Tata Global eyes 100 Starbucks store soon

Harish Bhat, CEO & MD of Tata Global Beverages estimates a 4-5 percent volume growth in its tea business this fiscal year. Shares of the beverage maker surged over 5% to Rs 158 after reporting a healthy 54% year-on-year (YoY) jump in consolidated net profit at Rs 119 crore mainly due to improved operating performance in branded and non branded business and lower finance costs.

Bhat expects raw materal prices to trend upwards in the near-term. However, he says the company's brand strength will help it to pass on additional costs. "We see no risks to our margins as pricing remains supportive," he told CNBC-TV18. Net sales of the company rose to Rs 1,842.57 crore during the second quarter as against Rs 1,612.03 crore during the same period of 2011-12 fiscal. Bhat sees the overall volume growth at 8-10 percent next year. "We are hopeful of our tea business picking up to match our coffee business growth," he said. On its JV with Starbucks, Bhat said, the company plans to rollout 100 stores soon. Last month speaking to reporters after the first store launch, the Starbucks management had categorically refused to give any specific number as far as store openings are concerned. When the JV was first announced, Tatas had said they planned to open 50 stores by year end. Below is the transcript of his interview  with CNBC-TV18. Q: Do you see any pressure on margins because of the way tea prices have spiked due to production concerns? A: We have strong brands. Tata Tea is the market leader in India. We also have strong brands in the UK, Canada and in many parts of the world. Yes, there is upward commodity pressure on tea costs. However, I think our brands are strong enough to pass on cost increases to the consumer, which we have been doing consistently. Q: Will the price increases at the end of the quarter adequately compensate for the raw material hike that you have witnessed? A: Yes, it would. We have taken more than one price increase over the last quarter. We believe that wherever commodity costs are on their way up, we would do our best to compensate them fully. I believe consumers would understand the fairness of doing that. Q: Your margins came off too just over 7 percent in the quarter gone by. With these price increases do you see yourself getting back to the 10 percent margin that you enjoyed in the same quarter last year? A: Yes, our objective is to get back to where our margins were. This is important as to ensure that prices fully reflect what is happening on the commodity front. Also onto emphasize that we have grown market share in many parts of the world including India. In India of course our portfolio remains the volume and value market leader within the branded tea segment. _PAGEBREAK_ Q: What kind of volume growth are you witnessing in the domestic business? As part of this 14 percent sales growth how much is the volume? A: About 4-5 percent is the volume growth. The volume growth has been in the single digits in the 5 percent league. The rest of the growth that you are seeing is on account of the price enhancements that we have been able to implement in the market and the favourable mix changes that we have seen within the Indian market. Q: Do you see the possibility to ramp up the volume growth to 7-8 percent as 4-5 percent is a bit lower than what you are seeing in other consumer categories in the FMCG business? A: There are segments of the tea market which are growing much more rapidly than 5 percent. For instance, if you take green tea which I think is becoming very big in India, we have seen growth in excess of 80-90 percent compared to the same period last year. Different segments of the tea market will grow differently. I believe that the overall volume growth will be in the region of 5-10 percent over the next year as well. Q: How is the Eight O’Clock Unit coming to coffee doing? A: Our coffee performance during the quarter has been really outstanding both in India and in the United States of America. Eight O’Clock Coffee is a key brand that we have and it operates in the US. Eight O’Clock Coffee has done very well during the passed quarter, both in terms of volume and profit performance. We believe that is going to continue over the quarters ahead. One of the key alliances which Eight O’Clock Coffee has entered into is with the Green Mountain Coffee Roasters Company. They have a brand called Keurig which makes coffee machines. Coffee machines as you know are getting very popular in The United States, in Canada, etc. So, we have entered into an alliance with them where Eight O’Clock Coffee will make K-Cups, branded Eight O’Clock. Those will go into all homes which are using the Keurig coffee machines. That also takes Eight O’Clock from its grocery presence which it has quite strongly in many parts of US. It also takes Eight O’Clock into a very new emerging world of coffee machines and K-Cups. I think it is going to work very favourably for Eight O’Clock Coffee. As far as the Indian coffee operations are concerned, I think we have seen very good performance by our instant coffee operations. We manufacture and export agglomerated as well as freeze dried instant coffee and both those operations have performed very creditably during the last quarter.  In Russia we have a coffee brand called Grand Coffee. That brand has just launched some very innovative products called Grand Melange and Grand Melange Intensive. These are really blends of freeze dried instant coffee, roast and ground coffee. There we have seen good double digit growth in the freeze dried coffee market. So, I think overall coffee has performed very well during the quarter. And we are very optimistic about how coffee will perform in the quarters ahead. _PAGEBREAK_ Q: Coffee is outperforming your tea segment by quite a margin. You saw 18 percent growth in the coffee business. Do you see this kind of differential in outperformance continuing? A: I would think the tea business will pick up and will perform creditably alongside coffee. But I do see the enhanced growth rates that we have achieved in coffee are going to continue because of some strong drivers. In Russia we have re-launched the Grand brand with the addition of the freeze dried coffee lines. In the US we are taking measures with Eight O’Clock Coffee and the alliance with Keurig etc. In India, I think we now have two instant coffee plants producing at peak capacity. So, all these are adding to the coffee business growing quite strongly. Of course you are aware of the joint venture that we have created with the Starbucks Coffee Corporation and Tata Starbucks in India and the launch of our stores. Tata Coffee also has put up a roastery now which is supplying the coffee to that joint venture and to all Starbucks stores in India. That again is going to add to turnover and revenues of the coffee business. Q: Can you give us a better sense of what kind of rollout plan you have on Starbucks over the next one year? A: As we announced at the time Starbucks was launched in India We certainly want to get to the 100 store mark as quickly as possible. The first store was launched in the month of October at Horniman Circle in Bombay. That store is performing extremely well. Since then, we have opened two more stores of Starbucks, namely in the Taj and the Oberoi Mall in Bombay. We certainly want to open many more stores in Bombay in the near future and the next port of rollout will be Delhi which will open in early 2013.