -13%
100 Nos. 12% 145%
2 Flavoured 39%
10 Nos. 22% 23%
18 Nos. 4% 56%
20 Nos. 17% 56%
25 Nos. 56% 170%
50 Nos. 1% …
Source: TTC Company Records, Q3-2012-13

EXHIBIT 8A: Price Segmentation - Green Tea- Tea Bag Segment

S No Segment Price Segment Growth Major Best of Share Growth
Range Share rate Player Breed of Best Rate
(INR) Player

1. High Price Above 11% 30% Winings, Winings 57% 0%

Point 70 Nutra,
Typhoon,
81 Herbs
2. Mid-Price 60-70 33% 89% Yorkshire, Yorkshire 90% 65%
point Green
Valley
 3. Value for Less 56% 80% Tipton, Tipton 50% 205%
Money than 60 Organic
Asia, Gtea,
Kipler,
Gana

Source: TTC Company Records, Q3-2012-13

Note: The price range is calculated based on cost per kilogram of the major stock keeping unit,
which is 100 gram pack here.

EXHIBIT 8B: Price Segmentation - Green Tea -Carton Segment

S SEGMENT Price Segment Growth Major Player Best of Share Growth
No Range* Share rate Breed of Rate
(INR) Best
Player

1. High Price Above 1% -6% Winings, Organic 88% -8.4%

Point 100 Organic Asia Asia

2. Mid Price 80-100 17% 160% Tipton, Tipton 43% NA**

point Woodbridge,
Poabs,
Natura Treat,
Ginni, Gtea

3. Value for Less 82% -20% Yorkshire, Yorkshire 69% 31%

money than 80 Kipler, Lasa,
Riddle, Gold
Star, Brew
Berry

*The price range is calculated based on cost per kilogram of the major stock keeping unit, which
is 100 gram pack here.
**The major player Tipton entered the market in 2013 only
Source: TTC Company Records, Q3-2012-13

EXHIBIT 9A: South India Leaf Tea Market Scenario

Segment Market Share Volume Growth Major Brands
Volume (%) (%)
Super 28 +1 BB Qutab Minar
 Premium
Premium 38 -3 BB Rose Label, Rose Label
NatCare
Economy 15 0 Adda Premium, Lobosa
Popular 19 +1.5 Devagiri, Prakash Tea
Source: TTC Company Records, Q3-2012-13

EXHIBIT 9B: South India – State wise Leaf Tea Scenario

% of Volume
State Total Growth Major Segment (Brand)
Black tea rate (%)
Tamil Nadu 6 8 Premium (BB Rose Label)
Kerala 7 -14 Premium (BB Rose Label)
Andhra Super Premium (Qutab
32 -4
Pradesh Minar)
Karnataka 49 +3 Premium (BB Rose Label)
Jharkhand Super Premium (Qutab
57 -1
Minar)
Source: TTC Company Records, Q3-2012-13.

Questions for the Case:

1. What is the distribution model of TTC–CPD? Or Discuss about how tea reaches the
consumer from the tea-garden?
2. How is customer segmentation done by TTC-CPD?
3. Use a suitable framework to fit the strategic options and discuss about the merits and
demerits of each model?
4. What is TTC-CPD trying to achieve by launching TTC Premium brand in Carton format?