TETLEY TEA

Jason Gander |Organizations and Competition in the Business Environment |

ASSIGNMENT 1

Jason Gander Tetley Tea OCBE Assignment 1

IntroductionTetley Tea’s products are drunk by millions around the world, with 165 million cups of tea being drunk every day inthe UK alone. It is the 2nd largest beverage currently beingdrunk behind carbonated soft drinks. Despite very humble beginnings and being rationed during World War 2, Tetley teahas survived and gone on to sustain itself firmly at the topend of its current business environment (www.tetleyteaacademy.co.uk).

HistoryThe history of Tetley Tea dates back to 1822. Brothers Edward and Joseph Tetley after peddling salt for many years then decided to expand in to selling tea which eventually became Joseph Tetley & Co in 1837. Due to expansion in 1856 the brothers relocated to London from Yorkshire. A little after 1953 Tetley introduced the tea bag to the UK, it was an instant hit and changed the way people drink tea. From then on the teapot was used very little as people chose to make tea in a cup using a tea bag (www.tataglobalbeverages.com).

“In 1974 Tetley was bought by J Lyons and merged to form Lyons-Tetley. The company was sold again in 1978 to Allied Breweries. The Tetley Group was created when the beverage arm of Allied Domecq was sold to a group of investors in 1995. The current owners of Tetley Tea are Tata Tea Limited,they acquired Tetley Tea Group on 10th March 2000 in a deal worth £271 million making the Tata Tetley Group the 2nd largest tea brand in the world” (www.tata.com).

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Products and MarketsNow consisting of about 30 different products. They range from your average black tea to a new diverse range of flavored teas. Also cold teas, which are now available in 70different markets worldwide from the UK to Poland and also moving in to several other countries with the eventual idea of becoming a globally available product.

Market StructureMarket structure is defined as the environment in which a business manufactures and sells its merchandise.

Market structure can be thought of as lying along a spectrumwith perfect competition at one end and monopoly at the other.

PERFECT > IMPERFECT > OLIGOPOLY > MONOPOLYCOMPETITION COMPETITION

(Worthington & Britton 2000).

These are the 4 classifications of market structure;

Perfect competition

In this structure five criteria must be met

1) “All firms sell an identical product” 2) “All firms are price – takers they cannot control the

price of their product” 3) “All firms have a relatively small market share” 4) “Buyers have complete information about the product

being sold and the prices charged by each firm”

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5) “The industry is characterized by freedom of entry and exit”

(www.investopedia.com).

Imperfect competition

“Imperfect competition is a competitive market situation where there are many sellers, but they are selling heterogeneous (dissimilar) goods”.

“Imperfect competition is the real world competition”.

“If a seller is selling a non-identical good in the market, then he can raise the prices and earn profits. High profits attract other sellers to enter the market and sellers, who are incurring losses, can very easily exit the market”. (www.economictimes.indiatimes.com)

Oligopoly

Oligopoly is a market structure in which the number of sellers is small.

The UK petrol market would be a good example of an oligopolyas there are only a few sellers of petrol in the UK, when anoligopolistic business alters its price or output, it will have consequences on the sales and profits of its rivals in the trade. This is why an oligopolistic business always considers the reactions of its rivals in formulating its pricing or output decisions. (www.referenceforbusiness.com)

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http://www.referenceforbusiness.com/

http://www.investopedia.com/


Monopoly

“A monopoly is a situation where one firm takes control of all the sales in the market”. (www.transtutor.com)

There are very few examples of a pure monopoly and in the UKthe government do not allow monopolies to exist although we do have legal monopolies. These are companies that own more than 25% of the market share. For example Tesco currently have a 29.9 percent share of the grocery market (www.grocerynews.org).

LAW OF DIMINISHING MARGINS “The law of diminishing marginal utility means that the value of a good, the extra utility derived from a good, declines as more of the good is consumed. This has a direct bearing on the market demand, the demand price, and the law of demand. If the satisfaction obtained from a good declines, then buyers are willing to pay a lower price, hence demand price is inversely related to quantity demanded, which is the law of demand”.

(www.amosweb.com)

Profit maximization is the ability for a business to maximize profits with the lowest running costs.

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http://www.grocerynews.org/


Factors of ProductionThe 4 main factors of production for any business are LAND, LABOUR, CAPITAL and ENTERPRISE these are the essential resources needed to produce goods and services.

Land is the natural resource of the planet. Also the space on the ground, timbers fisheries etc. are all part of the lands resources. When the land is used for production such as in Tetley’s case, they have 100’s of tea plantations theyhave access to as part of their merger with Tata Tea. This makes good use of natural resources.

Labour is the human element like workers, managers etc. Tetley have 634 staff in the UK but due to the merger with Tata Tea now have access to 59,000 workers worldwide. “Labour can be improved through training or educating workers to complete technical functions”

“Capital can represent the money business have used to purchase natural resources and also it can represent physical assets such as buildings machinery vehicles and other such items these can be purchased or leased for a specific amount of time” (www.smallbusiness.chron.com).

In the case of Tetley the capital is again supplied by the merger with Tata tea but is also the buildings and machinerythey own in their production plant.

