Posted: June 21st, 2021
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. What are the Drivers of Change in the Tea Industry of Pakistan? How are these Drivers likely to affect the Industry in the future? 4. Create an EFAS for Tapal.
ANSWER NO 1
In Pakistan, tea is popular all over the country and holds an integral significance in local culture. It is one of the most consumed beverages in Pakistani cuisine The demand for tea in Pakistan is very high. While Pakistan does not produce tea, it is a major tea-consuming country, being ranked as the third largest importer of tea in the world. In 2003, as much as 109,000 tonnes of tea were consumed in Pakistan, placing it as the seventh largest tea-consuming country in the world.
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 common man and is an integral part of our culture and heritage. Due to these causes Pakistan consumes an substantial quantity of tea. Tea is Pakistan’s favorite hot beverage.
Although efforts have been made to cultivate tea in the mountainous areas, the projects could not achieve the desired results. 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. Bulk importers sell tea to retailers in loose form, while the second category of bulk importers sell packaged tea under brand names. MARKET SHARE PICTURE
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 b/w Lakson Group and Tata tea of India, was introduced early this year and it has approximately 4% share, which is continuously decreasing. Other players in industry are Kohinoor Tea Company, Vital Tea Company and Alpha Tea Company. Unorganized market also captures a good market share in the total tea market of Pakistan. 70000 tons out of 150000 consumption is of unorganized tea.71% of total population of Pakistan are living in rural areas.
Due to illiteracy and lack of awareness they are consuming unorganized tea which is mainly affecting the organized tea market. Due to this they are enjoying a very big market share of the total tea market. Organized segment mainly depend on the imported tea. Mainly big players are importing tea from different countries like Kenya, uk, Bangladesh. Last some year’s imported figures for Pakistan is described in the chart below. Unorganized tea is mainly smuggled from different neighbor countries of Pakistan. That’s why it has a large proportion in total consumption of tea in Pakistan which is 70000 tons of total 150000 tons
Industry is now on the maturity stage. Large players has established their brands in the market and enjoyed huge profit margins. Now every company looking towards product differentiation and multi segmentation because consumers are now more taste conscious and looking for variety available to them in a tea market.
Answer no 2
The intensity of competition in the tea industry is fairly high. There are few established names like Lipton and Brooke Bond in the market. Now Tetley has also been introduced in the market. So Tapal is competing with all of these and also “Khulli Chai” as well. Talking about Lipton and Brooke Bond they are brands of Unilever which is known to be a giant in the FMCG industry. It seemed impossible that any local brand would even survive when competing with them but Tapal proved them wrong through smart advertising and high quality product it has already given Brooke Bond a run for its money and now facing Lipton. The rivalry can be observed when we look at the ad spend of these companies. All of them advertise heavily to gain a competitive advantage over the other.
THREAT OF NEW ENTRANTS
Threat of new entrants is high. This is evident by the immense growth in the industry and government policies are also encouraging new Tea houses to emerge on the scene. The taxes on import of tea are reduced thereby decreasing the cost of production. It can be taken as positive sign by a prospect player. Initially it was thought that no company would survive against the giants of Unilever but since Tapal people have started thinking that local brands can do well and new players might decide to come into this market.
THREAT OF SUBSTITUTES
In this case tea will always remain an integral part of our culture. Having said that there is a low switching cost associated with the trade off of substitutes. In case of tea substitute is coffee and even cold drinks in some case. It can easily be assumed that the demand for tea is nothing but increasing. Currently majority of the consumers have not developed the taste for coffee so it cannot be seen as a potential threat. Change in patterns can be observed because consumers are shifting from normal tea to green tea but again the broad category of the product remains the same.
BARGAINING POWER OF BUYERS
The bargaining power of buyers is low because of the high demand. Although due to increased competition prices remain competitive but buyers have little or no bargaining power. In case of tea an element of brand loyalty is also associated so a consumer would want to use a same brand which gives in his bargaining power. Also with tea people prefer quality over its price.
BARGAINING POWER OF SUPPLIERS
Bargaining Power of supplier is high because there are few suppliers of tea. The reason why there are few is because there is a specific taste of tea that consumers like so the manufacturers are forced to choose from few
options. In Pakistan tea is imported majorly from Kenya and Srilanka so the supplier is at power to influence the price due to the limited availability of the raw tea. In Pakistan recent plantation of tea farms may favor the local manufacturers and foreign suppliers may find a reduction in their bargaining power.
Answer no 3
These factors and government interventions can make or break the industry. The political factors have played a very benign role for the tea industy. The political arena has a huge influence upon the regulations of the businesses, and spending power of consumers and other businesses. The political environment of Pakistan is relatively unstable in the current situation. The investors are not willing to invest in Pakistan. However, WTO and trade policies encourage the import of raw materials for Tea industry.
Tea Import Quota
It is an important consideration. Each year there is a certain quota on tea import in total imports of Pakistan. Each player is given quota to import and manufacture so one can say that it is a very regulated industry.
The relations with the tea producing nations and Pakistan play a vital role as large part of imports comes from Kenya, but now Pakistan is also importing tea from India.
Unstable Geographic Conditions
Pakistan is situated at a very critical and geographically strategic location. Due to the uncertainty new investors are not ready to invest in Pakistan.
The social and cultural influences on business vary from country to country. It is very important that such factors are considered. People are socializing more may it be events or casual visits to friends and family.
Tea has always been an integral part of Pakistani culture and rituals. It is understood that tea would be present at all events.
As work environment is becoming more stressful, people require different forms of refreshment and intakes to increase their energy levels. This further increase the intake of tea at workplaces, tea is not only just available to the employees when needed but is also served twice a day in order to keep them going. On the other hand, media expansion, growth of advertising as a separate industry has resulted in greater exposure of all the brands and masses. Hence social factors and changing mindsets have positively affected this industry.
Tea has always been acceptable in all social classes because of its usage. Green tea has recently gained a lot of popularity due to health reasons and is largely consumed. Another factor is the emergence of ice tea which is indirectly competing with soft drinks.
Technology is important to gain an edge over competitors and it drives globalization. Technology helps companies to reduce cost and achieve economies of scale. Technology also leads to the development of new products and sometimes even segments. Tea manufacturers like Unilever and Tapal already manufacture tea of the highest quality and they achieve it by the state of the art production facility that they have. Lipton has also installed its own plant of Danedar tea production.
Answer No 4
Online market: The online market offers Tapal tea the ability to greatly expand their business. Tapal tea can market to a much wider audience for relatively little expense… New services: New services help Tapal tea to better meet their customer’s needs. These services can expand Tapal tea’s business and diversify their customer base… New product: New products can help Tapal tea to expand their business and diversity their customer base…
New market: New markets allow Tapal tea to expand their business and diversify their portfolio of products and services…
Bad economy: A bad economy can hurt Tapal tea’s business by decreasing the number of potential customers… Govt regulations: Changes to government rules and regulations can negatively affect Tapal tea… Political risks: Politics can increase Tapal tea’s risk factors, because governments can quickly change business rules that negatively affect Tapal tea’s business Volatile cost: Volatile costs mean Tapal tea has to plan for scenarios where costs skyrocket. Cautious planning leads to development delays that can negatively affect Tapal tea.
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