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  • Karan Kashyap

Starbucks Is The Company To Beat In India's $30 Billion Tea Market

In India, consumption of tea is not a seasonal phenomenon; rather an obsession, where people drink "chai" (tea) at any time of the day, irrespective of the temperature. Indians can be found sipping tea from road side stalls, established eateries and at their homes across the country. Tea consumption occupies more than 79% share in the non-alcoholic beverage market, which is estimated to value more than $30 Billion (Rs 195,000 crores).

With a domestic consumption of over 911 million kilograms in 2013-14, this country is the world's biggest consumer of "chai." However, its per capita consumption, at 800 grams, is lower than many other countries such as the UK and Afghanistan (2 kg each) and China and Iran (1 kg each). Despite this consumption, the market for ‘chai’ by the year 2020 is expected to grow annually by 20-23% and is estimated to be three times the present size in 2017.

Given this size of the tea market and its potential to grow, India is witnessing a spurt in number of established companies and startups that are striving to offer varieties of this beverage, and to establish a foothold in tea retail outlets and consumption market at home.

Retail Market

In January this year, Starbucks launched its global flagship tea brand Teavana in India. This is a U.S.-based specialty tea retailer and tea bar chain that Starbucks acquired for $620 million in 2012.Through Teavana, Starbucks has launched a number of varieties that include masala and mint, hibiscus tea with pomegranate pearls, black tea with ruby grapefruit and honey, and many others flavors, both in hot and cold varieties. In India, Teavana is positioned as a premium offering that is competing against a slew of home-grown start-ups such as Chaayos, Tea Halt, Chai Point, Tea Trails and Chai Thela.

To compete effectively against bigger and more established players including Starbucks, these Indian tea chains have raised venture funding over the past two to three years to set up tea cafes and kiosks. In 2015 Chaayos raised $5 million from investors led by Tiger Global. This was followed by Chai Point raising $10 million from Eight Roads Ventures, Saama Capital and DSG Consumer Partners. They have utilized these funds to create niche menu to attract middle class customers with a mix of affordable Indian snacks such as "Samosas" (a flour based deep fried snack), Egg Omelette, "Bun Maska" (a buttered bun) and "Maggi" (instant noodles), that can be served along with tea.

However, with 90% of consumers preferring coffee in cafés and restaurants, these enterprises have been fighting the perception of Tea as an “in-home” beverage. One big challenge that these retail startups face is to draw an audience that is used to consuming packaged crush-tear-curl (CTC) tea or dust tea at home, and convincing them to pay for a cup of tea when they can enjoy a cup of coffee (perceived as more premium and exotic) at the same price.

Home Market

Across India, tea is consumed every day in all forms, including CTC, orthodox and Oolong. According to a report by market researcher Euromonitor, Tata Global Beverages (TGB) and Hindustan Unilever Ltd (HUL) -- which together control more than 50% of India’s packaged-tea market -- are showing signs of fatigue despite new launches and product innovations as regional and smaller brands draw more consumers. From 2012 to 2016 the market shares of TGB and HUL have each remained stagnant at 29% and 27% respectively. By contrast, since 2012 smaller regional brands such as Wagh Bakri, Amar Tea, Girnar and retailers' private labels together have gained more market share in the Indian tea bazaar. Wagh Bakri increased its share from 7.18% to 8.09%, Amar Tea gained half a percentage to increase its portion of the market to 2% by widening its distribution reach, and Girnar also witnessed an upward swing to 1% through billboard marketing and tying up with IndiGo airlines to spread customer awareness.

The report also stated that consumers had been shifting from unpackaged to packaged tea, due to increasing disposable income and concerns over quality and hygiene. Purchases of unpackaged tea dropped dramatically in the last two months of 2016, with many low-income consumers trading up to packaged tea. In search of higher margins and a stronger brand image, Indian tea producers have been following the trend and shifting their production towards packaged and branded tea. It estimates that at the start of 2015 about 45% of overall consumption was accounted for by unpackaged tea and this share has dropped well below 40% by the end of 2016.

Indians continue to consume the lowest grade quality of crush-tear-curl (CTC) tea—one of the most common production methods—for their ‘chai’. Tea is grown in the Dauladhar region in Kangra; from the soothing Darjeeling tea, the strong Assamese tea, and aromatic Nilgiri tea the range of tea available in India is unparalleled. Tea in India is mainly cultivated in the southern, eastern and north-eastern parts, which also contribute names to tea varieties that are grown in this south Asian country. India is not yet a connoisseur’s tea market. While the brewing market is high-value, the boiling market is high-volume. Purist tea consumption is all about brewing tea and India is a boiled tea consuming market. When you boil, the emphasis is on extracting volume and value, and when you brew, it is all about flavor, aroma and taste.

In the second half of 2017, with an increase in the number of varieties on offer and stand out retail shops, the industry is expected to continue to perform strongly, particularly as the country’s tea drinkers transition to better, higher-quality brews.

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