Enterprise “Entrepreneurs are people who organize other productive resources to make goods and services. Some economists regard entrepreneurs as a specialist form of labour input. Others believe that they deserve recognition as a separate factor of production in their own right”. (www.tutor2u.com).

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Customer BaseCustomers choose Tetley because they have been in the business for over 170 years. Tetley have always strived for excellent quality standards and in doing so have created a very strong customer base. They are also constantly changingtrends, Tetley have diversified there range to stay in tune with the current trends and focused on keeping a price that is affordable to all. Regular promotional packs and price drops keep customers coming back also a very strong continuous marketing campaign has also helped. These includesome memorable characters and catchy tag lines which keep customers coming back.

Complements Substitutes and FacilitatorsComplementary goods -“Complementary goods have a negative effect on cross elasticity of demand, if the price of one good increases demand for both complementary goods will fall, the more intrinsically linked the goods are, the higher will be the cross elasticity of demand” (www.economicshelp.org)

Complementary goods that can be used with Tetley tea are milk sugar and biscuits, these are just a few. The prices can directly affect the demand for Tetley for instance, if the price of sugar goes up there will be a decrease in the demand for Tetley due to people having less disposable income, as shown in graph below.

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http://www.economicshelp.org/


(www.yourarticlelibary.com)

Substitute goods - “Substitute goods refer to those goods that can be consumed in place of each other. For example, tea and coffee. In case of substitute goods, if the price ofcoffee increases, the consumer moves away from the substitute good coffee, this leads to an increase in the demand of the other good tea even though its price has not changed. In this case, the demand curve shifts outwards to the right” (www.meritnation.com).

As shown in graph below.

(www.meritnation.com)

(www.yourarticlelibrary.com)

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Substitute goods for Tetley tea would be other teas, Coffee,Hot Chocolate, Fizzy Drinks and Fruit Juices.

Facilitators used by Tetley; television, even though they pay to advertise on television they do not pay for the television so this becomes a facilitator. Another would be the internet, Tetley now have pages on social media sites Facebook and Twitter. These are great facilitators as they reach a very wide audience. Another known facilitator is that Tetley’s factory is situated next to a port in Teessidethis facilitates the making of Tetley as the raw products come straight of the boat in to the factory.

Micro Factors Example 1: A successful advertising campaign with no change in price would cause the demand for Tetley to increase this would cause the demand curve to shift to the right as shown below.

(WWW.i.study.co.uk)

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Example 2: A price increase in Tetley would cause the demand curve to move to the left as shown below:

(www.bized.co.uk)

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Macro FactorsMacro factors are beyond a business control.

Example 1: A health scare would cause demand for Tetley to drop and the demand curve shift to the left.


Example 2: A rise in unemployment would leave people with less disposable income and this would cause a drop in demandfor Tetley as shown below.

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http://www.yourarticlelibrary.com/

http://www.yourarticlelibrary.com/



Main Risks to Supply“The Tata/Tetley Group has identified four core sustainability issues. These are the issues that are considered the greatest risk if we do not address them properly” Climate Change, Ethical sourcing, Packaging Waste,Water”

(www.tataglobalbeverages.com)

Here are 5 more I believe could harm the ability to supply:

1. Bad harvest of tea plant2. Change in importing costs3. Lack of resources4. Change in demand 5. Change in legalization

Tetley are constantly trying to find new ways to guarantee that they can supply there product to UK consumers. In 2012 they joined a collaboration with Kellogg’s and Kimberly-Clark, to let Norbert Dentressangle transport network oversee the storing and transportation of their products, “allowing for an increase our delivery frequency and improved services to our customers, It also maximizes utilization of both warehouse space and transport, which will reduce road miles and fuel bills, helping to reduce theeffect of increased costs both in the supply chain and elsewhere in the business, as well as supporting the sustainability agenda which is at the heart of Tata Group’s strategy” (www.logisticsmanager.com).

“Tetley also sources 100% of its tea from Rainforest Alliance Certified farms” (www.tetley.co.uk).

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http://www.logisticsmanager.com/


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Tetley’s MarketOf the 4 types of market structure Tetley falls in to the category of imperfect competition. Despite being the market leader, there are still about 20 other tea manufacturers in the UK ranging from Betty & Taylors to Whittard of Chelsea. Tetley are in imperfect competition this means that they canset their own price regardless of other companies in the market and advertise in an attempt to attract customers awaywith the promise of superior quality. A shift in the demand curve shows them that market circumstances have changed thiscould be because of a change in price. For this reason Tetley have to balance price, quantity and quality correctlyto keep the consumers happy.

Recent FortunesIn the current business environment Tetley is faring well despite global recession. Since 2008 when its share price was at a low of 43.00 there has been a steady climb until 2012 when the price rocketed hitting a high of 181.70. It has since sustained its self for the past year between 159.85 and 160.30 but has seen a decline in the last month leading to today’s price of 141.00. This shows they are still doing well at present and with a current market share of 27 % making it the leading UK tea brand. With 634 staff employed in the UK, a revenue of £163 million and profits totaling £37 million this shows a 7% volume growth and a 16%value growth during the year making the future look bright for Tetley Tea.

(www.tatagloalbbeverages.com).

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