Tata reads the tea-leaf market

Tata Tea, the Calcutta-based company that bought Tetley Group of London five years ago for £271 million, may be scouting for another purchase. This time, the target may be better known for chamomile tisane and citrus mint instead of the standard tea bag.

Demand for specialty and herbal teas has risen as much as 50 percent during the past three years in Britain, the second-biggest nation of tea drinkers per capita. In the United States, the market for specialty leaves is worth $750 million and is expanding 6 percent to 10 percent a year - double the growth in regular tea.

"Our main growth is going to be in the nonblack tea arena, especially in green tea, herbals, fruit-flavored infusions," Tata Tea's managing director, Percy Siganporia, said in an interview last week.

Like the Lipton unit of the market leader Unilever, and the Twinings business of Associated British Foods, Tata is adding blends to counter slowing sales of black tea in major markets. British tea sales have fallen 12 percent to £623 million, or about $1.1 billion, in the past five years, according to Mintel International Group, a London-based research firm.

"Competition has been what's impacted tea," a Mintel analyst, Ellen Shiels, said in an interview. "Part of it is competition from coffee, part of it is competition from other drinks, such as bottled water and juices."

Starbucks, the largest U.S. coffee-shop chain, is also a threat, serving its own brand of Tazo chai tea lattes and green tea lemonades alongside its coffee beverages.

"Tea is the most widely consumed prepared beverage in the world, with the exception of the U.S.," Starbucks said in a December media release. The Seattle-based company does not separately report earnings for Tazo, which it bought in 1999. Alan Hilowitz, a spokesman, declined to say whether Starbucks planned to buy more tea companies, saying that it would "continue to evaluate all strategic opportunities."

The U.S. tea market was worth $5.4 billion in 2003, according to the Tea Association of the United States of America, up from $1.84 billion in 1990. It estimates that specialty tea sales grew 178 percent in the same period.

"This segment has the capability of doubling its volume over the next 10 years," said Joseph Simrany, president of the New York-based association. "The move to specialty tea is triggered in part by the lure of high profits."

Franchia, a tea bar and vegetarian restaurant in Manhattan, sells three ounces, or 85 grams, of Korean Wild Green Tea for $100. An eight-ounce box of 100 Lipton teabags sells for $4.39 on the Internet.

U.S. tea imports jumped 5.3 percent to 99,000 tons last year, according to the United Nations Food and Agriculture Organization. European Union imports rose 2.4 percent.

Demand is growing "reportedly in response to promotional efforts on the health benefits of tea," the organization said Thursday. "Medical research suggests that moderate consumption of tea offers protection against heart and blood vessel disease, some cancers, and bacterial infections."

Specialty gourmet teas sell for 50 percent to 500 percent more than regular black leaves, said Ashok Panjwani, managing director of the tea supplier Bombay Burmah Trading.

"The specialty and organic tea market has been more a niche market and has been the domain of smaller specialized companies that offer attractive, innovative products with variations and tend to sell at a really high price," Panjwani said. "Major tea companies could use the mergers-and-acquisitions route to combine niche, high-end products with their mass teas."

Lipton, Tata-Tetley and Twinings have about 40 percent of the global market, leaving opportunity for further consolidation, said Nikhil Vora, vice president of research at SSKI Securities, a brokerage firm in Mumbai.

"The black-tea market is saturated," Vora said in an interview. "Growth is going to come from the specialty and herbal teas, not just in Western Europe, but also in the U.S. and even India."

Lipton offers Chinese herbal tea in China and South Korea, and flavored and herbal "pyramid" teabags in Japan, said Trevor Gorin, a spokesman for Unilever, which sees flavored teas as an area of "real opportunity."

"The most dynamic sector in the tea market globally is in green tea and fruit and herbal infusions," said John Cornish, international marketing director for Twinings.

"While Tata Tea has done a lot of right things in the black tea market, they've not yet got their act together in specialty and herbal teas," said Vora at SSKI. "They'll look at addressing that through acquisition. Twinings is a pretty strong player in the specialty and herbal tea market, and is a potential target for a company like Tata Tea."  (mes)

By Jason Gale Bloomberg NewsTUESDAY, JULY 19, 2005

Source : http://www.iht.com