Betting Big On Premiumisation
The stage seems set for food and beverages major Tata Consumer Products (TCPL) to leap into a higher growth orbit. Not only has it built a solid revenue base but also boasts a wide portfolio of premium brands and products with many market leaders among them. TCPL’s tea, salt, coffee and beverages businesses have proved to the main revenue generators during the past three financial years, although it is also present in spices, pulses, ready-to-eat/cook products and bottled water. It recently entered processed coffee. Its new businesses such as Tata Sampann, NourishCo, Tata Soulfull are scaling well too.
TCPL has managed to perform well in the last few years largely due to the growth of Tata Tea and Tata Salt brands. While tea as a category grew in high single-digit in the past three fiscal years, the salt business turned in a 19 per cent three-year compounded annual growth rate (CAGR), according to Sunil D'Souza, Managing Director & CEO, TCPL. "We have market leadership and launched several category-first innovations. The three-year CAGR for packaged beverages has been 9 per cent since the formation of TCPL. There has been continued progress on premiumisation, health and wellness platform, strengthening branded coffee portfolio," says D'Souza.
Tea is not just important for TCPL but for India too. After all, India is not just the second-largest producer of tea but also among the top five exporters of tea as well as its leading consumers. Therefore, both domestic market, which is pegged at Rs 9,500 crore (packaged and branded as opposed to loose tea), as well as exports ($688 million in 2021) make the significance of TCPL, especially it's tea-business, more relevant.
How did the tea business fare for TCPL in the last three years? Manoj Menon, Head of Research at ICICI Securities explains: "The company was able to post mid-high single digit volume growth in FY20-21. However, the growth has now slowed down with revival of the unorganised sector. The growth rates are flattish to low single-digit now. We believe the company has been able to gain market shares over past three years due to regionalisation strategy, distribution expansion as well as launches of differentiated products."
The last three years have also been marred by pandemic-induced slowdown and the associated challenges that impacted every sector, including fast-moving-consumer-goods (FMCG). But TCPL saw an opportunity in crisis. In this period, it acquired the Soulfull brand. It has since been re-branded and integrated as Tata Soulfull. With rich expertise in ancient millets like ragi, the brand has an innovative portfolio of products comprising breakfast cereals, healthy snacks, muesli, and plant-based protein drinks, says D'Souza. "The Tata Soulfull product range complements our existing portfolio of offerings, and has opened up opportunities in the fast-growing healthy snacking and mini meals segment, and allowed us to participate in newer consumption occasions," he adds.
TCPL also acquired Tata SmartFoodz which enabled the expansion of its portfolio into Ready-to-Eat (RTE) segment. The RTE brand has now been integrated into the Tata Sampann portfolio under the brand name Tata Sampann Yumside, and offers a range of differentiated RTE and ready-to-cook (RTC) products.
Focus on premium
D'Souza says for the tea category, TCPL has stepped up its focus on premiumisation. "Our premium brands have been growing faster than the rest of our portfolio. We have strengthened our health and wellness portfolio through products such as Tetley Immune with Vitamin C, Tata Tea Gold Care, and Chakra Gold Care and accelerated innovation through multiple launches like Tata Tea Premium Street Chai (unique flavoured teas inspired by the streets of India) and Tata Tea Gold Saffron," says D'Souza. TCPL also sharpened its brand strategy by consolidating brand
architecture across the portfolio. TCPL, D'Souza adds, continues to invest in its brands with hyperlocal and hyper personalised campaigns.
Anuj Sethi, Senior Director, CRISIL Ratings explains the growth in tea consumption. "We expect domestic tea consumption to grow at a rate of 2-3 per cent in the near-to-medium term, similar to past 4-5-year trend. Domestic consumption in the recent past benefitted from revival in demand from the HORECA (Hotel, Restaurant & Cafe) segment, which accounts of 10-12 per cent of the domestic tea consumed. This demand trend is further expected to continue as companies (both existing and new entrants) focus on widening the tea portfolio for the changing taste and preferences (eg: immunity boosting teas, detoxification teas, green tea, Kahwa, etc.)," says Sethi.
In the salt category, TCPL has built a robust portfolio of salt variants to strengthen play and expand its market presence. "Across tea and salt, we have strengthened our presence in south India with south-specific products to cater to regional consumers. In tea, our Chakra Gold and Kanan Devan brands continued to make strong inroads into the south market backed by strong brand campaigns and rural activations. Shuddh by Tata Salt was a new launch specifically targeted at the solar salt segment in the south," says D'Souza.
In coffee, many of the innovations like Sonnets, Tata Coffee Gold, Tata Coffee Grand Premium, Cold Coffee and Café style coffee have been built around premiumisation and convenience. Tata Sampann entered the dry fruits category which is a premium play. TCPL entered the protein platform with the launch of Tata Simply Better Plant-based meat and Tata GoFit plant protein powder which helped it expand into new customer segments.
Menon of ICICI Securities sumps up the reasons for the growth of TCPL. “There are three reasons for strong revenue CAGR; (1) expansion of direct distribution from 0.5 million to more than 1.5 million; (2) price hikes in tea as well as salt due to steep cost inflation and; (3) focus on premiumisation of portfolio and regionalisation strategy in tea.”
Outlook & Challenges
Sethi of CRISIL Ratings says so far the revenues have been driven more by higher prices than volume growth, as companies counter the impact of inflation. “Companies are investing ahead in anticipation of rural demand recovery (which currently remains sluggish) by strengthening the rural distribution network and firming up their rural supply chain management. Going ahead, volume growth is expected to outpace the pricing growth,” he adds.
How does the rest of FY23 and FY24 look like for TCPL? In food & beverages, TCPL has identified key areas to focus on such as its current core business (tea, coffee, salt), pantry (pulses, spices, staples, dry fruits, RTC & RTE), liquids (water, RTD), mini meals (breakfast cereals, RTE, snacks), and protein platform. "As FMCG is a large canvas, we will be selective about where we want to play considering category growth, profitability, competitive intensity and our right to win in that space. In the near term, our priority is to strengthen and grow our existing businesses and expanding into adjacencies in the food and beverage space. We will continue to progress our transformation journey, deliver profitable growth and build capabilities for the future," says D'Souza.
