Tea cluster mulls marketing alliances
A new study on a competitiveness strategy for the tea industry has recommended
a marketing campaign that will promote branded Ceylon tea — rich blends
possibly in alliance with foreign marketers and the creation of a chain
of 'Ceylon teahouses' in target markets.
It advocates a consolidation of the industry value chain in which companies
form groups consisting of both exporters and plantation companies in order
to better compete in the global beverage market. Tea accounts for a 21
per cent market share but is being threatened by soft drinks.
"To become more competitive, the industry must build on its historic
strengths to develop brands, forge marketing alliances, and move closer
to the end-consumer in its target markets," said the study.
It was developed by the Sri Lanka 'tea industry cluster' consisting
of stakeholders from across the entire sector under The Competitiveness
Initiative (TCI), a project sponsored by the United States Agency for International
Development.
The industry should launch one or more brands within two years, preferably
in a country that does not have a higher tariff on packeted and bagged
tea than on bulk tea, the study has recommended.
The market for speciality tea products is growing faster than that for
mass-market while there is a clear trend towards branded products in the
beverage markets in developed countries.
The study suggests some form of collaboration between Sri Lankan marketers
with competing brands in the same market or for a 'tactical' allocation
of markets.
It said the industry should get "closer to the consumer", forge alliances
with national marketers of Ceylon tea-rich blends to help boost demand
for Ceylon-rich teas in target markets, and launch a rediscovery of Ceylon
teas.
The last initiative would involve setting up 'Ceylon teahouses', or
co-operating with those who launch them or similar franchises with the
aim of marketing Ceylon-rich blends directly to end consumers and build
a market image for Ceylon teas.
The success of similar initiatives in the coffee industry demonstrates
that they are feasible ventures in their own right, building demand and
persuading consumers to pay higher prices for unique, high-quality products,
the report said.
Another study done only a few months ago made somewhat similar recommen-dations,
albeit from a producers' point of view.
It suggested that in order to move up the value chain, the most practical
solution is for key players in the tea industry to pool resources and expertise
to form a joint marketing company.
This was because the cost of brand launch in key consuming countries
shows it would be extremely difficult for any one company in Sri Lanka
to mobilise the necessary resources to establish a leading brand in these
countries.
The Strategy Study for the Tea Industry was done by management consultants
AT Kearney for the Planters Association of Ceylon under the government's
Plantation Reform project funded by the Asian Development Bank.
Brand owners have the largest share of revenues and profitability in
the global value chain, this report said, pointing out that moving up the
value chain will help the industry reduce its dependence on commodity markets
and get higher prices and stability at the retail consumer end.
"The value proposition should be based around the unique qualities of
Ceylon teas to leverage the residual heritage and capitalise on the growing
saliency of country of origin," it said.
Sri Lanka is a major player in the global tea industry accounting for
10 per cent of tea production and 20 per cent of tea exports with Ceylon
tea known for its strengths such as "unique variety, flavour, diversity
and a residual image for quality," the report said.
The industry, however, faces several critical challenges which are likely
to affect its viability in the near term, it said,
Although tea is still the world's largest consumed beverage by volume
it is losing share of threat to other beverages, particularly soft drinks,
it said.
The current oversupply in the global tea industry is likely to increase
over the next five years due to the consistent yield improvement programs
being undertaken by key producing countries and entry of new low cost players
such as Vietnam and Malawi, it said.
One of the most contentious issues being considered in the initiative
to boost the tea industry is that of allowing imports of orthodox teas
from other origins for blending and re-export.
Crisil eyes Fitch Ratings
Representatives of Crisil, India's biggest rating agency, are flying down
to Colombo to undertake a due diligence study on the ratings market aimed
at securing a stake in a Sri Lankan ratings agency.
The company has expressed an interest in purchasing a major stake in
Fitch Ratings Lanka Ltd, whose foreign partner wants to dispose of its
45 percent stake.
Fitch officials said that Crisil will study the market and then make
an investment decision. Fitch Lanka is part of an international rating
group which has a presence in 70 countries and 40 offices overseas
Fitch International some weeks ago decided to sell off its stake due
to "a sheer lack of market potential" here. Analysts said that the lack
of a debt market was one of the deterrents for ratings' agencies to be
effective.
They said that the need for ratings agencies and a larger debt market
was reiterated by several speakers at the recent financial reforms conference
in Colombo.The other stakeholders in Fitch Ratings are 20 percent held
by IFC, 10 percent by the Central Bank and 25 percent by a group of other
institutions.
Draft employment policy by May
Sri Lanka's new employment policy which would include the country's short
and long-term needs in employment in the public and private sectors and
an assessment of the Middle East job markets is expected to be ready by
May or June, officials said.
