Case Study 1

CASE STUDY

INTRODUCTION

Tapal is a shining example of a successful brand, born in Pakistan, competing neck to neck with a formidable multinational. Managing Director of Tapal Tea (Pvt.) Ltd., Aftab Tapal belongs to the third generation of a business family. A well-trained tea taster and tea connoisseur himself, Aftab introduced new tea concepts and developed a wide range of tea blends catering specifically to the tastes of people throughout Pakistan.

BRIEF HISTORY

Tapal is neither a rags-to-riches nor an overnight success story. Adam Ali Tapal, grandfather of Aftab Tapal, started the company in Karachi in 1947 from a small shop in Jodia Bazaar (now called Tapal House). With hard work, he innovated a new blend of leaf and dust. The multinationals laughed at his idea because they believed that leaf should not be blended with dust. But Adam Tapal did it and the blend became very popular in Karachi. In early 60s, the dominant players were the multinationals and only two local brands, Ispahani and Adams (Tapal tea). By that time another big group had already come and gone; that was Aroma, which belonged to the Adamjees.

In 1977, Aftab Tapal joined the company and went into distribution, branding and packaging. His contribution to business was Danedar, a totally new category of tea. Tapal tea was the first to introduce it. It became so popular that almost all the tea companies started copying the blend and the grade. Even the multinationals joined the brand wagon and, like Tapal, they all started calling their version of the tea, Danedar. Danedar is a granular tea, slightly larger than tea leaf. Danedar is bolder and has more flavor, although it is not as strong as tea leaf.

MISSION STATEMENT To provide a value added service to our customers with quality, reliable, and world-class service. Customer satisfaction is our number one priority. VISION STATEMENT

To provide value and quality to our consumers; our aim is to constantly provide world class service for our customers, deliver value, and make Tapal a great place to work for our employees. We aim to have a reputation for innovative thinking in the areas that matter to our customers. Our objective is to become a global brand and to be an innovative, marketing and research oriented company.

OBJECTIVES

To transform our competencies into the best advantage for our clients

To offer quality services with integrity, expertise and professionalism to enhances our clients’ operations.

To offer personalized services according to the clients’ need BUSINESS SCOPE

The Business we are in:
We are in the market of Hot Beverages and specialize in the area of Black Tea. We desire a high level of customer satisfaction and unflinching brand loyalty through commitment to quality and constant innovation.

Who are our Customers?
We have a diversified customer base ranging from urban to rural areas including various institutions. Hence, Tapal’s target market mainly consists of young adults and adults belonging to high, middle and lower income groups.

BRANDS PORTFOLIO

1. Family Mixture

2. Danedar

3. Mezban

4. Tea Rounders

5. Tezdum

6. Green Tea (4 different variants)

7. Gulbahar

TEA INDUSTRY IN PAKISTAN

The history of tea drinking in the subcontinent can be traced far back. It is said that tea was introduced with the arrival of the British in the Subcontinent and became popular in the region during the British rule. Over a period of time, the colonials improved the quality and taste of tea. Mr. Thomas Lipton was the first person who introduced the aromatic soothing leaves to the common man at an affordable price. This is one of the main reasons why “Lipton” even now is amongst the most well-known brands of tea in this part of the world.

At present there are two kinds of tea available in the market: branded and unbranded (loose) tea; the ratio is (55:45) respectively. Therefore, the importers are also of two types, though both import tea from the same countries. One type of bulk importers sell tea to retailers in loose form, while the second category of bulk importers sell packaged tea under brand names.

Unilever enjoys leadership with approximately 54% of Pakistan's tea market. Tapal stands out as the major competitor for Unilever with 28% share. Tetley tea, a joint venture between Lakson Group and Tata Tea of India, was introduced much later (2003) and has approximately 4% share, which is continuously decreasing. Other players in industry are Kohinoor Tea Company, Vital Tea Company and Alpha Tea Company.
Tea consumption in Pakistan is summarized below:

Tea Consumption in Pakistan (in tons)
Unilever
46,000
Tapal
24,000
Tetley
3,700
Others
11,550
Unbranded
69,750
Total Consumption
155,000

This gives us a branded tea market of approximately 85,250 tons. The branded market can be divided by each player as follows:

