For more than 15 years, “HELADIV”’s reputation and distinctive image have consistently developed across an expanding number of products, brands and international markets. The “HELADIV” brand is registered in 42 countries with over 250 retail chains in the CIS, Far Eastern and the European markets and is in the process of expanding into other markets as well. In its latest foray into exclusive foreign markets, the Company has also set up a chain of exclusive tea shops in China with expansion potential to increase the branches to 100 within three years.
Figure 4-2: Market Concentration
ASIA/FAR EAST USA/CANADA CIS EUROPE
China Canada Russia Germany
Japan USA Ukraine United Kingdom
Malaysia Barbados Latvia Belarus Singapore Jamaica Lithuania
Taiwan St. Lucia Thailand St. Vincent Hong Kong Trinidad South Korea Belize Philippines Maldives Kazakhstan Australia New Zealand Far East... 18% Middle East...0% USA, Canada...4% CIS Countries... 68% Europe ... 10% 4.00% 18.00% 10.00% 68.00%
Chart 4-3: Export Market Concentration based on Export Quantity
As shown above, the Company’s bulk of the exports are to the Russian Federation and other CIS countries.
CIS Region
“HELADIV” branded products are distributed within this region in Russia, Ukraine, Latvia, and Lithuania. Currently, exports to Russia make up the major portion of “HELADIV” export revenue which stands close to USD 300,000 per month. The tea market in Russia is dominated by Russian tea brands that come under ORIMI Group, May Tea Group, SAPSAN Tea Company, Ahmed brand and Unilever brands of Lipton and Beseda which together control close to 65%-70% of the Russian tea market. The remainder is spread among approximately 70 other brands, which also include “HELADIV”.
According to Euromonitor, the total Russian market for tea is expected to grow by a CAGR of 3% over the next three years.
Table 4-1: Forecast of Total Sales Volumes for the Russian Market
2010 2011 2012
Tea sales (million kg) 199.3 205.3 211.3
Growth (%) 3% 3% 3%
Source: Euromonitor International Reports
They also expect the consumption of Tea Bags and Specialty Tea to grow as well. Therefore, all the leading companies are focusing on either production of tea bags or specialty tea categories. Moreover, Russian consumers prefer to purchase well-known brands due to their perceived high quality. HVA Foods Limited has maintained long standing relationships within the Russian market which span over two decades. Hence, this has helped the Company in gaining recognition for its “HELADIV” brand among Russia’s quality conscious consumers.
Historically, the Russian Federation and other CIS countries have accounted for over 80% of “HELADIV”s revenues.
Table 4-2: CIS and Russian Federation: Historical Movement of Values and Volumes Exported
CIS and Russian Federation 2005 2006 2007 2008 2009
Value (USD) 731,350 1,278,170 1,740,060 1,366,819 2,040,424
Volume (kg) 168,578 266,499 262,929 196,895 275,792
Source: HVA Foods Limited
Far East...16.00% Canada / U.S.A...3.00% CIS...64.00% Europe ...17.00%
3.00%
Source : HVA Foods Limited
16.00% 17.00%
In 2009, the CIS and Russian Federation accounted for 81% of total “HELADIV” tea sales and 86% of total “HELADIV” volumes exported. Significant growth had been experienced within this region with export revenue recording a CAGR of 29.2% over the 5 year period from 2005-2009.
Chart 4-4: Historical Volume Movement - CIS and Russia
A detailed country wise break up of export volumes is provided in the above chart. As can be observed, Russia takes the forefront, with other countries within the region remaining comparatively insignificant. For example, in 2009, a significant 83% of total exports to this region comprised of exports to Russia.
The forecasted revenue and exported volumes from 2010 to 2014 for the CIS and Russian Federation are presented below.
Table 4-3: CIS and Russian Federation: Forecasted Movement of Values and Volumes Exported
CIS and Russian Federation 2010 2011 2012 2013 2014
Value (USD) 2,085,000 2,256,000 2,368,000 2,547,000 2,728,000
Average Rate (USD) 6.45 6.45 6.45 6.45 6.45
Volume (kg) 323,007 349,538 366,965 395,063 423,189
Source: HVA Foods Limited
As per the forecast, the gross projected revenue from this region is expected to witness a moderate CAGR of 7.03% over the next five years. It should be noted that a price rate increase has not been incorporated within the individual markets of the region over the forecasted period. Thus with the export mix remaining fairly constant over the projection period; the growth in revenue from 2010-2014 denotes that represented by an increase in export volumes.
