Tata Coffee stirs it up with instant coffee push

Tata Coffee, India’s largest coffee producer and exporter, is trying to achieve the same feat for instant coffee, too.   

The opening of a new premium coffee extraction plant at Theni in Tamil Nadu reflects the ongoing recalibration in the business strategy. With an investment of Rs 80 crore, the new unit is expected to take the overall volumes up by 30%.

The reworking of the gameplan and a sharper focus on instant coffee has been going on for some time now, lets out Hameed Huq (pictured), md, Tata Coffee.
The company intends to step up the revenue share from this business to 75% in the next 2-3 years, from the current figure of close to 55%.

The move, according to Huq, is a conscious attempt by the company to shield itself from the uncertainty of price fluctuations. “We were essentially a plantation company and this had huge cyclical fluctuations. As a result, we have taken the branded route and instant coffee has provided us a hedge against fluctuations,” he added.

Analysts see it as a smart play, who feel this will keep the company in safe waters, going ahead. “Tata Coffee is increasing the scope of its coffee-conversion operations by expanding its instant coffee capacity and focusing on freeze-dried and agglomerated coffee as opposed to commodity freeze-dried coffees. We estimate that higher sales of instant coffee, coupled with stability in global coffee prices, would enable the company to register growth in revenues and margins in FY14,” said Amol Rao and Deepak Agarwal of Anand Rathi in a research report last month.

Even in the instant coffee space, the plantation major is not shying away from premiumisation, given its better margins.

Coming to the growth blueprint for instant coffee, the inorganic route is very much on the company’s radar. “We are scouting for an acquisition in the international market and if that doesn’t work out, then we may set up a greenfield project. For this, we have set aside a sum of Rs 400 crore,” Huq said. With its huge market opportunity, Europe is emerging as its preferred destination to this effect.   

On the currency front, Tata Coffee is sitting pretty, unlike others. The fact of the matter is the company is reaping handsome dividends with a stronger dollar since 95% of instant coffee and 75-80% of green coffee are exported, thus boosting the inflows.