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Hot or Cold:
Coffee and Tea in Central and Eastern Europe (cont.)

Although Poles do not consider themselves a typical tea-drinking nation, the annual per capita consumption of 80 liters of tea puts Poland in the third place in Europe, just behind the U.K. and Russia. With such high consumption level, Poland is an attractive market for tea producers and distributors. Pensioners are the biggest tea drinkers. Around 50 brands of tea on the Polish market are packaged abroad or domestically. Tea is purchased mainly from India, Bangladesh, China, Sri Lanka and Indonesia.

A few years ago, Poles preferred loose leaf tea (60% of overall sales) to teabags. Now the preferences are exactly reversed, with more than 60% share of teabag sales. The most popular brands are Lipton, Tetley, Posti and Dilmah, which together account for over 70% of the teabag market. The big suppliers are very active on the market, with large promotional campaigns and new brands. Polish consumers currently buy more high quality tea brands than in the past, but they still prefer strong teas with high tannin content.

The roadblock to selling consumer goods in Poland is distribution. Poland’s entrepreneurial spirit is evident in its retail sector, dominated by very small “mom-and-pop” stores, mostly opened only in recent years. Many thousands of these small retail outlets across the country pose major logistical problems for distributors. Only a small number of chains exist. Large scale retailing is only just getting off the ground.

Since the recent acquisition of Tetley by Tata Tea, the joint operation has been planning an increased focus on the tea markets of Poland and Russia. Tata Tetley Limited has set up a 100% export oriented unit in Cochin to produce packet tea and teabags for these markets. Tata Tea and Tetley are present in these countries in a relatively small way, but growth potential is foreseen.

Traditionally, Russia is the world’s largest importer of India tea. But during the past decade, problems in the Russian market have been a constant headache to India’s tea-exporting companies. In 1998, Russia and the CIS countries imported 95 million kg of Indian tea, accounting for about one-half of India’s total tea exports and about two-thirds of Russia’s total annual requirement of 150 million kg.

In recent years Russia has been switching to the cheaper teas, especially those derived from south India and other sources. Typically, the average dollar value of Russia’s tea imports has fallen from $2.16 dollars per kilo, to $1.78 dollars. This decline in the overall value of India’s most important export crop has had a snowball effect on the entire Indian economy.

M. Parmananthan, head of the Tea Board of India’s statistical department, has pointed out that Russia is crucial to the Indian tea industry because of the sheer quantity involved.

To grasp the size of the problem, India exports only 25 to 30 million kg annually to the U.K., which is the Indian trade’s second largest customer, followed by Poland at around 10 million kg. The problems have stemmed mainly from Russia’s financial slide in summer 1998, which led to a 50% devaluation of the ruble against the U.S. dollar.

Initially, after the ruble was devalued in August 1998, India saw a surge in Russian buying as a rupee-ruble trade deal between the two countries that gave India an advantage over other suppliers both in terms of pricing and availability of cash. As a result, 1998 was a good year for India’s exports to Russia. But the substantial level of buying meant considerable overstocking in the first half of 1999, followed by a big reduction in last year’s sales.

In previous years, a sizeable volume of India’s exports to Russia were in the form of consumer packs. This had facilitated the establishment of Indian brands and creation of consumer preferences and brand loyalty.

However, in 1997 Russia introduced a differential import duty of 20% on packet tea, against 5% for bulk tea, aimed at encouraging the domestic packaging industry. This has resulted in a very marginal quality of tea entering that market, which has a negative impact on the image of Indian tea. Along with the impact of financial problems, Russia has now turned from a quality-led to a price-led import market.

Despite all these factors, Russia and the rest of Commonwealth of Independent States together continue to be the largest tea import market in the world. Four leading market operators control nearly half the tea trade in Russia. Another one-fourth is shared by 10 market men. About 200 traders share the balance.

The traditional image of Russian tea-drinking is the samovar. But in reality samovars are now mainly produced as giftware souvenirs for the tourist trade, sold from street market stalls. Older samovars, dated pre-1948, are rated as antiques, and may be legally exported only with official certificate authorization, which is not easily obtained. At home, Russians are more likely to keep a teapot stewing for hours - then pouring out half a cup of the strong liquid, topping it with hot water, and adding a taste of runny fruit jam with some sugar. It’s the Russian version of flavored tea.

Meanwhile, along with the problem of inflation, hard pressed consumers have cut back on the quantity and quality of the tea they drink. A Russian consumer, who might have drunk five cups a day before the crisis, would now drink three, and the tea is cheaper as well.

Traditionally, black tea accounts for about 94% of Russia’s imports, with aromatic tea and green tea having shares of 4% and 2%, respectively. In the past, it has been a major buyer of Indian orthodox grades. However, more recently there has been a significant increase in purchase of CTC varieties, with price as one of the major selling factors.

According to a study prepared by Sergy Kasyanenko, chairman of Orimi Trade Ltd - Russia’s largest tea trading agency, established in 1994 in St Petersburg - the new millennium will see branded teas establishing a stronger presence in the market, with national producers gaining market share. However, on a more pessimistic view, he has envisaged the market being filled with cheap tea that has counterfeited established brands.

Sri Lanka is the second largest exporter of tea to Russia, supplying around 35,000 tons a year. The pioneer in the market was Merrill J. Fernando of Dilmah, who shipped the first ever direct consignment of Sri Lankan tea to the USSR in December 1958, followed by large quantities in subsequent years.

Since the early 1990s, Dilmah Tea has been distributed through private sector wholesalers. In 1996, Dilmah introduced the now famous Ceylon large leaf tea (OPA grade) and still offers the original, finest Ceylon OPA. Merrill Fernando is dedicated to bringing the finest single origin teas to Russia and her neighboring Republics.

As basically a tea-drinking country, the Russia of Soviet days suffered from a gruesome reputation for its coffee. However, since the opening of the market ten years ago, major multinational brands are now available.

But a spokesman for Paulig said, “Although the Russian market is showing some signs of settling down, no broad-based increase in consumption is in the offing. The rise in inward investment will help to improve the distribution of products and to cut back on street market sales, which is naturally a source of pleasure for those of us who market premium products.” A subsidiary company in St. Petersburg was established in 1992 for marketing Paulig’s products in Russia, with another office operating in Moscow, and in Kiev for the Ukraine.

Joachim Klaen of Tchibo comments, “Russia is a typical market for instant coffee, and our company succeeded last year in overtaking Nescafé Gold in the premium soluble sector. Early this year we launched a whole-bean product to open up a new market segment while building upon Tchibo’s image for quality coffee. In Moscow, Tchibo has been awarded the ‘Brand of the Year’ honor in the roast-coffee category.” The overall Russian market totals around 50,000 tons for instant, compared with only 5,000 tons for R&G.

Reg Butler is a freelance journalist who covers the tea, coffee, and tobacco industries for Lockwood Publications. He can be reached via email at: reg@dsptech.demon.co.uk

Tea & Coffee - June/July 2001

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