According to the management, the CIS and Russian Federation region is presently saturated with many brands leading to increased competition. Many leading brands within these markets use multi origin teas to average their tea prices on final blends used for value added products. Furthermore, in Russia presently, duty on bulk tea imports stand at 0%, whilst the duty on value added tea stands at 20%. Thus with such a disparity in duty rates, more and more companies are shifting from importing value added tea to importing bulk tea and also setting up plants in Russia itself to cut down on their packaging costs. However, with Russia entering the World Trade Organization (WTO), the tariff rates could ease in the future.
Russia Ukraine Latvia Lithuania
Source : HVA Foods Limited
2007 Volume (k g) 2008 2009 0 5,0000 10,0000 15,0000 20,0000 25,0000 30,0000 35,0000 40,0000
Far Eastern Region
“HELADIV” brand is currently distributed in Japan, Singapore, Thailand, Malaysia, Philippines, China and Taiwan. Japan is presently the largest market for “HELADIV” products within this region. The Japanese tea industry remains fragmented, with many players, of which brands such as Itno En and Nittoh remain market leaders holding close to 20% market share. The remainder is split across a large number of players including Lipton, Fukuju En, Harada, Twinnings and House of Foods. Thus “HELADIV” market share in Japan remains modest. According to the Euromonitor International Report on Hot Drinks Market, tea in Japan is a mature and saturated sector, with consumer demand mainly stemming from the fruit/herbal tea category, which is gaining further recognition among tea drinkers. Especially the younger generation is increasingly shifting away from hot tea towards RTD tea, creating markets for innovative brands such as “HELADIV”. The report projects a total volume growth of 1% for the Japanese market.
The Far Eastern region is a growing market for “HELADIV” products, and according to the management, consumers within this region are generally less price conscious and appreciate a wider product range and innovative tea products.
Table 4-4: Far Eastern Region: Historical Movement of Values and Volumes Exported
Far Eastern Region 2005 2006 2007 2008 2009
Value (USD) 184,600 248,224 301,652 392,832 446,875
Volume (kg) 17,497 26,762 31,243 38,420 40,372
Source: HVA Foods Limited
Both volumes and value of exports to this region have witnessed a continuous growth over the past several years. In terms of revenue from this region, a CAGR of 24.7% had been achieved from 2005-2009.
Chart 4-5: Historical Volume Movement - Far Eastern Region
As shown in the above graph, Japan is the largest export market for “HELADIV” products in the Far Eastern region and on average has accounted for 75% of the total volumes exported to the region over the past several years. With regard to Japan, the Company directly sells to a supermarket chain which provides for the comparatively high volumes exported. The significance of Japan has however declined from 2005, where it accounted for 83% of total Far Eastern export volumes to 45% in 2009 as other markets like China have shown promise. The Chinese market has experienced a significant 49% growth in volumes from 2005 to 2009. According to the management, Japan and Singapore are considered as premium markets, with consumers willing to pay a premium price for the “HELADIV” product range. With China’s economy growing and disposable income levels rising, China too is expected to become a premium market, with discerning consumers willing to pay higher for quality.
The forecasted revenue and export volumes for the Far Eastern region from 2010 to 2014 are presented below.
China Japan Malaysia Singapore Taiwan Thailand Australia Philippine Source : HVA Foods Limited
2007 Volume (k g) 2008 2009 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000
Table 4-5: Far Eastern Region: Forecasted Movement of Values and Volumes Exported
Far Eastern region 2010 2011 2012 2013 2014
Value (USD) 515,000 577,500 628,500 702,000 810,000
Average Rate (USD) 6.98 6.84 6.70 6.44 6.31
Volume (kg) 73,824 84,485 93,794 109,059 128,382
Source: HVA Foods Limited
With increased interest in the Chinese market, HVA Foods Limited is expected to adjust their export mix in this region accordingly. Given below is a forecast provided by the Company.
Table 4-6: Far Eastern Region: Forecasted Export Mix
2010 2011 2012 2013 2014 China 34.0% 37.0% 40.0% 45.8% 48.7% Japan 54.0% 50.1% 45.8% 40.5% 36.7% Philippines 1.0% 1.0% 1.3% 1.3% 1.4% Singapore 2.0% 2.5% 2.5% 2.7% 2.7% Taiwan 1.0% 1.0% 1.1% 1.1% 1.4% Thailand 8.0% 8.4% 9.4% 8.6% 9.2% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: HVA Foods Limited
As seen above, the significance of Japan in terms of volumes sold within the region is expected to decline with the Chinese market increasing in significance over the projected period. Japan’s share of export volumes to the Far Eastern region is expected to fall to 37% in 2014. The decline in significance comes amid a modest growth being projected for the Japanese market.
