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The Emerging Market Divide: Why Global Tea Brands Succeed in India but Struggle in China

China and India account for over 35% of the world’s retail tea volume, and have combined for 68% of retail volume growth from 2009-2014. That said, most comparisons stop there as the two markets have major differences in regard to tea types, branding, and opportunities for premiumisation. As global and regional tea manufacturers eye the strong growth prospects in both markets, a closer examination of the efficacy of branding on Chinese and Indian consumers underscores the high potential in India and the challenges in penetrating China.

Differences in tea brand performance

The competitive landscape for tea brands in China and India differs greatly. In India, global tea manufacturers Unilever and Tata Global Beverages Ltd (TGBL) account for almost 60% of all tea sales. In China, TGBL is not present and Unilever held a mere 0.7% share of the retail market – a decline from 2.0% in 2009. Instead, the category is highly fragmented with local manufacturer Da Yi Tea Group in the top spot with 8.4% thanks to its pu’er tea, followed by instant milk tea manufacturers Zhejiang Xiangpiaopiao Co Ltd (6.9%) and Guangdong Strong Co Ltd (6.8%).

This difference in brand performance is largely due to the varying impact of tea brand marketing in both countries. In India, brand names like Tata, Brooke Bond and Twinings have a long history with consumers. As disposable incomes have risen in both urban and rural parts of the country, more consumers were able to make the switch from unbranded products to these national and global brands. Furthermore, print, radio and television advertising have long been a part of Indian culture – even for consumers in rural areas. Conversely, traditional tea consumption in China was largely based on the availability of local producers who would sell unbranded and unpackaged products in open air markets or specialty tea shops. As the Chinese economy boomed, there has been demand for safer (i.e., pesticide free), higher quality teas, but most consumers are still choosing local varieties as many are unconvinced about the superiority of global brands.

The overall effect has been a difficulty in premiumising tea in China, while India continues to rise. As demonstrated in the chart below, unit price growth for tea in China (excluding the instant tea category) has been minimal, with prices rising from US$20.9/kg in 2009 to US$21.4 in 2014. Conversely, unit price in India has risen at an average annual rate of 3.2% (although from a much smaller base of US$6.1/kg to US$7.1/kg). While price sensitive rural consumers in both markets have kept unit price relatively small, larger manufacturers have been able to promote premium brands through traditional marketing – particularly amongst higher income consumers in the major Indian cities.

Retail Value Unit Price Y-o-Y Growth (US$ per kg), Constant Prices

Tea Branding

Source: Euromonitor International

Branding v. sourcing in India and China

The key for unit price increases in India has been leveraging brand awareness against consumer demands. For higher income consumers, health and wellness concerns have created an opportunity for global manufacturers TGBL and Unilever to grow the green tea category. Both brands have tapped Bollywood actors to promote their products as premium, healthy alternatives to other beverages. These marketing campaigns are particularly important because brand names play a large role in regional preferences. For example, local manufacturers Wagh Bakri (western regions) and Duncans Industries (eastern regions) can compete with TGBL and Unilever thanks to local affinity, but the impact of Indian popular culture – particularly on connected consumers in the major cities – give an edge to the larger companies able to secure celebrities for advertisements. Furthermore, as higher income Indian consumers diversify their beverage choices, the ability to provide multiple SKUs and flavour variants has helped meet demand as demonstrated by TGBL’s Kanan Devan and Unilever’s Taj Mahal Tea’s tea various premium tea blends.

Conversely, the lack of brand affinity in China has made the use of traditional marketing ineffective in selling premium tea products. Unilever’s Lipton brand, which has seen sales decline in each of the last four years, targets white-collar workers by its focus on convenient single-serve tea bags that consumers can make in their offices. In an attempt to create a more premium space, Unilever introduced Lipton Lohas green tea bags in 2013. The product claimed that its innovative pyramid-shapred tea bags provide more space inside for the steeping and extraction of the tea. Despite these claims, the continued decline of the Lipton brand (down 10% in retail value sales from 2013-2014) shows that the product has not generated interest. Instead, companies like Lipton may be better served examining other ingredients. “Other Tea”, the Euromonitor tea category that accounts for white tea, oolong tea, and pu’er tea, reached nearly US$2 billion in China in 2014 and saw unit prices increase by 10.8% in constant dollar terms from 2009-2014. The category was carried largely by Da Yi’s US$813 million in sales for its pu’er brand as well as Qicai Yunnan from Kuning Qicaui Yunnan Qingfengxiang Tea Co Ltd, which nearly doubled its sales over the review period. For many loyal pu’er tea drinkers, the purchase of specific blends or harvests are treated as an investment, much in the same way that many consumers in the west purchase wine. That said, simply purchasing and harvesting pu’er tea and attaching the Lipton name to it will do little to convince Chinese consumers that this is a premium product, but exploration of these other types of tea may have more potential given the company’s recent struggles.

Similar strategies in other emerging markets

The differences in tea positioning for both China and India offer guidance for other countries as well. For markets where consumers are already familiar with global tea brands (like Pakistan and Saudi Arabia), investment in brand ambassadors and traditional print and television advertisements have merit. However, for countries like Indonesia, South Korea, and Uzbekistan, strong performance from regional players requires more than a brand name to generate sales. The growth of tea across the many emerging markets holds much promise, but the branding landscape can yield a very difficult course.

 

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