Tata Tea Ltd.

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Tata Tea Ltd.

1 Bishop Lefroy Road
Kolkata 700 020
West Bengal
India
Telephone: 91 33 2281 3891
Fax: 91 33 2281 1199
Web site: http://www.tatatea.com

Public Company
Incorporated: 1964 as Tata Finlay Ltd.
Employees: 56,099
Sales: INR 30.76 billion ($707 million) (2005)
Stock Exchanges: Bombay
Ticker Symbol: 500800
NAIC: 311920 Coffee and Tea Manufacturing

Tata Tea Ltd. is one of India's leading tea companies and is the second largest supplier of branded tea in the world. Vertically integrated, Tata Tea produces 40 million kilograms on 18,000 hectares on about three dozen plantations in India and Sri Lanka. Branded tea accounts for 86 percent of sales, with the remainder coming from bulk tea, coffee, and investments. The subsidiary Tata Coffee has 8,000 hectares under production, producing more than 9,000 metric tons a year. Tata accommodates every budget with its brands sold in India, which include Tetley, Kanan Devan, Chakra Gold, Gemini, and Tata Tea (one of the country's top sellers). The company has the largest instant tea processing facility outside the United States, which produces exclusively for export from India. Two-thirds of sales came from the United Kingdom's Tetley Group, which Tata Tea acquired in 2000 in the largest takeover of a foreign company by an Indian one to date. Tetley then became the company's main brand for world markets with Tata doing business in 40 countries. Tata also has an instant tea plant in Florida, where its U.S. subsidiary is based. Since the mid-1980s, Tata Tea has been progressively shifting away from the risk-laden plantation business into the marketing of tea (and coffee) to the consumer. In 2005, the company began selling its tea estates to their workers.

Origins

Tata Tea's origins can be traced back to the James Finlay Group. In 1893 James Finlay of Glasgow, Scotland, acquired the concession for tea cultivation in Travancore, Kerala, on South India's Malabar Coast, which faces the Arabian Sea. In the early days, according to Sir Percival Griffiths' History of the Indian Tea Industry, in South India, tea was secondary to coffee and other crops. However, in the second half of the 20th century tea was the exclusive crop in Kerala. Most tea in the south was grown on hillsides, notes Griffiths, in contrast to the plains in the north.

Local planters began to turn to growing cinchona (quinine) and later tea, as coffee leaf disease spread to the area in the 1870s. James Finlay & Company's Sir John Muir acquired concessions for the North and South Sylhet Tea Companies in 1893. The Consolidated Tea and Lands Company was established to take over these interests. Finlay's 2,500 acres and other estates were acquired in 1897 by the Kanan Devan Hills Produce Company, which was named after the prominent geographical feature in North Travancore.

India's Tata Group conglomerate formed the Tata Finlay joint venture with in 1964 to develop value-added tea, beginning with instant tea. The company took over James Finlay's operations in 1976 and in 1983 it bought out the Finlay Group, forming Tata Tea Ltd. At the time, the industry was slogging through a global depression. A U.S. unit, Tata Tea Inc., was formed in 1987.

Focus on the Consumer in the 1980s

In the early 1980s the tea industry in India was experiencing rising input and labor costs and dwindling margins as well as "capricious" taxes, according to Britain's Financial Times. India was facing competition on the world market not just from China, but other countries entering the business. However, by 1983, the industry was well in the black, with record profits being reported by most companies, including Tata Tea, which had sales up 42 percent to INR 1.1 billion ($95 million) and a pre-tax profit of INR 236 million, up five-fold. The amount of black tea sold was only slightly larger, 384 million kilograms. The company had been spending millions of rupees to upgrade its facilities.

Tata Tea decided to move from the commodities business to consumer branding in 1983. Its first brand was Tata Tea. This was followed by Kanan Devan, Agni, Gemini, and Chakra Gold. However, the concept of branded teas would be slow to catch on in the domestic market, which was the world's largest.

Global in the 1990s

Tata Tea took its brands to the global market in the 1990s. It formed an export joint venture with Britain's Tetley Tea in 1992. Other new enterprises included a majority interest in Consolidated Coffee Ltd. (Tata Coffee Ltd.) and a joint venture to manage agricultural estates in Sri Lanka.

