March 2017 | Sanghamitra Bhowmik

A fine dispensation takes tasty shape

Blending in with the culture and staying in tune with local consumption patterns have worked to Tata Global Beverages' advantage in the foodservice business

There is a certain magic that comes with a cup of tea or a mug of coffee, especially when enjoyed in the cosy comfort of home. Replicating that magic in an out-of-home setting, in flavour and taste if not in ambience, is what the worldwide foodservice business is all about. And it’s a business Tata Global Beverages (TGBL) has immersed itself in across multiple geographies.

In Canada, Tata Global Beverages is primed to make a greater mark in the foodservice business thanks to Tetley

TGBL has a dedicated foodservice team that has been hard at work trying to extend the company’s spread and influence in the burgeoning segment through a product portfolio that reaches various points outside the consumer’s home. There is a good reason for the effort. The global foodservice or out-of-home vertical — which includes the lucrative vending machine business — is valued at about $1 trillion a year, and it is expected to soon overtake retail sales in growth.

Challenges aplenty
Foodservice has more than its share of challenges, but there has been no stopping the steady rise of a business that caters to and targets a huge consumer segment globally: people who spend much more of their workday lives outside their homes than within. That explains why beverages and snacks dispensed through food-vending machines in a jiffy are becoming increasingly popular.

TGBL’s foodservice business takes on a local hue in the countries where it is present, notably the United Kingdom, Canada, the United States and India. Blending in with the culture and staying in tune with consumption patterns in a particular country have worked to the company’s advantage. What’s important here is ensuring there is no dilution of product quality and that distribution channels run smooth.

In this context, India is a crucial market for TGBL. With a growing number of Indians consuming food and beverages outside their homes, the foodservice channel is ready to bloom. The teabags segment (plain, green and flavoured) forms 25 percent of the business for TGBL in the country, and the company expects revenues from the stream to swell as it expands to establish a presence in more cinemas, hotels, restaurants and offices.

“As in most geographies, the foodservice channel in India is growing faster than retail,” says Samantha Dutta, who heads the business for TGBL in India. “We always had an institutional channel that serviced foodservice accounts, but there wasn’t much focus and growth was stagnant. Now we have a separate vertical with three segments: hotels, restaurants, cafés; travel and entertainment; and new formats and institutions. Each of these segments has defined growth pillars and we plan to double the size of the business in the next three years.”

Tetley advantage
In Canada, TGBL is primed to make a greater mark in foodservice thanks to Tetley. One of the jewels in the company’s crown, Tetley has matured in the Canadian market over the decades and is now counted among the country’s leading consumer brands. The recall and ‘brand love’ that Tetley enjoys has been a booster shot for TGBL’s foodservice operation.

“Five years ago, when we began our journey into foodservice, the space was viewed as a large, untapped opportunity in which we could leverage Tetley,” says James Kenny, senior foodservice channel development manager for TGBL in Canada. “Foodservice was forcing an increased focus on tea sales, so it made sense that Canadians’ favourite teas should be available to them when they were on the go.” The company is now looking to ride on Tetley’s success to make a breakthrough with Eight O’Clock Coffee.

The foodservice story for TGBL in the UK differs in the details. The foodservice market in the country has expanded to £6.6 billion over the past five years. The growth can be attributed to the increasing number of food-dispensing outlets and the thriving travel, leisure and café channels.

The foodservice business demands new and relevant technologies

There are other reasons as well. “Wider macro food trends have impacted growth within the tea sector, with factors like health and ‘premiumisation’, in particular, coming into play,” explains Graeme Karavis, managing director of TGBL in the UK. “These trends have fuelled a behaviour switch among health-conscious consumers and, as with coffee, sensorial experiences are becoming important in influencing the consumer’s willingness to purchase.”

