Tata arm enters tea biz without the muscle

Feeling the need to diversify to make up for accumulated losses, Amalgamated Plantations (APPL), a Tata Global Beverages (TGB) subsidiary, has decided to venture into the packet tea business, without relying on any strength from its parents.

APPL came into being in 2007, after TGB (then known as Tata Tea) decided to hive off its plantation business in Assam and West Bengal, and instead focus on retail brands. Initially, Tata Tea considered exiting the plantation business. However, it decided to keep control over the gardens by forming two distinct subsidiary companies; APPL was one.

Currently, TGB directly owns 41 per cent in APPL. Tata Investment Corporation, another Tata group entity, has a 25 per cent stake, taking the group’s total holding to 66 per cent. With the new venture, APPL is to first tap the market in the northeastern region, yet to see any major tea brand’s dominance. “We will first focus on the Northeast, appointing one distributor for each state. Thereafter, we will venture into other parts of the country but will not launch (the products) in areas where TGB is strong,” Jagjeet Kandal, managing director, told Business Standard.

Asked why he wasn’t keen to bank on the strong distribution network of its parent, Kandal said, “We don’t want to create another TGB.” Reasoning that APPL needs to create own channels and brand identity, in a market where purely plantation companies are vying for greater space in the packet tea business.

To start, APPL’s newly launched Hattigor Gold brand, a single estate blend of crush, tear, curl (CTC) and green leaf, priced at ~270 a kg, will be made available in Assam, Tripura and others. Then, in January, another mid-segment blend, in the ~400-450 a kg price bracket will be launched. By the end of the current financial year (March 31), APPL aims at four or five distributors in the Northeast. With an accumulated loss of nearly ~85 crore, it has little to spend for marketing. “The push will be on point of sale, not necessarily an aggressive marketing campaign. At this stage, the money is not there,” Kandal said.

The country’s northeastern part is predominantly a loose tea market. Except for a few local brands, major national players are nearly absent from most places, save the state capitals. It is this segment that APPL aims to tap, sans the Tata distribution network or brand name.

Kandal feels the fast moving consumer goods distribution network already knows the profile of APPL as a TGB subsidiary and, hence, it won’t be difficult to distribute the tea. He also wants consumers to make their purchases on the reputation APPL enjoys as a pure plantation company.

Industry officials believe it is easier for plantation companies to gain consumer trust, both at the retail and wholesale levels, with people perceiving that such companies make and pack the leaves on their own, assuring better quality. “For a company like APPL which has 25 gardens in Assam and West Bengal with a 41 million kg annual output, the task becomes much more easier,” an official told this publication. The diversification plan is thought to ensure a better bottom line, beside opening a second revenue stream.

In the Guwahati auctions, APPL’s leaves are sold at ~180 a kg on average, ~15 higher than the average market price. Kandal’s cost of production is ~210 a kg, a loss of ~30 for every kilo sold in the auctions. Sourcing from its parent company has mitigated the loss to an extent.

On the other hand, the packet tea venture assures him ~10-15 additional margin for every kg sold. In the near term, the company aims to sell 300,000-500,000 kg of packet tea every year. Translating to ~30-75 lakh of additional profit each year.

Apparently, APPL hasn’t made any major investment for the new line of business. The company has been packing tea for TG Band, hence, already has three plants in place, now also being used for its own brands.