Tata's brands ended the decade with a market share of 25 percent in India, making it second to Hindustan Level Ltd., which dominated the market. The company had 74 tea gardens and was producing 62 million kilograms of tea a year, two-thirds of it packaged and branded. According to the Economic Times, while no one sold more tea than Unilever, Tata Tea was the largest integrated producer.

The tea business was complicated by a drought in much of India in 1999. In addition, Russia, once the largest buyer of Indian tea, temporarily withdrew from the market. Also, Tata's attempt to launch ice tea did not curry favor with the Indian market.

The Tetley Acquisition in 2000

A bid to buy The Tetley Group Ltd. from Allied Domecq in 1995 failed due to a lack of financing. However in 2000 Tata was able to acquire the company from Schroders Private Equity Fund in a £271 million ($432 million) leveraged buyout. Tata Tea reportedly outbid the American conglomerate Sara Lee in what was described as the largest takeover of a foreign company by an Indian one to date.

Tetley, based in the United Kingdom, was the world's second largest tea company after Unilever's Brooke Bond-Lipton and had annual turnover of £300 million. It was the market leader in Great Britain and Canada and a popular brand in the United States, Australia, and the Middle East.

Tetley had been founded in 1837 by brothers Joseph and Edward Tetley, who had traveled the Yorkshire moors selling salt and other wares. By the end of the 19th century was well known in the United States as well as England. Tetley had a history of innovative packaging, including bringing the tea bag to Britain from America in 1953, and developing the first round tea bags in 1989. Its factory in Eaglescliffe in northeast England, established in 1969, was considered the world's largest tea bag plant.

Part of the rationale for the Tetley buy was the impending liberalization of the Indian tea market, which was the world's largest, consuming about 650 million kilograms a year, less than half of it in packets. While Tata Tea was broadening its marketing reach via the Tetley takeover, rival Unilever was buying several plantations to boost its production capacity. The international tea business was as much as ever a contest dominated by two global brands, Unilever's Lipton and Tetley, which Tata was bringing to India for the first time in 2002. However, a plethora of regional brands claimed more than one-third of the domestic market and remained a threat, along with loose tea.

Tata had a variety of other initiatives in play. It was an investor in a domestic coffee bar chain called Barista. Tata Tea, a market leader in India, was reportedly considering entering another huge tea market: China. Once a major supplier of pepper, it decided to exit the business in 2004, closing the Cochin Spices Centre it had built in 1990.

With the antioxidants in tea making headlines for cancer-fighting properties, the tea manufacturers were doing a brisk business. However, Tata's exports fell by about one-sixth in the 2003–04 fiscal year, largely due to reduced trade with Iraq.

Company Perspectives:

We believe that our customers and consumers define the success of our organisation and that they should be top-of-mind in everything that we do. We believe that our people are at the heart of our organisation; and that we should give them the freedom to achieve, through clarity of direction and the creation of an informal, barrier-free culture.

We believe in tea and in our products, and their role in adding to the well-being of people the world over. We believe in earning the respect of all those who know us. We believe in making a positive contribution to the people and communities our business touches. We believe that by striving to deliver our vision and by living our values we shall create more valuable business and hence over the long term increase returns to our shareholders.

Key Dates:

1837:: Tetley established in Yorkshire, England.
1893:: James Finlay & Company acquires tea concessions in Travancore, India.
1897:: Kanan Devan Hills Produce Company takes over venture.
1953:: Tetley introduces tea bag concept to United Kingdom.
1964:: Tata Finlay formed as joint venture between James Finlay and Tata Group.
1983:: James Finlay interests bought out; company renamed Tata Tea Ltd.
1987:: U.S. subsidiary established.
1992:: Tata Tetley joint venture formed.
1995:: Tata Tea attempts to buy Tetley Tea.
2000:: Tata acquires Tetley for £271 million.
2005:: Tata announces plan to sell Munnar tea estates to workers.

In 2005, Tata announced a plan to sell its 17 tea plantations in Munnar to the 12,500 employees there. Tata Tea would retain less than 20 percent of the equity. This was part of the company's shift in emphasis to brand marketing rather than production. In October 2005, Tata's Tetley plc acquired a small California maker of specialty teas called Fmali Herb Inc. and Good Earth Corporation.