PepsiCo CEO Indra Nooyi and Tata Tea Vice Chairman R K Krishna Kumar, two personal friends, are pushing an experimental joint venture that might be transformational for both in India's beverages market.
Tata Tea informed the stock exchanges today that its board approved a non-binding MoU for a possible joint venture with Pepsi to explore business opportunities in the non-carbonated space.
The JV, if it goes through, will not impact the existing interests of both companies. It probably signals the JV will be dealing in new product developments, and will not see any asset transfer from the two participating companies.
The brief comment to the bourses hardly reveals what is in the offing, beginning with whether the JV is India specific or cross-border. Sources close to Tatas say, there "is a strong will on the part of both the players to explore new opportunities in the country". For Pepsi, it is about insulating itself from the anti-cola sentiments in an emerging market and looking at the opportunity of staple beverages in India.
Tata Tea, which is still stuck as a traditional packaged tea and coffee player despite a slew of global acquisitions in the last one decade, would like to break new ground as a branded beverages company.
Tatas and Pepsi could partner in the ready-to-drink tea, coffee, malted drinks and enriched water space, where there is not much conflict for both the companies. Pepsi's market and distribution deal with Hindustan Unilever (HUL), as part of a global alliance, for Lipton Ice Tea failed to take off in India and is non-existent currently.
But sceptics are not just few. "Building a JV around new products is going to be tough, especially in a market where new forms of beverage consumption (read RTD) have not succeeded yet. Non-carbonated consumption in the domestic market is centered around juices. One would like to wait for details of the proposed deal before commenting in detail," said one industry tracker who did not wish to be quoted.
In context, he pointed out that even mineral water consumption (as against packaged drinking water) has failed to inspire in India, with Tata Tea's subsidiary Himalayan making slow progress. In the past decade, Tata Tea, in its quest to evolve a new consumer connect, has experimented a bit and exited the same. Cafe chain Barista being a case in point.
Meanwhile, Tata Tea is consolidating its overseas acquisitions - Eight O Clock Coffee, Tetley, Vitax, Good Earth and Flosna - into a single overseas company that will be the flag-bearer from now on. Tetley CEO Peter Unsworth is the new force at Tata Tea with the corporate base being shifted to London. After its $1.2 billion exit from Glaceau, Tata Tea has been on the prowl for more international acquisitions. It is significant to mention here that Tata Tea is probably the least leveraged among Tata Group companies.
In the late 90s, Tata Tea embarked on the road to become a global beverages company. Tatas are still at it, a decade and a string of acquisitions later. That is why a tuck-in deal with Pepsi in India may be carrying cross-border implications as well.
Stock markets, looking for triggers always, turned cheery on Tata Tea following Friday's late afternoon announcement. The news lifted the stock nearly 3% to close at Rs 1000.05 on BSE.