Brewing Now: Your Cup Of Tea Gets Dearer By 5–10% As HUL, Tata Hike Prices

Your cup of tea may get dearer as the two biggest packaged tea sellers—Hindustan Unilever Ltd. and Tata Consumer Products Ltd.—have announced price hikes across tea brands, effective this month.

Consumers can expect sticker prices to rise about 5–10% between October and December, sparking concerns over potential shifts in buying behaviour within the beverage market, which could erode volume growth of the companies.

The recent price hike is mainly triggered by unfavourable weather conditions, which has affected tea production in the country, increasing procurement costs for these companies. For TCPL, the average cost per kilogram of tea purchased at auction centres in North India during the September quarter rose 28% year-on-year to Rs 250. Likewise, south Indian tea prices rose 25%, now at Rs 128 per kg. HUL, too, experienced tea inflation of 25% over the previous year in the quarter ended September and over 20% increase when compared sequentially.

"We have started taking calibrated price hikes in tea at multiple price points, and this will happen over the December quarter," Rohit Jawa, chief executive officer of HUL, told analysts in post-earnings call on Wednesday. HUL's tea portfolio includes brands such as Lipton, Brooke Bond, Taj, Tazaa and Red Label.

The largest consumer goods maker has experienced a "low-single digit decline" in the food and refreshment during the second quarter of the current financial year. Jawa said the price gap between premium tea and plain tea widened, prompting consumers to downgrade, which is why the company was seeing decline in volumes.

HUL, however, has gained market share in tea, beating unorganised competitors, due to its stronger financial position, while peers grapple with working capital and inventory issues.

Sunil D' Souza, managing director of TCPL, echoed similar sentiments. "Tea costs have gone up by about 25% to 30%, and we expect them to stay elevated for some time," he told analysts in a post-earnings briefing. "While we have taken gradual tea price increases, we haven't so far passed on the entire tea cost increase to the consumer."

TCPL, which houses brands like Tata Tea and Tetley, has taken price hikes of 5–6% and it will implement staggered price increases going further, D'Souza said.

However, TCPL will ensure that there is no compromise on market share.

"The key thing is you have to remember, it's a competitive environment out there and the one thing we will not do is sacrifice the long term to deliver a short term," D'Souza said. "Therefore, market share is a very, very important metric to me. Profitability is probably the next. Ideally, I would like to see both of them there. But we will make sure we are competitive out there and move lockstep as competitors move."

D'Souza indicated that a 30–35% price increase is anticipated for tea, considering a similar range of inflation in order to fully offset the cost pressure. However, this move is expected to impact volumes.

"If there is a 30–35% price increase, which will have to happen to translate this cost in, I do think you will start seeing stress on volume," he said.

Abneesh Roy, executive vice-president, Nuvama Institutional Equities, has warned that elevated tea costs remain a worry. "Tea business, which is a significant revenue contributor for TCPL, is facing challenges due to rising prices and declining volumes and this is expected to hurt margins Q3 FY25 onward."

Roy noted that while subdued tea category volumes are disappointing for HUL, the return of pricing growth bodes well for the company's long-term growth trajectory.