Revenue from the overall Far Eastern region is expected to grow by a CAGR of 12% over the forecast period, on the back of export volumes increasing by a CAGR of 14.8%.
Table 4 -7: Cumulative Export Values, Volumes, and Average Price Comparison 2009 vs. Forecasted for 2010
Far Eastern region 2009 2010
Value
(USD) Volume (kg)
Avg. Price
(USD) Value (USD) Volume (kg) Avg. Price (USD)
China 67,331 4,750 14.18 100,000 25,000 4.00 Japan 338,183 30,609 11.05 340,000 40,000 8.50 Philippines - - - 5,000 588 8.50 Singapore 13,929 1,179 11.81 15,000 1,765 8.50 Taiwan 3,599 405 8.89 5,000 588 8.50 Thailand 23,832 3,429 6.95 50,000 5,882 8.50 Total 446,874 40,372 11.07 515,000 73,823 6.98
Source: HVA Foods Limited
A comparison of forecasted price rates for 2010 for the Far Eastern region, with those achieved in 2009, indicate that the rates projected for 2010 are significantly lower, especially with regard to China. Overall average prices within the Far Eastern region are expected to fall by 37% in 2010, with average price rates in China alone expected to decline by a notable 72%.
With China being a tea producing country, presently there are many established brands within the country which leads to heavy competition being faced by companies like HVA Foods Limited in increasing market
share. Even though “HELADIV” branded products have been in the Chinese market for some time, it has been recognized that the Company had not been able to identify the right partners to enter the Chinese market on a larger scale. According to the management, since 2008 they have identified two parties with strong financial and marketing backgrounds to drive the brand in China. One party is concentrating in Retail & Horeca markets (a sector of the food service industry, which includes establishments which prepare and serve food and beverages) in Shanghai, Beijing, Nanjing. The other party is investing in its own specialty tea shops as well as promoting “HELADIV” on large scale to retail markets in the southern part of China. Their projects are expected to boost sales during the coming years, primarily focusing on the “HELADIV” tea bag range. With the management anticipating to grow the retail Chinese market and capitalize on product availability and brand awareness, the comparatively lower rates projected are primarily due to a penetration strategy adopted to actively capture the market. Export volumes to China are forecasted to record a CAGR of 26% over the period from 2010-2014.
The Company has introduced “HELADIV” products to the Philippines market in 2007. By 2008, the presence of “HELADIV” products had increased with the Company shipping approximately USD 50,000 worth of “HELADIV” products per quarter to the Philippines. However in 2009, with increased competition from international brands, in particular Twinings of London, the Company had lost significant market share. Twining presently is the most popular brand in Philippines dominating almost 40% of the retail shelves in terms of imported brands. In 2010 and going forward, the Company intends to re-energize marketing efforts to recapture the Philippines market. The Company has planned to participate in trade fairs which should provide opportunities for the Company to identify new distributors and modes to expand its market share.
Middle Eastern Region
HVA Group is mainly involved in exporting tea in bulk to this region. The main markets are Syria, Iran, Lebanon, UAE, and Iraq. However, “HELADIV” products are presently not exported to this region, where the market appetite still appears to be for bulk and not value added tea products.
Europe and U.S.A.
This region consists of untapped markets for “HELADIV” products except for a minimal quantity that is shipped under the “HELADIV” brand to Belize and United States via consolidators. In terms of competition, 70% of the market consists of major brands such as Lipton, Twining, Tetly, Ahmad Tea, Harrods, Bigelow, Celestial Seasoning and the rest with a range of small brands owned by leading tea producing nations. The Company has approached SUPERVALU and COSCO which are the largest distribution channels in the U.S. According to the management the requirement of warehousing and setting up a liaisons office is presently being explored. As can be observed from the table below, the presence of “HELADIV” products within this region has been comparatively negligible though growing in significance over 2008 and 2009.
Table 4-8: Europe, Americas and African Region: Historical Movement of Values and Volumes Exported Europe, Americas and African Region 2005 2006 2007 2008 2009
Average Rate (USD) 1,680 - 1,386 31,590 29,112
Volume (kg) 65 - 50 2,477 3,327
Chart 4-6: Historical Volume Movement - Europe & Americas
As shown above, the European region has outperformed the American market and has achieved significant growth in 2009.
The forecasted revenue and volumes for the Europe and Americas region from 2010 to 2014 is presented below.
Table 4-9: Europe, Americas and African Region: Forecasted Movement of Values and Volumes Exported
Europe, America, and Africa 2010 2011 2012 2013 2014
Export Value (USD) 28,850 37,500 45,250 53,500 70,500
Average Rate (USD) 5.01 4.92 4.84 4.79 4.74
Volume (kg) 5,754 7,625 9,354 11,167 14,875
Source: HVA Foods Limited
Given below is a forecast of the export mix from 2010 – 2014.
