Hindustan Unilever's tea volumes fell marginally in the April-to-June quarter, and now, a resurgence of small and unorganised players in the tea industry delivers a fresh blow, which might further dent the company’s tea volumes.
Hindustan Unilever, a market leader in the Indian tea industry, is seeing many small and unorganised players entering the tea powder business after tea leaf prices have started easing in the country. The company in its investor presentation for the April-to-June quarter said small players in the tea powder segment have increased 1.6 times during the quarter.
Will the unorganised players hurt Hindustan Unilever’s tea volumes? Here’s what analysts Moneycontrol spoke to said:
“The emergence of small and unorganised players in the tea business will increase the competition for Hindustan Unilever however its impact on the company’s volumes will be lower,” said Abhijeet Kundu, senior vice-president at Antique Stock Broking.
There would be pressures on the company’s tea volumes in the July-to-September quarter, however it won’t be much as Hindustan Unilever has more business towards the premium end of the tea segment, said another analyst on the condition of anonymity. Taj Mahal and Brooke Bond Taaza are the products towards the premium end.
Kundu said that if competition in the tea powder business between unorganised players and Hindustan Unilever intensifies, the company will take price cuts or increase grammage or start giving promotions and offers to drive volumes and to match the price that unorganised players are offering.
Hindustan Unilever’s tea business showed a modest growth in the April-to-June quarter. In the January-to-March quarter the company’s tea business declined marginally in value. The lower growth in tea business was on account of consumers downgrading tea due to inflation differential between premium and loose tea, said the company in its QIFY24 investor presentation. People move to loose tea powder or unbranded tea powder in times of inflation as the commodity is still discretionary for Indians, said analysts.
Why are unorganised players in tea segment increasing?
“During period of high inflation, small players often reduce their volumes due to a limited profit margin,” said Alok Shah, vice-president at Ambit Capital. During high inflation, when raw material costs like tea leaves rise, unorganized players often suffer from reduced margins if they avoid passing on the increased costs to customers. Organized players, with stable businesses, can absorb growing costs without immediately affecting customers. However, when prices ease, more unorganized players enter the market due to the improved profitability conditions. More unorganised players have entered the tea segment only, because tea powder has a huge market in India and is available in every nook and corner, said Shah.
Inflation rate in India was increasing post the Russia-Ukraine war, where it went from 6.04 percent in February 2022 to 7.41 percent in September, after which it started easing. Hindustan Unilever in its Q4FY23 investor presentation had said that tea leaf prices fell by 1 percent in the January-to-March quarter year-on-year.
Analysts pointed out that the entry of unorganized players into the tea market during low inflation is a regular occurrence, but it has recently happened after a prolonged interval in the tea segment in India.
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