Tata Consumer Product Limited's (TCPL) cup of joe is spilling over. Coffee registered a 39 per cent revenue growth in the July to September 2022 quarter for the vertical that unites Tata Group's food and beverage interests.
Aware that TCPL is starting small in India's coffee sector, in which two players dominate, Puneet Das, TCPL's president, believes the trick to crack the code in the coffee sector is to come up with various innovations. He tells Outlook Business how this could be with groundbreaking products, premium offerings, or reaching out to consumers through interactive channels. Edited excerpts:
Do you expect the coffee range to overtake the tea portfolio in TCPL soon?
No. We are currently on a very small base and have less than a percentage share in coffee. We have been focusing on this category for the last three years, though we launched it in 2016. So, we have huge headroom to grow on coffee.
Nonetheless, our tea portfolio remains significant. That was our entire ideal. We are ranked second in terms of national market share in tea with over 20 per cent share. We decided that we also have a right to succeed in coffee, which two players currently entrench. That's how we started the journey.
We have been launching product innovations to drive our coffee growth and leverage our distribution system. Although we have some way to go on coffee, we are clearly focusing on this as a future category.
Though TCPL launched coffee in 2016, why does the category contribute less than a percent to its overall business?
Entrenched players dominate this sector. So, it was about getting business learnings for the first couple of years. This was also when we were still Tata Global Beverages Ltd, (which was renamed as TCPL in 2020 to spearhead Tata Group's $113-billion FMCG ambitions).
Until 2019, it was about getting the product proposition and the product mix right. When TCPL was formed, that's when we really unlocked the opportunity on coffee and started growing.
We have also been focusing on getting our distribution right because initially, our focus remained in South, where the bulk of the coffee consumption and category inroads come from. However, in the last three years, we are seeing good response from rest of the country.
We have got a great product in Tata Grand Instant Coffee, a 70:30 chicory blend focused in the South. We realised that instant coffee is also growing, and quite fast, in the rest of India. These regions prefer a non-chicory blend, which is a 100 per cent coffee blend. So, we recently launched Tata Coffee Grand Premium to cater to this preference.
Can you elaborate on the entire distribution model for the coffee category?
When we transitioned into TCPL, one of the big unblocks that happened occurred was the strengthening of our mass distribution system. So, last year we had 1.3 million outlets, and are aiming to reach 1.5 million outlets by March 2023.
As we grow the TCPL distribution system, we will leverage the distribution system for instant coffee and ride on it, which will strengthen our play in the coffee category.
Is this part of your learnings from 2016 to 2019 when you were trying to establish the coffee portfolio?
Rather than spreading our investments everywhere, we wanted to focus first in the South because 56 per cent of instant coffee contribution comes from the South. Within southern India, Tamil Nadu is really the dominant market. Once we got enough scale and momentum on our southern business, we started focusing on the rest of India.
We also looked at possible innovations. In fact, we just launched three to four new format innovations, like cold coffee in a liquid decoction form that we introduced last June. These are in single-serve sachets, where consumers can add milk and sugar to taste for a great cup of cold coffee.
We also introduced a café special, a premix where consumers can add hot milk for a great cup of cappuccino. We launched Tata Coffee Quick Filter, a powder format where one can add milk to get filter coffee. While we are focused on the mass segment, we are also launching these new format innovations to cater to today's audience.
What is the current outlook for the Indian coffee market?
The coffee category is worth over Rs 3000 crore, of which instant coffee stands at almost Rs 2600 crore and is growing at a fast clip of about 12 per cent annual growth. Coffee consumers are looking for convenience as an experience as well as premiumisation. These are two trends driving the sector. Hence, the format innovations that we have done helps us reach to this audience.
The coffee segment has seen many premium D2C brands emerge and become successful. How does TCPL plan to tap this business opportunity?
We have had an offering for the past four and half years called Sonnets by Tata Coffee. It is a range of single-origin, high-quality Arabica coffee sourced from our Tata coffee estate, which we sell through D2C channels.
D2C is a key element of the marketing mix for some brands because this is an evolving space. Non D2C channels cater to the mass audience, but D2C helps you provide customised personal experiences.
For example, at Sonnets by Tata Coffee, consumers can decide their preferred roast and grind level, choosing between light, medium, dark roast or a filter, moka pot, or French press grind and can order accordingly.
There are coffee connoisseurs who want these experiences and D2C allows you to reach out, and cater to them directly. Everyone is making a D2C foray and learning from it. It has a long way to go in revenue, but it is important to be a part of it as it will remain a channel for the future.
From a regular business point of view, it's also a great place to get innovation learnings. One gets a lot of insights directly from a consumer journey, which can be used for your future innovations.
How are you also educating consumers about your product lines?
We recently developed a campaign leveraging the Autonomous Sensory Meridian Response (ASMR) technology. One of our coffee's USPs is that it has flavor-lock decoction crystal, which is slightly more granular. So, when you shake the bottle, you can hear a distinctive sound. We have leveraged this ASMR trend, a big sensation on YouTube, as a sensory signature, which gives the feel of great coffee. A consumer can understand how delicious their coffee is by shaking the pack and hearing the sound.
This entire brand sensory journey takes consumers from the bean to the cup and is a great fit to our sensory signature proposition. It is a great marriage of a proposition unique to our product as well as speaking to the audience in a language they understand.
What's on the roadmap for the coming months?
In the past six to nine months, we have launched three to four innovations. Our idea is to really scale up these launches and set them up for success. This year was about getting these out to consumers; the coming two years will be about scaling them up.
We are also looking forward to continuous innovation on our coffee pipeline, leveraging new formats and driving premiumisation, while expanding our instant coffee portfolio.
