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Wednesday, May 07, 2008

‘Chai’ or ‘thanda’ what’s the global funda…

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... behind Tata Tea’s adieu to Glaceau and Coca Cola tying the knot instead?

Rub Aladdin’s Coca Colalamp and whoever the appearing genie is beholden to, can use his magical prowess to amass enormous power for himself. A throwback to those pages from Arabian Nights, in the 21st century corporate world, the genie has assumed the form of Glaceau or the US-based Energy Brands Inc.. Last year, the enhanced water maker was the global expansion genie for the 68- year-old Ratan Tata, who purchased 30% equity of Glaceau. This year, Glaceau stands testimony to Tata’s aborted dream. In contrast, for soft drinks major Coca-Cola, Glaceau was a distant dream, which would bring it into the reckoning as a serious non-fizzy drink maker. This year, the dream became reality, with Coca Cola acquiring 50% of the health drinks major (as also Tata’s 30% stake) for a staggering $4.1billion in cash.

So why did Tata Tea sell its minority stake in Glaceau (for a cool $1.2 billion) so soon after acquiring it on August 23, 2006 for $677 million? Was the $523 million profit enticement enough for the $22 billion Tata Group to exit a lucrative business? At the time of the acquisition in 2006, Tata Tea had claimed that the strategy was to enable Tata Tea’s global expansion plans as a beverage giant, and enhance their portfolio beyond simply tea. By bidding adieu to Glaceau, are they thwarting those ambitions? What is Coca- Cola’s gameplan? What’s on the mind of Ratan Tata and Neville Isdell (CEO of Coca-Cola)? 4Ps B&M raises the curtain on why Tata got rid from Glaceau and why Coke lovingly embraced it.

Glaceau & global dreams…
Well, Thanda Matlab Coca ColaTata Group’s overtures in the global takeover game needs no introduction. The 30% stake in Glaceau was just one more in a series of strategic acquisitions that commenced way back in 2000, with the acquisition of Tetley. But the Glaceau acquisition was different from the rest, in as much as it marked Tata Tea’s foray into the global energy drinks market, and that too with a company whose products – vitaminwater, fruitwater, smart water and vitaminenergy brands – straddled the entire spectrum in the high-potential water and energy drinks segment.

The bullish CEO of Tata Tea, Percy Siganporia even extrapolated that the global energy drink market would be worth $10 billion by 2009-10. But before he could reap the rewards of this lucrative market, Tata Tea sold off its stake to Coca Cola. Analysts that once hailed Tata Tea’s acquisition of Glaceau as a strategic investment were stupefied.

Senior officials at Tata Tea claim that they exited Glaceau because Tata’s did not want to be a minority stakeholder in any entity. Wonder why they bought it in the first place, knowing that Glaceau was a prime target for acquisition by myriad beverage giants in the US, in the face of a slump in cola sales versus a boom in healthy drink sales? And once the Atlanta-based giant bought controlling stake in Glacaeu, Tata Tea was left with little choice but to make a polite exit, given its decreased clout within the company. Analysts believe that Tata Tea’s time would have been better spent in fortifying backward linkages in its existing value chain. “Tatas should have focused more on Indian tea estates and its processing aspect rather than acquiring global brands from a different segment,” feels N.K. Basu, Principal Advisor of Indian Tea Planters Association.

A Tata Teaslight miscalculation and Tata Tea literally has had to abandon the dark horse which could have won it the global beverages race. Meanwhile, Tata Tea is not abandoning its ‘watery’ ambitions, even though they are virtually re-starting from scratch. Heard about their latest plans of acquiring 26% stake in Mount Everest Mineral Water Limited (MEMW) for Rs.115 crore. Great plans we’d say, considering that MEMW also has an alliance with USbased March Supermarkets Inc., but it will possibly take a lifetime for a controlling stake in MEMW to deliver what Glaceau could have delivered in just a few deft strokes.

Why did Coca-Cola buy Glaceau? This one’s easy. According to Beverage Digest, the market of carbonated drink moved southwards by 0.6% in 2006 and colas are on the receiving end of step motherly treatment in Uncle Sam’s land. Coca- Cola badly needed to diversify and Glaceau, with an eye-popping growth rate of 200% fits the bill. A f f i r m s , Muhtar Kent, COO of Coca- Cola, “It sharpens our existing focus on re-establishing sustainable growth in our home market and is an opportunity to build an expanded active lifestyle business, first in the US and then around the world.”

The other reason why Coca-Cola romanced Glaceau was arch rival PepsiCo. Confused! Well, PepsiCo’s Propel fitness water is the leader in the US’s enhanced water category (with 36% market share), while Coca-Cola has negligible presence. Given Glaceau’s market share of 17% in the segment, Coca-Cola’s strategy of straddling Glaceau’s prowess in the vitamin-water and energy drinks segment will pay off, sooner than later.

InIn India, there is no awareness of these beverage brands... India, within days of this global acquisition, the cola giant announced that in next three years, it would invest $250 million in this burgeroning market. But despite being in sunny spirits here (Coca Cola India’s bottling operations would turn profitable in 2008), the cola major has “no plans to launch Glaceau brands in India, at the moment,” a Coca-Cola India spokesperson told 4Ps B&M. Adds Purnendu Kumar, Principal Consultant, Technopak Advisors, “There is no awareness of these beverage brands and existing players have already captured the market. There is scope for new foreign brands, but it needs a proper brand building exercise.

For now the genie has left Tata’s ambit, and landed with a chuckle in Coca-Cola’s arms. Glaceau was financially lucky for Ratan Tata, but could not deliver on its starry promises. Just being the lucky owner of Aladdin’s lamp is not enough. You need the ability to judiciously command the genie to do your bidding. And that is not easy, as Aladdin’s mischievous uncle will tell you!

Edit bureau: Angshuman Paul

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Source :
IIPM Editorial, 2008

IIPM and Professor Arindam Chaudhuri (Renowned Management Guru and Economist) Initiative

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Anonymous said...

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Anonymous said...

Hi there

Looking forward to your next post