Labour and Employment Minister Mahinda Samarasinghe told The Sunday
Times Business that a draft employment policy - prepared by a team of consultants
in collaboration with a Ministry-led committee - would be presented to
Prime Minister Ranil Wickremesinghe on May 1.
Samarasinghe said he was planning to visit UK and the Netherlands to
study employment issues and how they are tackled there while separately
a three-member official team was in Australia for three days last week
to examine that country's "Centrelink" programme which is the main employment-generation
scheme.
Centrelink has offices across Australia where the unemployed register,
are found jobs and provided additional training if needed. The programme
is also linked to a social services scheme. Susantha Fernando, chairman
of the Sri Lanka Foreign Employment Bureau, R.P.Wimalasena, Labour Ministry
consultant and Renton de Alwis, former Tourist Board chief now helping
the labour minister in the employment policy framework, made up the delegation
to Australia.
Unilever restructures to get leaner
Unilever Ceylon is restructuring its operations in Sri Lanka to make them
more competitive but does not intend to pull out of the island, the company's
chairman Ehsan Malik said.
The company is committed to consumers of this country but needs to "reshape
its business" to remain competitive, he said in an interview.
Asked whether the multinational was thinking of pulling out of Sri Lanka
as has been rumoured, he said: "Unilever Ceylon built a successful business
in Sri Lanka by consistently investing in people, by gaining deep insight
into consumers, by investing heavily in establishing strong brands that
are now part of everyday lives of Sri Lankans and by developing a distribution
system envied and replicated by competitors. We are not about to give this
up.''
In Sri Lanka, as in other countries, Unilever's investment in manufacturing
is determined by consumer demand and production economics, Malik said.
"Consumers here, like elsewhere, demand value for money. We cannot expect
them to pay for inefficiencies. They do not owe us loyalty. We earn it
by offering value for money," he said.
With import tariffs coming down the company needs to be better positioned
to compete with imports.
"If we are not world class in manufacturing, we will not be able to
compete with imported products," Malik said. "None of our major foreign
competitors such as P&G, L'Oreal, Colgate and Burns Phillips have a
manufacturing presence in this country."
The challenge before the company, he said, was to "put our house in
order.
"We need to attend to manning levels, work practices, productivity and
costs," Malik said. "Our labour cost is twice that of local competitors.
Clearly this is not a position that can be sustained and we can not expect
Sri Lankan consumers to pay for it. The choice is to restructure and become
competitive or to close down and import." Unilever is encouraged by the
present government's intention to allow restructuring and to legislate
fair compensation procedures, he said.
"By getting leaner we aim to become more competitive and to preserve
part of the manufacturing base here," he said.
The company will also choose those areas where it has "potential to
excel", he said.
"For example there should be scope for finishing and packing semi-processed
materials," he said.
Unliver was making "headway" in communicating the need for change with
its main labour unions, he said.
"They recognise that we are working to a common objective here - to
save jobs rather than face total closure."
Unilever Ceylon was established in 1938 and is today one of the country's
largest fast moving consumer goods company and is also amongst the top
five exporters of Ceylon tea.
"Indeed it was amongst the founders of the tea industry in Sri Lanka,"
Malik said.
"In terms of market share Unilever Ceylon is a model of success within
Unilever," he said. "If our success here could be repeated in India, our
large and well-established business there would be three times as big."
The volume of tea exported by Unilever ranges between 20 and 25 million
kilos each year. Of this lately, two million kg has been in the form of
packets and tea bags, a million in concentrated powder and liquid for ready-to-drink
iced tea and the remainder is raw tea, which the group companies use in
blends for Lipton, the world's largest tea brand.
The closure of Mabole has affected less than 10 per cent of total volume
exported, Malik said.
With world demand for tea moving from single source teas to multi-origin
blends, tea blenders now find it increasingly possible and profitable to
blend teas from various parts of the world without noticeably affecting
the taste and other characteristics as perceived by consumers, Malik said.
"In doing so, blenders are also able to overcome the need to stock seasonally
available teas," he said.
"Unilever is led by consumer demand," he said. "Despite many years of
campaigning to be allowed to accord with the trend towards blended teas,
we were unsuccessful in obtaining permission to import orthodox tea. Regretfully
we had to close down the Mabole tea packing plant, which had been in operation
for ten years."
The company offered "generous" compensation terms to employees who were
being laid off and the matter has been before the Labour Commissioner for
about three months, Malik said.
"We are now in the final stages of selling the site," he added. "Ironically
most of the equipment will go abroad where blending is possible. And all
this while the debate on the pros and cons of allowing imports for blending
continues in Sri Lanka.
"It is too late for us to benefit from local blending - our customers
have now established plants overseas to blend and pack teas, but there
is an important lesson that the tea industry could learn," Malik said. |
