Business - Loose tea loses out to branded ones on price gap

Sapna Agarwal

In a downturn, buyers usually opt for cheaper products. But it seems volatility in the commodity market has changed the tastes and buying habits of consumers as branded tea sales have spurted even after a sharp rise in tea prices in the last nine months.

The price difference between branded tea and loose tea has narrowed to mere 5 per cent, helping the consumer to opt for branded labels. According to Bloomberg, the wholesale price index for tea in India gained 74 basis points from 128.30 in January to 222.50 at end of October this year. As a consequence, tea manufacturers in the wholesale and loose tea business, besides branded tea players, have increased prices.

In the last ten months, "Loose tea prices have increased by 20-25 per cent," says Mihir Bhansali, partner at the 105-year-old Kushal Enterprises, which is one of the oldest wholesale tea houses in Mumbai. To combat the falling market share of loose tea, players like Kushal have launched private tea labels.

The prices of loose tea range between Rs 160 and 210 per kg, whereas lower-end brands from Tata Tea and Hindustan Unilever and other local brands cost Rs 180 upwards.

"The price points of Rs 100 and 120 are no longer sustainable for loose tea manufacturers. As the price of loose tea increased to Rs 140 onwards, there was a considerable shift in consumption patterns of consumers at the lower-end of the pyramid as brands started looking more affordable to the consumer," says Percy Siganporia, managing director, Tata Tea.

Besides the increase in the wholesale price index for tea, modern trade and the growing retail culture have also helped in increasing the consumption of branded tea. "The loose tea market is seeing negative growth as consumption of branded tea, led by the explosion in modern retail trade, is now increasing," says Rajiv Bhansali, partner, Bhansali Tea and Marketing Company a wholesale dealer of loose tea and branded tea in Mumbai.

A case in point is the double digit growth in volumes for Tata Tea's Agni brand as opposed to the tea market growth of 3-5 per cent at a compounded annual growth rate. This is despite the brand increasing its price by 33 per cent over the course of the year.

According to data from market research company ACNielsen, the packaged tea market volumes grew at 1.8 per cent from January to March this year, 4.1 per cent from April-June and 11.1 per cent in July-September period compared to the same period last year. The annual packaged tea volume for the last four quarters is now at 273 million kilogram (kg).