INDUSTRY GROWTH

Tea industry is growing at a rate almost equal to the population growth rate in Pakistan. Per capita tea consumption in Pakistan, which is about 1 kilogram, is not increasing. Despite this, Pakistan tea market is still very attractive which is apparent from the fact that Sri Lanka and India are continuously negotiating with Pakistani Government for liberalization of tea import.
The per capita consumption of tea in Pakistan is one of the highest in the world with about one kilogram and is continuously increasing due to increase in demand.
The annual per capita consumption in the world is 0.75 kg. The average consumption in the United States is 0.35 kg, Australia 2.7 kg, Iran 2.4 kg, Sri Lanka 1.45 kg, India 0.52 kg, China 0.3 kg and Japan 0.94 kg and in Turkey it is 2.15 kg.
Many of these countries are not only self-sufficient in production but are also net exporters. Pakistan is a small producer but high per capita consumer. The import of 150,000 tonnes of tea reached 170,000 tonnes in 2010. The average annual tea imports come to Rs17.4 billion in 2008-09 — putting massive burden on the national exchequer.
Tea is used as common beverage in almost all over the world. Pakistan is the fourth largest tea importer of the world, after Russia, United Kingdom and Egypt.
Pakistan has a market of 170 million kg for black tea, which is imported from 21 countries including Kenya, Indonesia, India, Bangladesh and Sri Lanka. Black tea is the only kind of tea that is subject to international quality regulations.
To meet the demand, Pakistan reportedly imported tea $120 million in 1998-99 to $210 million in 1999-00, showing an increase of over 65 per cent. Its imports were Rs9.611 billion in 2001-02, increased to Rs12.965 billion in 2006-07, Rs6.53 billion in 2007-08 and Rs17.417 billion in 2008-09.
The imports during the 9 months of the last fiscal year (2009-10), were as high as Rs16.9 billion. It is estimated that at the end of this decade Pakistan would be the biggest buyer of black tea in the world.
Tea prices in Pakistan have increased almost six times since 1990-91. The price of a tea packet of 250 kg was Rs20 that increased to Rs54 in 2000-01, Rs62 in 2004-05, Rs68 in 2006-07, Rs98 in 2008-09 and Rs119 in during July-April 2009-10.
Tea smuggling is the main problem that is not only hurting genuine tea importers but also depriving national exchequer. During 2006 about 48,000 tonnes of tea was brought illegally into Pakistan as compared to 40,000 tonne in 2004-05, causing a revenue loss of Rs2 billion. The tea smuggled further increase to 100,000 tonne in 2009-10.

POLITICAL ENVIRONMENT

Pakistan is the third largest consumer and importer of tea in the world. Pakistan is only below the United Kingdom and Russian Federation on global imports. Pakistan imports about 140,000 tons of tea every year. Kenya accounts for 65% of Pakistan’s tea imports, which means that nearly half of Pakistan's tea demand is met by Kenya. Other contributors to tea imports from Africa are Uganda, Burundi and Tanzania. Other than African countries, major tea suppliers to Pakistan are Sri Lanka, India, and Bangladesh.

Relations between Pakistan and India have always affected trade between the two neighbors and so is the case in the trade of tea. India is keen to enter Pakistani tea market because prices are slightly low due to absence of freight charges.
Currently, Pakistan is predominantly a CTC tea market. However, it is felt that the tea consumer in Pakistan has a strong preference for Ceylon tea due to its superior quality. Seeing the scope of tea export, Sri Lanka is planning to enter in Pakistan's tea market, following the signing of a Free Trade Agreement (FTA) with Pakistan. Sri Lankan tea exporters are looking forward to the early signing of a FTA with Pakistan, as they immediately want to enhance their trade with their Pakistani counterparts.
After FTA Sri Lankan tea would have an advantage in terms of tariff and would be able to compete with all other CTC teas in the world. Sri Lankan exporters are quite aware of the Pakistani tea market and they are ready to compete with their closest rivals in CTC tea market, especially Kenya. Sri Lanka produces better quality CTC, but due to tariff barrier it was unable to penetrate Pakistan's market. Hence, Sri Lanka hopes that it can regain at least some part of its lost share of the global tea market. Pakistan was one of the leading buyers of Sri Lanka's tea in the 70s, along with UK, Egypt and Iraq.
The share of Sri Lanka tea in Pakistan started declining from about mid 1980s due to many reasons, foremost among them being lower prices offered by other supplier countries and a shortfall in Sri Lanka's tea production in the 80s. However, during 1980s, due to a special trading arrangement between Sri Lanka and Pakistan, Sri Lanka exported around 20 million kilograms (kgs) tea to Pakistan's market. It is hoped that in the light of the proposed FTA and recent reduction of the duty on imports of black tea in Pakistan, Sri Lanka may capture some part of its lost share.

