Bangalore: The Tata Group aims to capture a larger share of the world's two fastest growing instant coffee markets — Russia and Ukraine — through the U.S. brand Eight O'Clock Coffee, which it recently acquired from venture capital fund Gryphon Investors for Rs. 1,015 crore (U.S. $220 million) in a competitive bidding process.

Instant coffee consumption in Russia is currently pegged at 60,000 to 70,000 tonnes a year, and the consumption has been clocking a year-on-year growth of 14 per cent, making it the fastest growing instant coffee market in the world.

Tata Coffee Ltd., a 51 per cent owned subsidiary of Tata Tea Ltd., exports about 4,000 to 5,000 tonnes of pure instant coffee a year on an average, predominantly to markets in Russia and Ukraine. However, Tata Coffee's own instant coffee brands such as Mysore Gold and International Tata Café account for a very small quantity of its sales in these two markets. A big chunk of the company's exports to Russia and Ukraine is made up of third-party private labels.

"Third-party labels are not where our future lies. The intent is to move away from this and work on our own labels. We will be ramping up our own labels through the Eight O'Clock route, which has about eight variants under a standard pack. Eight O'Clock will be a major driver for our growth plans because it is an instant brand. That's why we are bullish about the acquisition", said M.D. Kumar, vice-president, Finance, Tata Coffee Ltd.

The Tatas plan to launch the Eight O'Clock instant coffee brand in Russia and Ukraine early next year to cash in on the perception that anything coming from the West is good. "With affluence coming in, with TV exposure coming in, there is a blitz in Russia as far as Western labels are concerned. Any brand, including coffee, coming from the West is perceived as brilliant by the Russians," Mr. Kumar said.

Foothold in U.S. market

The acquisition of an established brand with over 100 years of history and retail coffee experience provides the Tatas with a big foothold in the Rs. 97,000-crore ($21-billion) U.S. coffee market. Eight O'Clock Coffee is the top player in the branded whole-bean market in the U.S. and, within the broad U.S. food category, it is the third largest coffee brand by volume behind Folgers and Maxwell House. But the U.S. is not an instant coffee market; it is more of a roast and ground coffee market.

Though Indian coffee is as good as those coming from other parts of the globe, Mr. Kumar said that the Tatas had no plan to change sourcing of Arabica coffee beans for Eight O'Clock coffee, which are currently procured mainly from Central and South America.

"At this juncture, we are not looking at changing the sourcing. We have a winner as a blend, as a brand. We wouldn't change this arrangement just for the sake of changing. Shipping coffee beans all the way from India to the U.S. may not make logistic sense. If at all we think of changing the sourcing, we will look at it only on merit based on cost advantages," Mr. Kumar said. "We would use Indian coffee beans if the Eight O'Clock brand is to be made here," he added.

The acquisition will transform Tata Coffee from a regional player to a major global coffee player and help it move up the value chain to become a fully integrated player in the global coffee industry.

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