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Huge Potential in India’s Yet Uncharted Tea Market

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In India, like other emerging Asia markets where tea consumption is high, there is a lot of focus on the value opportunity from the transition from unpackaged (unbranded) tea to packaged tea products. Indeed, between 2008 and 2013, tea increased by 118% in retail value, reaching US$1.9 billion. Yet, retail volume growth has been less impressive, increasing by 20% in the same period. This discrepancy suggests that to date, the primary shift in the Indian tea market has been towards more value-added packaged tea products, rather than a substantial shift from unpackaged to packaged tea products on the whole. According to industry sources, unpackaged tea still accounts for at least 50% of the overall Indian tea market, indicating a significant opportunity for tea manufacturers.

The primary driver of the prevailing popularity of unpackaged tea is price. Unpackaged tea is often priced much lower than its branded equivalent and thus more appealing to lower-income consumers, particularly those that reside in rural India.  Attracting this important demographic through lower price points achieved through small packaging or lower quality tea will be key for manufacturers seeking to increase their penetration in far from exhausted Indian tea market.

In 2013, Indian ranked second in the world in tea consumed, trailing only China with a retail volume total of 281,363 tonnes of tea. Tea is an integral part of the social fabric in India. The tea plant, Camellia Sinensis, is in fact indigenous to parts of India, where it has been cultivated since ancient times. Although the preparation and type of tea varies across the country, the predominant type of tea consumed is black tea that is often brewed together with milk and sugar and other spices like cardamom and ginger. This style of tea preparation is can be more forgiving of tea quality since there are often many other additives. Tea is consumed by most Indians multiple times of day, both at home and out-of-the home, with chai wallahs – tea vendors – ubiquitous on the streets of cities and towns alike. Nevertheless, in terms of per capita consumption of retail tea, India ranks 43rd out of the 80 markets covered by Euromonitor International, at just .22 kg, just slightly ahead of France.

Substantial opportunity in unpackaged tea market

The low rate of per capita consumption stems from the fact that Euromonitor’s retail tea volume figures do not capture sales of unpackaged and unbranded teas that are sold in high volumes through open air-markets and small grocers. Estimates derived from  statistics on total per capita tea consumption from the Indian Tea Board combined with Euromonitor data to subtract tea consumed outside the home, suggest that unbranded tea products may account for as much as 56% of the at-home tea market in India. This indicates an opportunity for somewhere between US$ 2 and 2.5 billion in yet untapped tea sales.

Unpackaged tea continues to dominate in rural India

Unpackaged tea is particularly popular in rural areas of India, which accounts for 68% of India’s 1.2 billion population according to Euromonitor data. Traditionally, the poorest of the country’s citizens reside in the countryside, particularly as the majority of higher paying, non-agricultural jobs are only available in the largest cities.  As such, the lower prices of unpackaged tea appeal to consumers in these areas. This is not to say that rural consumers are not interested in branded products. Indeed, surveys indicate that there is a growing demand amongst rural consumers to own the brands and products that are now common in urban households. This is evident in the tea industry where between 2008 and 2013, retail volume of branded tea grew faster in rural areas than in urban centers.  Still, even though rural dwellers have been less affected by the current economic downturn in India than urban residents, the growth of branded tea in rural regions has shown signs of slowing down during the second half of the review period.

Tea Retail Volume Growth, Rural v. Urban Consumers, 2008-2013

Source: Euromonitor International

Strategies to overcome price barrier

The price differential between unbranded and branded tea products is a major contributor to the continued resilience of the unpackaged tea market in rural communities. Creative marketing and employing villagers as direct sales retailers are some methods used by large companies to increase brand penetration in rural India. Since tea is already a familiar staple for rural consumers, major manufacturers like Unilever and Tata Global Beverages, are instead focusing on offer products at a variety of price points. Smaller packaging is one way to achieve lower price points. Unilever sells smaller sachets of its Red Label brand to ensure it sells at a price that is accessible to rural populations. This strategy not only increases Unilever’s consumer base but also works to increase its brand equity among an increasingly important consumer base. Likewise, Tata is increasing its presence by offering tea dust products, low grade tea that is less inexpensive than standard tea, yet still able to produce a strong brew.  The lower quality of tea dust is not a significant concern for most rural consumers, as the strength of tea dust still provides for a satisfactory tasting milk tea. Thus, the shift from from unpackaged whole leaf tea to packaged tea dust is not necessarily viewed negatively, especially since it enables consumers to partake in a branded experience.

Multi-tiered portfolios are crucial to continued success

Offering low-priced tea products through smaller pack size and lower quality ingredients will continue to be important strategies for companies trying to convince Indian consumers to migrate to branded tea and gain market value in the still largely untapped Indian tea market. Still, tea players must continue to expand their value-added tea offerings to meet the demand for premium products from higher-income, predominantly urban consumers.  Although volume growth has been lagging, the Indian tea market still recorded consecutive years of double-digit retail value growth between 2008 and 2013, thanks to increasing interest in more premium products. Value added products such as convenience boosting formats like tea bags, as well as non-traditional tea types like green tea are growing in popularity in India due to its association with health and wellness.  While offering more extensive lower-priced teas is crucial for manufacturers to encourage consumers to switch to branded products, maintaining and expanding their premium tea portfolio will remain key to current value growth as well as future growth, especially as new consumers of branded tea products begin to look to trade-up once more.

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