Two years ago Tata Coffee made a prized acquisition — Eight O’Clock Company of USA for $220 million and is planning to acquire one in Russia this year. It is the leading single exporter of pepper from India and is planning to brand its pepper globally.
Tata Coffee is adopting a ‘think globally and later act locally’ strategy for the time being as it finds India’s coffee market with two well-entrenched players not easy to crack. In a frank and open conversation with Sreekumar Raghavan, M H Ashraf, who took over as managing director of Tata Coffee in 2000 after a long stint in Tata Tea, says that if consumption rises in India and China, the coffee industry can be happy for the rest of its life.
Some time back you had acquired the Eight O’Clock Company (EOC), how has it helped in your global business?
EOC is doing extremely well. We got $ 8 million as dividend from EOC last year. We have introduced a new brand there called Good Earth in US markets. It is an organic coffee in the value gourmet segment. It was launched two months back and it is too early to say anything about the impact. We are also trying to get into premium gourmet segment but launching a brand in USA is not very easy.
Two years ago you had started the Coffee Bean Jn in Kochi – the integrated facility to sell ground coffee and let customers have a taste of it? We are not hearing any major news on that.
After Kochi we started one at Coimbatore five-six months ago. The Kochi outlet has become profitable, we hope Coimbatore will also break even and start making profit. Now we have found the idea has caught on. We have plans tentatively to open one in Chennai, followed by Bangalore and Pondicherry. Once, all five of them become successful we will franchise the outlets in other places.
Tata Coffee had announced the objective of becoming the second major coffee brand. How do you assess your progress?
In terms of branding, we have not been very successful. Only in Kerala, Mr Bean has 15 per cent market share. In Tamil Nadu and Andhra Pradesh, the bigger markets, we haven’t been doing well because of the main competition from Brooke Bond. They have been in this business for the past hundred years. It is difficult to break into that segment. We have plans for a new segment. Either the same brand or try and push our pure coffee for which there is no competition from Brooke Bond. We are selling small quantities of pure coffee in Tamil Nadu called Coorg Coffee. So we are trying various means to get a better market share in TN and AP.
Are you worried that as a brand Tata Coffee is not picking up that fast in India?
Yes, we are worried that we have not been as successful as we thought we would. That is why we went to USA and acquired Eight O’Clock. Now, we are looking at two or three companies in Russia for possible acquisition or merger. Or we also want to find out if we can go it alone with our own brand. Any way you can expect some announcement of Tatas in Russia in three months’ time, maybe.
Russia is an important market for you?
Yes, Russia is one of our biggest markets. We sell 60 per cent of our instant coffee in Russia and CIS countries. It is basically going as private label which is more of a commodity, that is why we want to have a Tata brand presence there either through acquisition or going it alone.
Unseasonal rains in early 2008, how has it affected you?
I saw some reports quoting me that Tata Coffee would be affected by unseasonal rains as it will affect our profitability. It is not true, may be during blossom stage some farmers in Coorg might have been affected but our plantations are safe. We do not expect rains to have affected our output in plantations.
You had set up a 6000 Mt freeze-dried instant coffee plant in India? How is it functioning?
It is the ultimate technology for instant coffee but unfortunately the imported German plant had some glitches and created some problems but it has been rectified. The main advantage of the plant is that the output retains all the aroma, flavour and other qualities in the bean much needed for instant coffee. Very soon the investment will pay off in terms of profitability.
What about your proposed plant in Uganda?
It was planned four years ago, but due to land acquisition problems from the government the plant got delayed. The idea was to set up a spray-dried instant coffee plant with an investment of Rs 60 crore. The land has now been allotted and Tata Coffee is planning to set up a Rs120-crore freeze dried plant. But down the line cost of steel and other commodities have gone up so we are re-evaluating the options and I am not sure about the feasibility of the project because of the delay.
How do you assess the coffee market of 2008?
There is good demand for bulk coffee and the interesting part is that earlier news of a 50 million bag crop of Robusta in Brazil will bring the markets crashing down. Now this year, there is a 50 million bag Robusta in Brazil, 21 million bag output in Vietnam but prices haven’t crashed which means demand is picking up. The prevailing are very remunerative prices and I think that could continue into next year also.
What about the Plantation Trail, the coffee tourism project?
It is doing extremely well. There are seven bungalows under the project now. When I took over there was a voluntary retirement scheme in our company and therefore these bungalows became vacant. If you leave a bungalow vacant it will deteriorate very soon. That is how we converted the bungalows into a sort of resort within the hill stations of Coorg and Chikmagalur. So we could preserve the building and earn revenue. In fact, profits are good and mostly people from IT industry in Bangalore are using it as weekend getaways. They have the money to splurge. We have still more vacant bungalows which we want to convert this year into Plantation Trail.
Why is that Tata Coffee has not become a major brand as Tata Tea?
In tea you have 700 million consumers and 800 gm per capita consumption as against a small market for coffee with a per capita consumption of 80 gm. It is very difficult to make an impact in branded coffee with well-entrenched players already there – Nestle and Brooke Bond. But roast and ground coffee market is stagnating in India while instant coffee market is expanding. Even in this segment competition is formidable that is why no one is trying to get into this segment. So we realised that it is easier to go out of India rather than competing with these strong players. That is why we acquired the US company and now looking at Russia. But once Indian market changes, we will come back. Basically, our objective as an integrated coffee company is to make an impact in all the segments we are in — right from plantations to roasting and branding. Right from the bean to the cup, we want to create an impact in India and globally.
How do you look at India’s prospects in coffee industry?
See earlier, Coffee Board and commerce ministry were trying to promote exports but now they have realised for sustainability of the industry it is better to promote more domestic consumption. They have hired consultants from Brazil to improve our coffee domestic market because Brazil got converted from a tea drinking country to coffee drinking. So is Russia being converted from tea drinking to coffee drinking country because of rising affluence. It is happening in China and India. Every one is eagerly looking at Chinese consumption. If China and India start consuming coffee we in the industry can all be very happy for the rest of our lives.
