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Tapal holds strong market position

Tapal, is the first tea company to be awarded ISO 9002 quality certification

By Syed M. Aslam
Nov 13 - 19, 2000

From its modest beginning as a family-owned retail outlet in Jodia Bazaar Karachi, the biggest commodities market in the country, Tapal Tea (Private) Limited today is the largest wholly-owned Pakistani tea packaging and marketing company.

Phenomenal growth

The company has enjoyed a phenomenal growth particularly during the last decade to expand its base in the branded market which for long were dominated by multinational competitors. Tapal today enjoys over 17 per cent or 22 million kilogram share of the total tea market annually up from 10 million kilogram in 1990. Tapal's envious growth has come at the expense of its multinational competitors, Brooke Bond and Lipton brands, whose combined market share has shrunk from 60 million kg to 45 million kg during the same period, General Manager Finance and Corporate Services of Tapal Y.H. Thara told PAGE.

Market & Share

Putting the per capita tea consumption in Pakistan at about one kilogram, Mr. Thara said that approximately 140 million kg of tea is marketed annually in the country of which 110 m kg is met by the imports while the rest of the 30 million kg demand is fed by the smuggled counterpart.

Of the 110 million kg regular imports, 70 million kg is branded while the loose market makes up the rest of the 40 million kg. Tapal and its multinational rival Lever Brothers combinedly enjoy the biggest share of the branded market 60 million kg leaving the remaining 10 million kg for a number of other smaller companies, he added.

Tapal is not for sale

Denying any truth about the baseless rumours about Tapal's take over by its multinational rival Lever Brothers, Mr. Thara termed them 'baseless as we were neither approached by anyone nor we approached anybody for any deal." However, he said, that irrespective of the reasons of spreading the rumours who were behind it, it made Tapal to do 'internal brainstorming' as they seemed planned and intentional to achieve primarily two basic objectives. Number one, they were meant to demoralise our employees and secondly to weaken our distribution network which comprise a number of distributors whose sole business is Tapal, he added.

"We discussed whether or not to react to the baseless rumours and finally decided to address the issue internally including letters to the distributors by our managing director that his family business which enjoys immense loyal following is not for sale," Mr. Thara said. Talking to PAGE he said that the spread of rumours may had its basis in the huge billboards of the competitor in front of all its three factories- 2 in Karachi, one in Raiwind as well as in front of its sales office in Lahore. It may have been also prompted by the fact the Lever Brothers has already bought Polka Ice Cream the biggest branded ice cream manufacturer of the country soon after establishing its own Walls Ice Cream few years ago. In addition, he said, the worldwide merger of Best Foods with the Lever Brothers could have also provided an impetus for the rumour in the local media and market, he added.

He said that though Tapal is a corporate entity it belongs to a family which is proud of its name which has become a benchmark of quality tea. The family can not sell its name irrespective of how big may be the offer, Mr. Thara said. In fact, he added, Tapal is actively involved to expand its market not only within and outside the country as well as has recently signed a Memorandum of Understanding with the Pakistan Agricultural Research Council (PARC) to cultivate tea in Pakistan.

Cultivation project and exports

Tapal, he said, is the first tea company to be awarded ISO 9002 quality certification, the international symbol of the highest quality standards, in Pakistan. "We are not only the best organised company as far as the quality controls are concerned and enjoy a strong distribution network with Sindh, both rural and urban, being the our strongest market. Our strong base in Sindh can be attributed to the fact that we started from Karachi 53 years ago and are constantly increasing our share in Punjab and NWFP provinces which we enetered in the 1990s, he added.

Though local, he said, Tapal is being run like a multinational company and the signing of MoU with PARC is distinct in many ways from that of our sole competitor, Lever Brothers which is cultivating tea over 50 acres in the vicinity of National Tea Research Institute (NTRI) in Shinkiari, Mansehra in the Northern areas.

Lever Brothers does not have a leased land the land belongs to the participating farmers which will also supply the labour. These farmers are provided a loan of Rs 60,000 over three years which will be deducted from the beginning of first picking in three years. The loans carry a mark up of 17 per cent per annum.

Tapal on the other hand, he added, has leased 5 acre of land for five years and will pay the rent and bear the costs of developing these land the technical support for which will be provided by the (NTRI). The NTRI will also provide 25,000 tea samplings, from its nursery spread over 50 acres, 7,500 of which are already been delivered. Once the land is developed within 5 years, Tapal will hand it back to the participating farmers and treat development costs as interest-free loans to be payable over next five years.

Explaining that Tapal's tea cultivation project is a wholly self-financed scheme, Mr. Thara said that the seemingly small project could be a pioneering due to many benefits which it offers to the farmers to encourage tea cultivation locally. Tapal, he added, intend to increase the area of tea cultivation in the future.

Tapal is in the process of venturing into foreign markets, particularly those having a sizeable population of Pakistani expatriates who look forward to sip Tapal tea. The firstever export order left for Dubai about two weeks ago and the company has already appointed a distributor in the UAE. The 20 foot container carried about 5 tonnes of Tapal Tea as the company has chosen to target Dubai primarily due to a large population of Pakistani expatriates. Mr. Thara added that the company is targeting many other markets in America and Europe which show great demand for the Tapal brand of tea.

Eradicating the smuggling

Mr. Thara blamed the high import duty for encouraging the smuggling of tea into the country which make up over one-fifth of the total demand of tea in the country. As mentioned above, 30 million kg of the total 140 million kg demand of tea in the country is met by the smuggled commodity.

Terming 25 per cent duty on the import of tea which along with 15 per cent sales tax (16.5 per cent for the unregistered importers which outnumber those who are registered) plus 5 per cent Income tax pushes the taxes at the import level to a high 53 per cent of the C&F value as too high, Thara said that high duties are the single most detriment to encourage smuggling. The high import duty renders legal imports incompetitive to the smuggled tea as smugglers have a much low overheads. How can the legal importers can compete, he added.

The situation is worsening further by the constant weakening of the rupee as a single rupee devaluation translates into a five rupee increase in the retail prices of tea a commodity not grown in commercial quantity within the country.

Mr. Thara said that reducing the duty by 15 per cent to 10 per cent will help bring tea smuggling to an insignificant and bearable level.

Tapal & PARC Tea Plantation Project

*** About 5 acres of land in the vicinity of National Tea Research Institute (NTRI) Shinkiari, Mansehra, will be used for tea plantation.

*** In the first phase the seedlings and technical assistance will be provided by the NTRI.

*** Tapal will help farmers get the land leased and bear all other expenses for cultivation.

*** The first crop will be ready for plucking after three years.

*** The tea will be processed at the processing plant to be set up by the NTRI.

*** After five years the leased and scientifically developed land would be ready to initiate tea growing.

*** Tapal will buy the raw tea to be processed at NTRI tea-processing plant Shinkiari.

*** After the successful completion of the first phase of the project Tapal will then add on to the land area for tea cultivation.

*** This will help save millions of dollars in foreign exchange.

*** At present a huge amount of Rs 10 billion is spent in foreign exchange on tea import. The project will certainly help reduce the tea import bill.