The Strategy Of Tata Coffee Is To Convert Itself Into An FMCG Company

Updated: Nov 30 2002, 05:30am hrs
Tata Coffees strategic mantra is now to lower its dependence on the commodities market and move on to the branded coffee retail market. The company, in its efforts has forged tie-ups with Barista, is exporting estate specific coffee to Europe and tying up with Russian companies for making instant coffee. It is also aggressively pushing its brands, not only in the domestic market, but also in Russia and the CIS. Tata Coffee managing director MH Ashraff elaborated on the global coffee price scenario, the entry of Starbucks in India and future plans of the company in an interview with Maithreyi Seetharaman of The Financial Express. Excerpts:

What impact do you feel, will the entry of Starbucks have on the out-of-home coffee consumption market and especially your alliance with Barista
I feel that the entry of Starbucks, which we have been hearing for a very long time, will not have much of an impact on our tie-up with Barista. Barista is already a well established brand in India and it will be difficult for Starbucks to compete on our own turf. A similar example could be that, a beverage giant like Coca-Cola could not compete with local brand Thums Up and eventually had to take it over.

Global coffee prices have been at their lowest, sending a number of coffee companies worldwide, reeling. How has Tata Coffee managed to beat the trend
Coffee prices continue to rule at historical lows and this has definitely had an effect on the bottomline of Tata Coffee. However, unlike other coffee companies which are reeling under huge losses, we continue to make profits because Tata Coffee is one of the few coffee companies which is totally integrated. We are not only the largest producers of coffee in Asia, producing around ten million kilos annually, we are also the second largest exporters of instant coffee to Russia and the CIS. We not only sell our instant coffee to local brands in Russia, but also have our own two brands which are selling very well in that country, namely Mysore Gold and International Tata Cafe.

We have also have a significant presence in the local branded coffee market with four of our brands selling mainly in South India. These brands are Tata Cafe, Tata Kaapi, Coorg Pure and Coorg Double Roast and have recently launched a new brand in Kerala called Mr. Bean which is a coffee chicory mix-blend.

So what is the strategy being adopted by Tata Coffee to beat global prices and when do you think, things will start looking up for the industry
We are countering the fall in international coffee prices by concentrating more on value addition of our products. Apart from branding of national brands and export of instant coffee, we are in the process of directly exporting estate specific coffee based on certain quality parameters, directly to reputed companies like Illy Cafe in Italy.

I feel that the present situation of extremely poor prices will change sometime during this time, next year. Even though Brazil has produced one of the highest ever crops in history, indications are that, due to the biannual nature of their production, the crop is expected to reduce by around 30 per cent in the following year. Apart from this, there has been the El Nino effect in the coffee growing regions in Brazil and this would also have an effect in reducing the crop.

Apart from this, because of the extremely poor prices, essential inputs have not gone into most of the coffee producing countries and indications are that the second largest producer of coffee in the world, Vietnam is expected to produce around 30 per cent lower crop.

All other countries including India are expected to produce a lower crop and this should result in the supply-demand position coming back in favour of the producers and prices improving.

What are the strategies being adopted by the company in the much touted move away from the commodity market to the retail market
The effort of the company is to go in for value addition thereby insulating itself from the commodity market. We are concentrating on our coffee vending operations and have increased our outlets by 400 per cent as compared to last year. This is one of the directions that the company has high on the agenda. We are also strengthening our roast and grind franchise outlets in Tamil Nadu and Karnataka.

The main strategy of Tata Coffee is to get away from the commodity business and convert itself into an Fast Moving Consumer Goods (FMCG) company. In that direction we have launched a new brand Mr. Bean in Kerala and we will be extending this to Tamil Nadu, Karnataka and Andhra Pradesh very soon. Apart from this we have plans to tie-up with a company in Russia for a joint venture to manufacture instant coffee. We are also looking at the possibilities of tying up with European countries to put up a roastery in the continent to add further value to our products.

What is your opinion of the coffee market in the country and its potential for growth
The coffee market in India is practically stagnant, with the average consumption being in the region of 50 gm as compared to 650 gm for tea. However, the advent of coffee bars like Barista etc is having a positive impact on the coffee drinking habits within the country, particularly amongst the young.