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Global Tea 2013 Edition: Chinese Companies Move Up Their Rankings, while DE Master Blenders Likely Looks for Acquisition Targets

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By: Hope Lee

Compared to soft drinks and coffee, tea is a rather static market, with no major acquisitions stirring up the landscape in 2012. While a wide geographic coverage enables multinationals to generate revenue, Chinese companies’ success in focusing solely on the domestic market and on a single strong growth category (instant tea) highlight the attraction of operating in the world’s most populated country and exploiting the thirst of young consumers.

Sara Lee changes its corporate name, while Unilever continues to lead tea

Sara Lee’s hot drinks business was spun off and given the trading name DE Master Blenders 1753 NV in 2012. With its sharp focus on tea and coffee from now on, DE Master Blenders, currently a minor player in the global tea market, may evolve to be a potential predator, meaning it is likely to set its sight on acquisition targets such as strong brands and medium-sized companies. Euromonitor International believes that acquisition opportunity exists, given the fragmented nature of the tea market. The company already has the ambition to become the second largest coffee player in the world in the medium term, it remains to be seen whether it will develop similar ambition within the tea category.

Unilever continues to lead global sales of tea, with no immediate challenge to its position; its retail value sales amounted to nearly four times those of second-placed Tata Global Beverage Ltd (TGBL). Asia Pacific and Eastern Europe are the main drivers of Unilever’s growth, jointly accounting for 66% of its global growth in 2011-2012. The tea giant’s robust performance in Asia Pacific in 2012 was in marked contrast to the decline in its sales in recessionary North America, thanks to its strong number one position in key markets such as India. Unilever has long been building and developing its tea business in both developed and emerging markets, which greatly helped it ease off slow sales in some mature markets such as Australasia. Unilever currently seems content and it is likely to continue to feel comfortable over the next few years if no major acquisitions between the top 10 players take place. However, there is still plenty of opportunity to explore and white space to fill. For example, Unilever could try and grab market share from local companies, particularly in China and Germany.

In terms of growth rates, TGBL outperformed Unilever in 2012, growing 13%. Since changing from being an Indian tea specialist to an overall beverage player, TGBL as a corporate expanded significantly from all fronts through acquisition and entry into new categories. In tea, TGBL outpaced Unilever in Asia Pacific, Australasia and North America in 2012. The company should look to accelerate expansion in Eastern Europe and make good progress in Latin America, given Associated British Foods’ move in these regions.

World Top 10 Tea Companies Rankings, RSP, 2010/2012 

World top tea companies ranking

Source: Euromonitor International

Chinese companies compete domestically and show no international ambitions, as yet

Euromonitor International’s latest research shows that Chinese companies moved significantly up the rankings in global tea in 2012, with Guangdong Strong (Group) Co Ltd and Zhejiang Xiangpiaopiao overtaking Mai Kompanya OA and Beta Gida Sanayi ve Ticaret AS to squeeze into the top 10. The two Chinese companies mainly focus on instant tea (tea mixes blended with milk and sugar), a category which multinationals do not seem to be focusing their resources on. This is evidence of the ongoing commercialisation of tea in China and the commercial impact of added-value products on the global rankings.

Another year of strong growth by Chinese companies further demonstrated that tea mixes do not seem to be a fad and that they are likely to stay far into the forecast period. China’s economic slowdown had little impact on the category’s development and young Chinese consumers’ pursuit of convenience products is still going strong. Looking at the broader hot drinks market, this is encouraging news for other emerging convenience products, such as coffee pods and tea pods.

Euromonitor International predicts that China will become the world’s largest economy in PPP (Population with Income of US$10,001-15,000) terms by 2017, while Russia will overtake Germany to be the fifth largest economy by 2016. These shifts will influence global politics, business environments and investment flows, while consumer markets in developing countries will rise in importance as the middle-class expands. In the short term, multinationals such as TGBL and Ahmad Tea London Ltd, which do not yet actively market tea in China, do not need to worry about competition from Chinese companies expanding outside their domestic market. However, they may need to think twice about which strategy to employ in order to grab share from Chinese companies if they do wish to enter China.

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