Tata Tea's latest acquisition

Tata Tea's latest acquisition promises fantastic growth over the medium-term but for now it will only hurt the bottomline.

Tata Tea is seeing renewed optimism armed with new products and newer markets thanks to its recent acquisition. After three global acquisitions � Tetley, Good Earth and Jemca � this time the company has announced a bigger and novel one - Glaceau Water Company.

This acquisition is Tata Tea's biggest in the US and novel because, unlike the other acquisitions which are of tea companies, this one is of an enhanced water company.

"The acquisition is in line with the global expansion strategy of Tata Tea in the beverage segment," says Percy Siganporia, managing director, Tata Tea.

Late last month, Tata Tea announced the acquisition of a 30 per cent stake in the US based Energy Brands, the parent company for Glaceau � a pioneer in the enhanced water business.

The management describes the acquisition as a directional change to capitalise on the convergence trends in the beverage sector. "Consumer demand is shifting from carbonated soft drinks to non-carbonated, functional beverages," says Siganporia.

Glaceau has grown at a CAGR of  200 per cent since its inception in 1996. The company's revenues have grown from $1.6 bn in 2001 to $3.1 bn in 2005. Glaceau today sells around 50 lakh bottles daily and still leads the industry in innovation with natural, low-and-zero calorie beverages.

The enhanced and flavoured water market grew 57 per cent in 2005 to $1.9 bn (Rs 8,740 crore) and is expected to grow at a CAGR of 31.8 per cent to touch $8.6 bn (Rs 39,560 crore) in 2010.

This sounds great for Tata Tea considering the fact that tea, as a segment, is showing muted growth. Another advantage is that, this space has very few players like Glaceau, Gatorade and Hansen. Also, as an analyst points out, Coke's internal resistance to get into this category augurs well for other players.

The acquisition will help Tata Tea to strengthen its foothold in the 'exciting' (as the company describes it) US markets given the strong distribution network Glaceau has. It will set the platform to distribute its teas in US.

The company's distribution network spreads across 40 states in the US where the company is the market leader. It has the third largest distribution network in the US beverages industry, after Coca Cola and PepsiCo. Although currently Tata Tea is looking at growing only in the US markets, it plans to look at other regions in the future. Get more information