Table 4-10: Europe, Americas and African Region: Forecasted Export Mix
2010 2011 2012 2013 2014
Europe 92% 94% 95% 95% 95%
U.S.A. 8% 6% 5% 5% 5%
100% 100% 100% 100% 100%
Source: HVA Foods Limited
Revenue from this region is expected to witness a CAGR of 25% over 2010-2014. With average rates expected to fall over the forecast period, the growth in revenue is mainly driven by an increase in export volumes from 5,754kg in 2010 to 14,875 kg in 2014 (CAGR of 21%).
Table 4-11: Cumulative Export Values, Volumes, and Average Price Comparison 2009 vs. Forecasted for 2010
2009 2010
Value (USD) Volume (kg)
Avg. Price
(USD) Value (USD) Volume (kg) Avg. Price (USD)
Europe 28,405 3,304 9.15 27,500 5,416 5.50
U.S.A. 708 22.5 31.47 1,350 338 4.00
Total 3,326.5 10,933
Source: HVA Foods Limited
Europe Americas
Source : HVA Foods Limited
2007 Volume (k g) 2008 2009 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000
As seen in the table above, a significant decline in average USD prices is expected in 2010. As per management representation, with the region largely untapped, the Company anticipates having to offer a competitive price structure so as to entice distributors within the region and capture sustainable market share.
The U.S.A. has been a difficult market for the Company to enter as local brands dominate the retail shelves of super markets offering a large product assortment. As per the management, the inability of Sri Lankan brands to enter the market has primarily been due to the requirement of substantial investments for advertising, shelf space, storage and due to local brands sourcing tea from Argentina where tea prices are almost 60% lesser than Ceylon tea. Unlike Far East, Russia, Middle East and European markets, the quality of tea is given less consideration in the U.S, with flavoured teas and tea infusions being most popular within the market. The Company has identified Cyprus and Germany as its main markets in Europe. Even amid a loss of market in 2009, the management remains optimistic of re-gaining market share in Cyprus in 2010. As per the management, the Company is currently in negotiation with several prospects to recommence representation of “HELADIV” products in Cyprus. Through a well planned entry strategy and with a strong distribution partner, the management believes the Cyprus market could be recaptured, contributing considerably to the export market.
According to Euromonitor International reports, with Germany witnessing an increasingly obese and ageing population, health concerns seem to be the driver of consumer demand. “HELADIV” currently competes within the German black tea market. In the German market, black tea is the favourite accounting for close to 77% of German consumption, with the balance consumption being Green tea. China presently dominates the German market in black tea supplies with an approximately 16% market share, while Sri Lanka stands close behind with a market share of approximately 14%. The German market remains concentrated with major brands namely like Teekanne, Messmer and Milford, holding over 50% of the market share. Over the coming years, the Company expects to grow the retail market and capitalize on product availability by achieving a CAGR in volumes of 10% by 2014.
New Markets
Over the forecast period HVA Foods intends to enter two new markets namely; Maldives and Malaysia. Revenue from the new markets is expected to amount to USD 2,000 in 2010 projected to witness a substantial CAGR of 38% over the next five years. However, the contribution from such markets to the total projected revenue is expected to be negligible amounting to just 0.08% of total revenue in 2010 and gradually increasing up to 0.28% by 2014.
Table 4-12: New Markets: Forecasted Movement of Values and Volumes Exported
New Markets 2010 2011 2012 2013 2014
Value (USD) 2,000 3,250 5,000 7,500 10,000
Average Rate (USD) 8.50 8.50 8.50 8.50 8.50
Volume (kg) 235 382 588 882 1,176
Source: HVA Foods Limited
Table 4-13: Market Wise Breakup of Export Volumes Forecasted to be Generated from New Markets
USD 2010 2011 2012 2013 2014
Maldives 1,000 1,750 2,500 4,000 5,000
Malaysia 1,000 1,500 2,500 3,500 5,000
With regards to Maldives, the management is expecting to target the strong Horeca market. Thus with high potential for the “HELADIV” Ice Tea range which will be channeled to mainly hotels, the Company has presently initiated distribution with an identified distributor.
According to the management, at present Malaysia mostly consumes low grade tea dust with flavours which are imported as bulk tea and packed within the country. It is believed that considerable potential lies in Malaysia for affordable quality flavoured teas especially in the form of tea bags. Thus, the management initially anticipates to enter the Malaysian market primarily with a product assortment of flavoured tea bags.