Something big is brewing at Tata Coffee. The company has acquired six estates from group company Tata Tea, including five tea estates and one 800-hectare coffee estate, in amil Nadu and Kerala. The deal is done and Tata Coffee is set to take over their management as soon as the necessary government approvals are in.
There is little doubt that this aggressive expansion programme will take the company to a new level of recognition in the world coffee market. But then, one question begs an answer: why should a company that deals in coffee buy up tea gardens?
MH Ashraff, managing director of Tata Coffee, who is understandably bullish about the company's prospects, says, "These were Tata Tea's most valuable properties in south India, located in the highest yielding and best quality areas. Being basically a plantation company, we felt it would be a good opportunity to get into an alternative crop." The recent acquisition takes the total number of Tata Coffee's tea estates to seven.
There are other reasons for the diversification. Since the coffee crop has not been doing that well in the last few years, business sense demands that the company engage in multicropping, to hedge against price vagaries. "Multicropping," says Ashraff, "acts as a cushion if there is a downturn in commodity prices." Usually, whenever tea prices are low, coffee prices are up, and vice versa. "Historically, that has been the pattern, though in the last three years both the commodities have not done so well. But there is an upturn now. The prices of both commodities have gone up," he adds.
Mr Ashraff is convinced that the properties will have a positive effect on the company's topline and bottomline. He is even more upbeat about the company's plans in the freeze-dried coffee business. The Hyderabad and Madurai factories, which manufacture powdered and agglomerated coffee, already boast a total capacity of 6,200 metric tonnes. Another factory, slated to come up near Madurai, will produce freeze-dried coffee, the preferred choice in the rising market economies of Russia, the CIS countries and eastern Europe.
"We conducted a market survey in Europe and Russia, and found that the market for powdered agglomerated coffee — once the premium segment — is practically stagnant, owing to the region's rising affluence. But new products like freeze-dried coffee are growing rapidly. As the second largest exporter of soluble coffee from India, Tata Coffee should be in that segment," he says.
Having invested Rs70 crore in setting up the new factory in Madurai, Tata Coffee is looking forward to an initial capacity of 2,000 metric tonnes, all of which is meant for export.
Setting up a 3,600-metric-tonne instant coffee plant on a 50-acre plot of land in Uganda is third on Tata Coffee's to-do list. This project is a joint venture with Tata Africa Holdings, the company that acts as the investment arm of the Tatas in Africa. Pending negotiations of a few points with the government, the plant should be operational within a year.
Uganda is the largest producer of coffee in Africa and has its own brand in China. Ugandan coffee is known for its good quality. Ashraff adds: "Part of the Tata group's strategy is to concentrate on least developed countries in Africa and on Bangladesh."
"We chose Uganda because it has the status of least-developed country. Therefore, it has the advantage of duty-free exports to the European Union, Russia and several other countries. Currently, the duty-free status is only for basic commodities, but the government of Uganda is confident that we will get these benefits even for value-added products like soluble coffee," says Ashraff.
Closer to home, Tata Coffee has high expectations from its tourism venture in Coorg. Following a crisis in the coffee industry in 2000, Tata Coffee restructured its personnel to reduce costs. After an early separation scheme was organised for excess personnel, 11 colonial bungalows in Coorg fell vacant.
"Coorg was already famous for home stays," says Ashraff. "We thought it would be a good idea to use these bungalows for tourism. If they were left vacant, they would surely deteriorate. This way, we could earn an income on them." Tata Coffee is confident that this business proposition will bring in fairly good returns.
Meanwhile, the Mr Bean Coffee Junction is poised to revolutionise the way people view coffee in south India. For years, the company continued to operate 35 south India-based retail coffee outlets known as Coorg Coffee Works. Alarmed by the fall in numbers of people buying freshly ground coffee from these shops, the company decided to give the outlets a more youthful image, broadening their appeal. But, Tata Coffee's non-compete clause with Barista prevented it from entering the coffee bar business.
"We designed the Mr Bean Coffee Junction to enable customers to come in and try out various blends. The coffee is blended in their presence. If the customer likes the blend, we save the details in the computer and make it available for them the next time they drop in. In this way, Mr Bean Coffee Junction will combine a retail outlet with a café," Ashraff explains. Instead of just buying coffee, customers can select or even design their own blends and taste them. Eventually, Tata Coffee hopes to phase out the old concept and ring in the new.
With so much on offer, Tata Coffee is confident and enthusiastic about the future. Its vision is firmly fixed on the day when the world wakes up to a steaming hot cup of Tata Coffee!