The health angle is crucial in this regard. There is plenty of noise in the media about beverages with health benefits, and at least as much advice on choosing the right brew. With green tea and its salubrious compatriots scoring over carbonated drinks, the environment for healthy alternatives is perfect for foodservice to get entrenched. “Consumers are gradually moving away from carbonated beverages due to their association with unhealthy levels of sugar,” says Mr Karavis. “Coffee, too, has some unhealthy associations. Tea does not have these negative connotations and, additionally, the variety of teas on offer means there is something for every demography, including children.”

American angle
In the US too, the demonisation of carbonated drinks has helped TGBL and others push further in the country with their foodservice operations. “Consumers are demanding healthy and innovative products,” says Gary Schachter, vice president, business development and strategy, with TGBL in the country. “Preferences are changing and we need to stay ahead of consumer demand. Iced tea comprises 87 percent of our tea sales in the United States and this product offering can certainly help us win more converts.”

In comparison to other categories in foodservice, tea is seen as having a safe, reliable and reasonably cost-effective supply chain. But the business faces challenges posed by local distribution, the lack of operator education and marketing.

Taste is critical in making the foodservice equation work. In Canada, TGBL offers customised solutions for various channels, including bulk Orange Pekoe teabags for the health conscious, tea-expert kits for restaurants and merchandising racks for cafeterias and convenience stores. Taste is a factor, across the board, for all these channels. “Canada has consumers who are, first and foremost, interested in the health benefits of beverages, but taste is still the primary choice driver,” says Mr Kenny.

The primary challenge in Canada, according to Mr Kenny, is operator knowledge of hot beverages and the relationship that customers have with them. He explains, “Most operators offer tea and coffee but they are not in the tea or coffee business. Being a relatively new entrant in foodservice, we have to supplement established players within the distribution network.”

Coffee, the other category TGBL Canada is looking to enter, is extremely competitive and difficult to penetrate. The Eight O’Clock brand is relatively unknown in the Canadian market. Hence, while Eight O’Clock has a history with older Canadians, it does not have the equity or recognition of a favoured brand such as Tetley.

“Establishing ourselves in this ultra-competitive space will be a key challenge and an enormous opportunity,” adds Mr Kenny.

Third-party distributors are the problem for TGBL with foodservice in the UK. “About 65 percent of Tetley’s out-of-home sales are through distributors,” says Mr Karavis. “This reliance presents significant challenges for us. There’s the disconnect between the brand and the operator; Tetley can have little to no interaction with the operator who is serving the product. The brand can be misinterpreted visually or through the quality of the serve. The second challenge is that the distributors have become gatekeepers.”

Investment need
Rising raw material prices, transportation hassles due to a shortage of qualified drivers and the lack of options have added to the challenges faced by the American arm of TGBL in the foodservice sector. Resources are needed elsewhere as well. “Investment in manufacturing facilities to meet industry demands is vital,” says Mr Schachter.

Serving tea or coffee outside the home is not just about brand and taste. Companies have to consider new technologies that are accessible and relevant. With the foodservice marketplace ranging from grocery stores to malls, the need to tap technology to enable the creation of micro markets is acute.

TGBL Canada has introduced dispensing machines that are programmed to grind the bean and then do the brewing. “These machines provide the flexibility to prepare various tea and coffee-based beverages at the touch of a button,” says Mr Kenny. “There is buzz around grocery-vending machines and smart technologies that can enable unattended sales in condominiums, hotels and entertainment spaces, but this technology is still in the presentation and acceptance phase.”

In the UK, on-the-go cups and vending solutions are key product development goals in 2017 for TGBL. The ‘Tetley tea master’ programme and an online academy have enhanced brand visibility and relationships with end users and operators. The online training initiative allows Tetley to speak directly to its operators and help them serve better tea. “It has helped manage the disconnect between the brand and the operator and has encouraged brand loyalty,” says Mr Karavis.

For TGBL, standing out in foodservice will ultimately be determined by how quickly it gets on top of the challenges — on brand loyalty, technology, distribution and a host of others — posed by a business that is simple and complicated at the same time. Knowing the company’s pedigree and capabilities, success cannot be but a few sips away.

This article was first published in the January - March 2017 issue of Tata Review. Read the ebook here