Tata Global Beverages: Chai and more!

Business model

Tata Global Beverages (TGB) is a diversified beverage distribution and retail company, with presence in 40+ countries across tea, coffee, and other beverages. Tea remains at the core of TGB with 74% of the company’s USD 1.6 billion revenues coming from tea [1]. TGB is the second largest tea company in the world today. Incorporated as Tata Tea Limited in 1963, TGB has been an important part of the USD 110 billion Tata Group, established in 1868 and amongst India’s largest and most respected business houses.

From vertical integration…
TGB followed an India-focused vertical integration strategy till the late 1990s. TGB owned most parts of its value chain – from tea plantations, and processing and packaging units, to distribution networks. It operated two separate marketing networks for its tea and coffee businesses.

…To global horizontal expansion
After India’s economic liberalization in the 1990s, the Tata Group increased its focus on becoming a leading global brand across sectors. In early 2000s, TGB decided to anchor the company to a high-margin global distribution and marketing organization. TGB achieved this through a three-pronged strategy, taking the company from a local tea player to a large player in the coffee segment and the second largest tea maker in the world

1. Acquisitions : In 2000, TGB acquired UK tea maker Tetley for USD 450 million , at the time the largest acquisition ever by an Indian company [2]. That the company was headed for an aggressive acquisition strategy was evident in that TGB at the time was one-third the size of Tetley. In the following years, the company spent over USD 800 million on acquisitions in the US, Russia, Europe and Africa, acquiring players across tea and coffee segments including Good Earth, Joekels Tea, Vitax, Grand and Eight O’Clock Coffee [3].
2. Joint ventures: TGB complemented these acquisitions with a range of high-profile joint ventures. Amongst the most notable were the launch of Starbucks in India, and a partnership with PepsiCo for non-carbonated ready-to-drink beverages.
3. Divestments: In 2005, in line with its strategic refocus, TGB began divesting its direct ownership of plantations, supported by the World Bank’s assistance [4].

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Operating model
One of the unique features of TGB’s operating model has been its adaptability to the changing strategy of the company while maintaining the unique aspects of its alignment with the parent group. The financial performance exhibits the robustness of the model, with the company growing from USD 110 million in 2000 to USD 1.9 billion in 2014. Some of the key elements aligning TGB’s operating model to its business model over the years have included the following:

1. Regional organizational structures: TGB’s operations across 40+ countries are managed through three consumer facing regions – North America and Canada (CAA), Europe, Middle East and Africa (EMEA), and South Asia. This segmentation (and separate P&Ls) has allowed TGB to understand local beverage preferences and play to the different customer preferences across these regions. In the US, TGB has focused on the coffee segment and has partnered with Keurig to become the 4th largest single-serve coffee brand through its Eight’O Clock brand. In India, it has developed a strong rural last-mile delivery network and is the market leader in tea in terms of both volume and value.
2. Balance of centralization and operational independence: Given its strategy of non-organic growth through acquisitions, TGB has ensured a balance of centralization of key supply chain elements and operational independence for its acquired businesses. An example of centralization is exhibited after the acquisition of Tetley , when both companies agreed to focus on open-market tea purchases to reduce procurement and logistics costs by centralizing purchasing [5]. They set up a buying team consisting of managers from each company, which also ensured that there would be awareness and standardization of quality standards. An example of operational independence is exhibited in that Tetley continues to operate to a large extent as a stand-alone business within the TGB, and in line with the Tata Group strategy, TGB hasn’t focused on complete absorption of its overseas acquisitions with maintenance of operational and cultural elements.
3. Leverage of technology: Global technology solutions have been implemented to facilitate global collaboration. Garuda, a product development and validation system, is a global information repository on vendors, raw materials and finished products. SAP systems serve as the integrator across functional systems and enable decision making for management.
4. Shift of HQ from UK to India: TGB had shifted its HQ from India to the UK to help make the brand global. However today, India contributes to 34% of TGB’s revenues. To recognize this market reality and to further integrate the global brand within the parent company, TGB decided to shift its HQ back to the Tata Group HQ in Mumbai.

Future vision
The focus of the global beverage industry has been shifting to health and wellness, and TGB plans to complement its tea and coffee businesses with an increasing focus on health and wellness beverages including non-carbonated drinks, mineral water, decaffeinated products, energy drinks, amongst others. TGB recently outlined an ambitious target of making the company a USD 5 billion business by 2020. It will be another phase in the journey of the Tata legacy [6].

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Inside Tata Global Beverages: The Early Years 

Inside Tata Global Beverages: Managing a Global Business

Sources

[1] http://www.tataglobalbeverages.com/docs/default-source/default-document-library/investor-presentation-sept-2015-3-05mb-09-09-15.pdf?sfvrsn=0

[2] http://indiatoday.intoday.in/story/2000-Tata+Tea-Tetley+merger:+The+cup+that+cheered/1/76481.html

[3] http://www.business-standard.com/article/management/how-tata-global-is-spicing-up-beverage-sales-114031201294_1.html

[4] http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3002695

[5] https://hbr.org/2009/12/dont-integrate-your-acquisitions-partner-with-them

[6] http://www.businesstoday.in/magazine/corporate/tata-global-beverages-india-business-focus-after-acquisitions/story/214453.html