Tata Global Beverages Ltd (TGBL) expects the coffee segment to outperform its tea business on the back of product innovation. The beverage maker expects the segment to grow at 15 per cent year-on-year in India and Russia.
While tea continues to contribute about 70 per cent to overall revenue, coffee’s contribution is about 25 per cent and might touch 35 per cent in the coming quarters.
“Growth for coffee came from both domestic and international markets. In Russia, we launched freeze dried instant coffee called ‘The Grand’. Our Eight O’ Clock brand in the American market is also doing extremely well. Half of the 23 per cent growth in profit this quarter came from the coffee business alone,” said Harish Bhat, who took over as the company’s Managing Director early this year.
On the domestic market, Bhat said that Indians are getting more addicted to coffee, which explains the growth in the number of coffee chains in the country. The latest is the entry of Starbucks through a joint venture with TGBL.
Even though the instant coffee business is growing steadily at 12-15 per cent for TGBL, the company has no strong brands in that segment to pitch against brands such as Nescafe Sunrise and Hindustan Unilever’s Bru.
“We are very strong in the Southern market and have two brands there. Depending on the success, we might look at having a national coffee brand. But have not decided on this,” Bhat said. He added that the company’s focus is on exports and Starbucks. The company plans to open 100 outlets in the next three years.
The company has already opened three stores in Mumbai and the next destinations are Bangalore and Delhi. The first outlet at Horniman Circle in South Mumbai is expected to break even in a year. “A typical store of that size takes a year to turn profitable,” Bhat said.
Tata Coffee, in which TGBL has 57 per cent stake, has set up a roaster in India, and will be supplying coffee beans to that joint venture.
On rising commodity prices, Bhat said that the company is in a position to pass on the prices to the consumers in the next quarter in a bid to protect its margins at 8-10 per cent. TGBL has taken three price hikes in the last two quarters.