Marketing of tea - A strategy

2 November 2015 02:38 am

By Daham Wimalasena
“The global tea industry reached maturity over a decade ago and is now in a critical period where fundamental changes are taking place in the competitive environment. The slowing of growth is creating more global competition for market share. The transition to maturity should provoke firms and industries in different countries to concentrate on their core markets and defend their position vigorously. This does not seem to have happened with the Sri Lankan tea producers who have and are conceding their global market share to relative new corners.

The Sri Lankan tea industry has recently been released from state control and is now in a position to make important strategic moves to restore its competitive ability in the global market. This may require heavy investment in modern facilities and equipment. More importantly the industry needs to understand the future trend of consumer demand in key markets and provide the products and services desired. The industry has to move away from mass marketing strategies to more focused strategies of differentiation and positioning. Winning the game would require new thinking new orientation and intelligent moves because the competitors are equally powerful. Sustaining competitive advantage does not only depend upon exploiting the national environment of cheap land and labour, but also individual firms in the industry must draw on their own home-based resources to extend and upgrade their competitive advantage continuously.” - World Bank Discussion Paper 268.

I give below some disturbing features in the world tea market:

• The world tea market is dominated by Sri Lanka, Kenya, China, India and Indonesia, which together export 80 percent of the world tea. However, China, India and Sri Lanka, which dominated the production of tea for over 100 years, have decreased their dominance due to the emergence of Kenya and Tanzania as major producers in the last 15 years. While tea production in China, India and Sri Lanka increased marginally, there has been a phenomenal increase in Kenya and Tanzania. Even in productivity, Kenya is far ahead of the other major producers in the world.
•  The processing and distribution of tea in the world market are controlled by four vertically integrated United Kingdom corporations: Unilever, Brooke Bond, Cadbury Schweppes, Allied-Lyons and Associated British Foods (Clairmonte and Cavanagh 1990). These four have over four-fifths of the tea market in many countries. The market strength of the Unilever group in the tea industry is comparable to Coco Cola’s strength in the soft drink industry. It supplies over 30 million tea bags in 120 countries daily. Allied-Lyons is even bigger than Unilever, Lipton and Brooke Bond and has a very diversified product line in the countries of its operation. Associated British Foods is the parent company for Twining Tea, which puts out more than 120 blends of tea and coffee for export to more than 90 countries.

When one considers that some of the best tea estates in Kenya are managed by Unilever, the extent of domination by the multinationals is clearly obvious.

•  Buyers dominate the tea market because of the dominance of a few large buyers who can easily manipulate prices at the auction. This situation is further aggravated by the fact that tea producers are a collection of small producers who are not united either nationally or internationally. The auction system also works against the interest of the producer because of the standardized nature of the tea sold through the auction.
•  Tea is also facing severe competition from substitutes like soft drinks, fruit juices, coffee and alcohol. World consumption of soft drinks and fruit juices has shown very impressive increases and will continue to be a major threat to tea. This industry is dominated by such multinationals like Coco Cola, Procter & Gamble, RJR Nabisco, Allied-Lyons, Schweppes, etc. Furthermore, tea has not been able to gain at the expense of coffee, despise the fact that coffee prices have almost tripled in the last few years, while tea prices have declined.
•  To face global competition in the market, the plantation companies’ skills in marketing are meagre or non-existent. The plantation companies need to change their distribution and marketing strategies drastically. If they want better prices, it cannot be achieved by competing against other companies or continue to sell bulk of their produce through the auctions. They cannot wait passively till the multinationals completely obliterated the only advantage we have of ‘Ceylon tea’ being of the best quality. 

The international marketing companies are selling their brands and the foreign consumers who have no choice or access to pure Ceylon tea, have forgotten what constitutes good quality tea. The companies must unite and market ‘Ceylon tea’. Only through unity can we face global competition. The individual companies have neither marketing expertise nor adequate quantity of tea to have any impact in the world or continental market. They must set up a separate joint stock company to market tea. 

The shareholders would be the plantation companies and the extent of their investment is for them to decide. If adequate capital cannot be raised, the government could contribute up to 49 percent. It is the country’s interest as well to get better prices.

To ensure that the proposed joint stocks company has a single-minded objective and common interests, the companies which have estates in a single ‘quality district’ (e.g. Nuwara Eliya, Dambulla, etc.) should initially form such a company. Marketing ‘Nuwara Eliya’ or ‘high grown’ quality of Ceylon tea should be their objective and not BOP, BOPF, etc., which no housewife, who normally makes the buying decisions, understands or cares. 

The formation of such a marketing company should not restrict or inhibit the individual companies of promoting their own estate makes and brands for niche markets. The proposed marketing company will draw upon the best marketing talent in the country, have access to substantial quantity of good quality tea and adequate resources to undertake a marketing campaign in selected countries abroad.

The current depressed prices for tea are another reminder that to even survive without perishing, the only alternative is a united marketing strategy as proposed above.