ECONOMIC ENVIRONMENT

As mentioned earlier, Pakistan is third largest importer of tea. Tea imports form a significant portion of our total import bill and it is shown as a separate head in SBP Annual Report & Economic Survey of Pakistan. High import duties levied on tea imports by the Government have led to a sharp increase in smuggled tea. Speaking in a seminar on Intellectual Property Rights in Pakistan for Journalists, Muhammadi Miabhoy, Deputy Managing Director of Tapal Tea (Pvt.) Ltd., said that tea smuggling had shot up by 46% in 2002 due to the high import duty on the commodity. One official of the Pakistan Tea Association said the PKR 28 billion local tea industry is fast losing its market share to the smuggled tea

SOCIAL ENVIRONMENT

Tea is the cheapest and most popular beverage that is served at both professional and social gatherings all over the world. In Pakistan it is counted as a staple food item of the common man and is an integral part of our culture and heritage. As described earlier, per capita consumption of tea in Pakistan is not increasing and some marketers say that its growth is stagnant during the last few years. Social and cultural factors are also changing the shape of industry.

Industry is also under tremendous pressure from substitutes (coffee, soft drinks etc.). Stagnation of tea industry can be seen by lots of consumer promotions especially by Lipton and introduction of tea variants like iced tea, green tea and flavored tea. Tea is not very popular amongst early teens, that is, population under 15 years, as it is perceived as a ‘grand pappy’ drink by youngsters.

Population by selective age groups (in percent)

Less than 5 yrs
Less than 10 yrs
Less than 15 yrs
Pakistan
14.8
30.45
43.4
Rural
15.69
32.18
45.06
Urban
13.0
26.98
40.07
Source: Population Census Organization, Statistics Division, GoP.

TECHNOLOGICAL ENVIRONMENT

Technological advancements do not have as significant an impact on the industry as other external factors. Advent of new machines for better blending and packaging have not affected industry in terms of consumption patterns, industry pie size, industry growth rate etc. All players have made use of new machines, like Dilatometers and Q. C. machines, for attractive packaging and digital scales for quality blending. But advent of tea bags has really changed the consumption patterns. Tea bags have given convenience and hygiene to consumers. In some urban segments, tea bags are more popular than regular packs.

Tea cultivation in Pakistan
For tea cultivation some areas of Khyber Pakhtunkhwa were found suitable that include the districts of Mansehra, Batagram, Shangla and Swat. In these areas 1.5 lakh acre of land has been declared suitable for tea cultivation.
To grow tea domestically many efforts have been made to cultivate it in the mountainous areas but could succeed. Now three private companies have planned to grow tea over an area of 17,000 acres in Khyber PK and AJK, which would be given on lease for a period of 30 to 40 years to the investors who intended to invest Rs4.5 billion. Out of the three tea importing companies, two companies have managed to acquire 1,000 acres each in AJK at lease for 30 years. The National Tea Research Institute, Shinkiari, was to provide saplings.
Although NTRI was established in 1970 but after lapsing 30 years the desired results could not be achieved. Only 1,350 acres were brought under plantation by institute. On the other hand, to fulfill domestic demand about 170,000 acres are needed to be brought under cultivation.
Tea plantation in AJK
The AJK government has leased out 3,000 acres of forest land to a group of three companies for 15 years for tea cultivation in the area. The land had been leased out against Rs600,000 per annum. The group of tea plantation was to invest about Rs1.5 billion over the next five years in the AJK, east of Muzaffarabad city. The project has a potential of producing over 100 million kg of tea per annum.
The group would train and encourage local farmers to set up tea sapling nurseries in their holdings on a guaranteed buy back agreement basis. The group would also establish tea processing units after tea plantations were set up in the area at large scale. These units would buy all the raw green leaf produced by the private farmers in the area.
The tea cultivation is a labour intensive activity; it would generate employment opportunities and can reduce poverty in the tea growing areas.
Besides, it is estimated that a farmer can earn up to Rs80,000 per year from tea cultivation on one kanal of land, which is many times more than the income from any other crop. It was planned that tea farmers could also get interest free loans from the scheduled banks under the policy of the federal government.
Plan to reduce tea import bill
To reduce the tea import bill that is more than Rs22 billion, the government has decided to commercialise tea production by starting a Rs890 million public-private partnership programme. The project was to be launched in the northern areas of the KP and AJK. According to the plan, tea plantation would be done on 4,000 acres by the private sector, 800 acres by the KP extension department, 200 acres by the AJK extension department and 50 acres in FATA.
There are many constraints in tea cultivation such as climate and frequency of rainfall, type of land, degree of slope of land, availability of inputs like seed and fertilisers and the untrained labour. Tea cultivation is not possible in Punjab and Sindh due to the above reasons.
Due to small holdings the farmers are reluctant to grow tea because it is a long duration crop takes seven to eight years to reach complete yielding stage. Therefore, they prefer short duration crops like vegetables, maize, rice and wheat etc. that provide quick return to meet their daily life expenditures. Most of the farmers are very poor while tea requires some investment for its cultural practices such as weeding, fertilisation and irrigation etc. Thus investment on tea and poverty of the farmers are one of the big hurdles for tea cultivation in Pakistan.

