Tetley rejigs operation

The shake-up at Tetley Group announced last week catapults UK marketing director John Nicholas into the role of group commercial director. He will oversee sales and marketing for the tea-maker in all its markets and head its new business development unit.

But with speculation mounting that Tetley, which introduced the round tea-bag to the UK, is to be sold off to Sara Lee or another major food manufacturer, Nicholas may not have much time for developing new products.

This week’s news that American venture capitalist Hicks Muse Tate & Furst has put in a 464m bid for British food group Hillsdown Holdings highlights the vulnerability of UK food and beverage companies to US predators.

One City analyst points to a recent trend within the food sector which has seen the share price of UK-based food companies fall on the back of a tough trading environment. This has prompted interest by North American investors in such companies as Northern Foods and Hillsdown, the owner of Premier Beverages, makers of Typhoo.

Tetley is divulging little about the reasons behind the senior management shake-up, but innovation and fighting for the prize of brand leadership will be some of the challenges facing Nigel Holland, who becomes the new director of marketing for Tetley GB (MW May 13).

Holland will report to Michael Camp, Tetley GB’s new commercial director who also has responsibility for sales, following the consolidation of the sales and marketing departments.

Since the management buyout from Allied Domecq in 1995, Tetley Group’s operating profits have risen from 10.7m in the year to February 1996 to 41.1m before exceptional restructuring items and on turnover of more than 336m for the year to March 1998. Tetley scrapped flotation plans in June last year because it was felt that the recommended share price undervalued the company’s growth prospects.

One City analyst says: “Although the UK is profitable for Tetley, the fact that it wanted to expand globally played a part because it didn’t have the management expertise to do that and it was also up against Unilever.”

Leon Allen, who led the buyout as chairman and chief executive, left the company in March to be replaced by Kenneth Pringle, former chief executive of Tetley GB.

The management at Tetley, a company which operates in more than 40 countries worldwide, has subsequently made it clear that it will now concentrate on the core markets of Canada, the UK, Australia, US, France and Poland.

Yet the venture capitalists which backed the buyout will no doubt want to realise their interests at some point. Holland admits: “Ultimately, there has to be an exit, but Tetley is a strong brand and profitable.” He adds: “Tetley receives enquiries from time to time about possible sales of business and I am sure we will continue to review them.”

Regulatory difficulties would probably prevent the world’s largest tea bag business, Unilever, from making a bid for Tetley and the vagaries of commodity market prices could put off Nestl, which is already exposed through its coffee interests.

Another analyst claims that major food companies such as Sara Lee, Nestl and Unilever are all concentrating on their core businesses and divesting themselves of others.

The City is agreed that Tetley has a strong brand. But that brand is coming under increasing pressure from Unilever-owned Van den Bergh’s PG Tips (MW April 22). According to AC Nielsen data for the 52 weeks ending April 17, Tetley and PG Tips ranges were neck and neck, each having 19.6 per cent volume share.

Tetley is market leader by value, with a 23 per cent share, but is understood to be dropping prices to bring it in line with Van den Bergh, which claims to have retained the same prices since February 1996.

One buyer says: “Tetley is concerned about the volume. It also faces the problem of its drawstring and one-cup tea bags fighting each other in the same market.”

According to Mintel’s February report, Tea & Herbal Tea, there has been a decline in UK retail volume sales for mainstream tea between 1996 and 1998. During this time, there was a 9.3 per cent increase in value sales due to price rises. Growth areas are one-cup, decaffeinated and herbal and fruit flavoured teas. They have recorded significant increases in value sales, but they each account for less than five per cent of total value sales.

Premier Beverages is using a health platform to launch a green tea blend for Typhoo at the end of May and Van den Bergh’s Brooke Bond is unveiling a new range of flavoured green teas, called tcha, later in the year.

In what is an extremely mature market, tea manufacturers are also launching their own chains of tea shops. Tetley has already opened a tea shop called Gaffer’s, and Van den Bergh is launching its own in Brighton, called ch’a.

Tetley is faced with a mature market, where competitive pricing from own label and rivals, as well as innovation, play an increasingly significant role in the growth of the business. The company cannot afford to be distracted by management reshuffles, changes in strategy and the increasing tide of speculation that it will soon be sold off.

Knowledge Bank

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