Tata Coffee to target Russian market

The not-so-apparent strategy could be to leverage the aromatic equity of this 100-year-old heritage American brand to brew Tata Coffee's exports to smaller significant markets like Russia, whose annual consumption of instant coffee is around 60,000 tonnes and growing at a compounded annual growth-rate of 14%.

The sourcing strategy for these two markets could also differ. In the US, which is essentially a filter-coffee and not a instant coffee market, EOC could continue to source beans from Central and South America to maintain its position as the number-one player in the US branded whole bean market.

While EOC will continue its recent strategy to foray into the much bigger segment of roast and ground or powder coffee. "For logistical and other reasons, this sourcing strategy could continue vis-a-vis operations in the US," Tata Coffee vice-president (finance) MD Kumar indicated here.

The strategy for the smaller but more rapidly growing instant coffee markets of Russia and Ukraine could, however, be significantly different.

These markets have for decades been sipping Indian instant coffee but their consumers have of late become increasingly aspirational in terms of a preference for heritage brands, especially those of a western or American vintage.

The strategy for markets like Russia could be to merge the logistical advantage of sourcing beans from India with the perceived aromatic advantage of the EOC American heritage brand.

Before seriously eyeing EOC, Tata Coffee had already firmed-up its plans for putting up its first freeze-dried instant-coffee plant in India. The technology makes for a far more aromatic cuppa than the company's existing spray-dried product.

The Rs 72-crore freeze-dried plant will be operational by March-end, in time for Tata Coffee to brew up a more aromatic instant-coffee product in the form of a heritage American brand.

Presently, Tata Coffee exports between 4,000 to 5,000 tonnes of instant coffee, the bulk of it to Russia and Ukraine under third-party branded labels. With its upcoming freeze-dried plant and the EOC brand, Tata Coffee could now target the premium segment of the Russian market where the margins are aromatically more attractive!

"Krishna Kumar (KK) used the same strategy in the wake of Tata Tea's acquisition of Tetley. The latest EOC acquisition strategy is equally KKesque," quips independent industry consultant and retailing expert Harish Bijoor.

Tata Coffee looking to expand market share

Company to promote recently acquired U.S. brand Eight O'Clock Coffee It will be launched in Russian and Ukraine next year Brand gives Tatas a big foothold in the U.S. coffee market

Bangalore: The Tata Group aims to capture a larger share of the world's two fastest growing instant coffee markets - Russia and Ukraine - through the U.S. brand Eight O'Clock Coffee, which it recently acquired from venture capital fund Gryphon Investors for Rs. 1,015 crore (U.S. $220 million) in a competitive bidding process.

Instant coffee consumption in Russia is currently pegged at 60,000 to 70,000 tonnes a year, and the consumption has been clocking a year-on-year growth of 14 per cent, making it the fastest growing instant coffee market in the world.

Tata Coffee Ltd., a 51 per cent owned subsidiary of Tata Tea Ltd., exports about 4,000 to 5,000 tonnes of pure instant coffee a year on an average, predominantly to markets in Russia and Ukraine. However, Tata Coffee's own instant coffee brands such as Mysore Gold and International Tata Café account for a very small quantity of its sales in these two markets. A big chunk of the company's exports to Russia and Ukraine is made up of third-party private labels.

"Third-party labels are not where our future lies. The intent is to move away from this and work on our own labels. We will be ramping up our own labels through the Eight O'Clock route, which has about eight variants under a standard pack. Eight O'Clock will be a major driver for our growth plans because it is an instant brand. That's why we are bullish about the acquisition", said M.D. Kumar, vice-president, Finance, Tata Coffee Ltd.

The Tatas plan to launch the Eight O'Clock instant coffee brand in Russia and Ukraine early next year to cash in on the perception that anything coming from the West is good. "With affluence coming in, with TV exposure coming in, there is a blitz in Russia as far as Western labels are concerned. Any brand, including coffee, coming from the West is perceived as brilliant by the Russians," Mr. Kumar said.

The acquisition of an established brand with over 100 years of history and retail coffee experience provides the Tatas with a big foothold in the Rs. 97,000-crore ($21-billion) U.S. coffee market. Eight O'Clock Coffee is the top player in the branded whole-bean market in the U.S. and, within the broad U.S. food category, it is the third largest coffee brand by volume behind Folgers and Maxwell House. But the U.S. is not an instant coffee market; it is more of a roast and ground coffee market.

Though Indian coffee is as good as those coming from other parts of the globe, Mr. Kumar said that the Tatas had no plan to change sourcing of Arabica coffee beans for Eight O'Clock coffee, which are currently procured mainly from Central and South America.

"At this juncture, we are not looking at changing the sourcing. We have a winner as a blend, as a brand. We wouldn't change this arrangement just for the sake of changing. Shipping coffee beans all the way from India to the U.S. may not make logistic sense. If at all we think of changing the sourcing, we will look at it only on merit based on cost advantages," Mr. Kumar said. "We would use Indian coffee beans if the Eight O'Clock brand is to be made here," he added.

The acquisition will transform Tata Coffee from a regional player to a major global coffee player and help it move up the value chain to become a fully integrated player in the global coffee industry.