Feeling the need to diversify its business to make up for accumulated losses, Amalgamated Plantations Pvt Ltd (APPL), a Tata Global Beverages (TGBL) subsidiary, has decided to venture into the packet tea business without relying on the strength of its parent company. APPL came into being in 2007 after TGBL (then known as Tata Tea) decided to hive off its plantation business in Assam and West Bengal and instead focus on retail brands. Although initially, Tata Tea considered exiting the plantation business, it kept control over the gardens by forming two distinct subsidiary companies, of which APPL was one. Currently, TGBL directly owns 41 per cent in APPL while Tata Investment Corporation, another Tata Group entity, holds another 25 per cent stake, which takes Tata Group's total holding to 66 per cent. With the new venture, APPL will first tap the market in the north-eastern part of the country, which is yet to see any major tea brand dominating the market, while steering clear of regions and product segments dominated by TGBL. "We will first focus on the market in the north-east and appoint one distributor for each state. Thereafter, we will venture into other parts of the country but will not launch (the products) in areas where TGBL is strong," Jagjeet Kandal, managing director at APPL, told Business Standard. Asked why he isn't keen on banking upon the strong distribution network of APPL's parent, Kandal said that "we don't want to create another TGBL", reasoning that APPL needs to create its own channels and brand identity in a market where increasingly pure plantation companies are vying for a greater space in the packet tea business. To start with, APPL's newly-launched brand, Hattigor Gold, a single estate blend of crush, tear, curl (CTC) and green leaf, priced at Rs 270 a kilo, will be made available in the markets in Assam, Tripura, and other states in the region. Thereafter, in January next year, another mid-segment blend in the Rs 400-450 a kilo price bracket will be launched. By the end of the current financial year, APPL aims to have a total of 4-5 distributors in the north-eastern region. However, faced with an accumulated loss of nearly Rs 85 crore, the company has little to spend on marketing activities. "The push will be on the point of sale and not necessarily an aggressive marketing campaign.
At this stage, the money is not there," Kandal said.Predominantly, the north-eastern part of India is a loose tea market and except a few local brands, major national players are nearly absent from most of the places, save state capitals. It is this very segment that APPL is trying to tap sans the Tata distribution network or brand name. Kandal said that the fast moving consumer goods distribution network already knows the profile of APPL as a TGBL subsidiary and hence it won't be difficult to distribute the tea. However, he wants consumers to make their purchases based on the reputation APPL enjoys as a pure plantation company. Industry officials are of the opinion that it is easier for plantation companies to gain consumer trust both at the retail and wholesale levels as people perceive such companies to make as well as pack the leaves on their own and hence assure better quality. "For a company like APPL, which has 25 gardens in Assam and West Bengal with a 41 million kg (mkg) annual output, the task becomes much more easier," one official told this newspaper. The diversification plan will not only ensure better bottomline but will open up a second revenue stream as well. In the Guwahati auctions, APPL's leaves are sold at Rs 180 a kilo on the average, which is Rs 15 higher than the average market price. But, Kandal's cost of production stands at Rs 210 a kilo, which makes him lose Rs 30 for every kilo sold in the auctions. Nevertheless, sourcing from its parent company has helped it mitigate the losses to an extent. On the other hand, the packet tea venture assures him Rs 10-15 additional margin for every kilo sold. In the near term, the company targets to sell 3-5 lakh kilo of the packet tea every year, which will translate to anywhere between Rs 30-75 lakh of additional profit each financial year. Apparently, APPL hasn't made any major investments for the new line of business. The company has been packeting tea for TGBL and, hence, already has three plants in place that are now being used for its own tea brands. APPL in a snapshot
- APPL was created in 2007 after Tata Tea decided to carve out plantation business
- It is the second-largest tea producer in India at over 40 mkg per annum
- It is also the second-largest orthodox tea producer at over five mkg per annum
- It has 23,092 hectares grant area, out of which 14,304 hectares come under tea gardens