Develpoment and Market Position of TAPAL
Tapal, is the first tea company to be awarded ISO 9002 quality certification, the international symbol of highest quality standards. In Pakistan, Tapal is one of the best organized companies, as far as quality controls are concerned, and it enjoys a strong distribution network.
The company has enjoyed phenomenal growth particularly during the last decade. Tapal, today, enjoys over 17 per cent or 22 million kilogram share of the total tea market. Tapal's envious growth has come at the expense of its major multinational competitors, Brooke Bond and Lipton, whose combined market share has shrunk from 60 million kg to 45 million kg during the same period. Putting the per capita tea consumption in Pakistan at about one kilogram, approximately 140 million kg of tea is marketed annually in the country, of which 110 million kg is met by imports while the rest of the 30 million kg demand is fed by smuggled channels. Of the 110 million kg regular imports, 70 million kg is branded while the unbranded market makes up the rest of the 40 million kg. Tapal and its multinational rival, Unilever, together enjoy the lion’s share of the branded market — 60 million kg, leaving the remaining 10 million kg for a number of other smaller companies.
Tapal is in the process of venturing into foreign markets, particularly those having a sizeable population of Pakistani expatriates who look forward to having Tapal tea. The company has already appointed a distributor in the UAE, and is targeting many other markets in America and Europe, which show promising demand for tea.
Developments
Pakistan Science Foundation (PSF), Pakistan Agricultural Research Council (PARC) and Tapal Tea Company have signed a Memorandum of Understanding to establish Green Tea Processing Plant at Shinkiari to the tune of Rs. 31,50,275.
Five acres of land at Shinkiari have also been reserved for tea plantation
In the first phase the seedlings and technical assistance will be provided by the National Tea Research Institute (NTRI).
Tapal will help farmers get the land leased and bear all other expenses for cultivation.
Tapal will buy the raw tea to be processed at NTRI tea-processing plant, Shinkiari.
After successful completion of the first phase of the project Tapal will then add on to the land area for tea cultivation.
This will eventually help save millions of dollars in foreign exchange. At present a huge amount of PKR 10 billion is spent in foreign exchange on tea import.
Some Strategic Issues for Tapal

1. Tapal is yet to move into the untapped areas of the market aggressively because of the competition it is facing. The untapped areas basically include the rural areas of Pakistan.
2. Consumers are getting more health conscious, thanks primarily to the electronic media, and a new focus is diverted towards consumption of Green Tea.
3. The adolescent market is, so far, also an untapped segment and even offers like Ice Tea, failed to woo it.

QUESTIONS:
1. Evaluate the Dominant Economic Traits of the Tea Industry in Pakistan.
2. Apply the Five Forces Model of Competition to analyze the overall attractiveness of the Tea Industry in Pakistan.
3. Create IFAS & EFAS for Tapal.

PS: Please note that the statistical information contained in this case may not be updated and cannot be regarded as exhaustive. For more and current information, students are encouraged to collect more data. (You may visit official websites of Tapal Tea NTRI, and PTA.)

DATES FOR SUBMISSION & PRESENTATION:

FRIDAY SECTION: MARCH 13, 2015
SATURDAY SECTION: MARCH 14, 2015
SUNDAY SECTION: MARCH 08, 2015