Starbucks Supplier May Buy Instant Coffee Maker

Starbucks Supplier May Buy Instant Coffee Maker

FMCG SUPPLIER NEWS

Bloomberg - Aug 12th 2011, 09:33

Tata Coffee Ltd, Asia’s largest publicly traded grower of the bean, plans to spend more than five billion rupees ($110 million) to acquire an instant coffee maker in Europe in a bid to boost profit margins.  

The company is planning to increase its instant coffee production by 75 percent to 14,000 metric tons in the next four years in part by acquiring a plant in Europe, Managing Director Hameed Huq said. Tata Coffee, which supplies beans to Starbucks Corp the world’s largest coffee-shop operator, is also boosting production of the arabica variety, he said.

Tata Coffee, owned by India’s biggest conglomerate, is expanding in areas that will help it boost profit margin, which narrowed in the three months ended June, and reduce its dependence on bean prices. The company also expects to unveil a larger supply and production contract with Starbucks by September, Huq said.

“We have to differentiate, otherwise we will get killed,” Huq said in an interview in his office in Bangalore yesterday. “The whole idea is to take Tata Coffee from being just a plantation company.”

Tata Coffee has risen 51 percent this year outperforming the BSE500 index, which fell 15 percent in the period. The coffee maker gained as much as 3.2 percent to 759.25 rupees and changed hands at 754.1 rupees as of 9:23 a.m.

The company’s net income rose 9 percent to 132.5 million rupees from a year earlier in the quarter ended in June. Profit margin narrowed to 4 percent in the period from 5.3 percent in the preceding quarter, according to data compiled by Bloomberg.

Instant Coffee

Instant coffee as a percentage of overall coffee sales accounted for 38 percent of sales last year, according to researcher Companiesandmarkets.com. This year Starbucks started selling Via instant-coffee packets in China.

Tata Coffee, controlled by Tata Global Beverages Ltd in January announced plans with Starbucks to open stores. Tata and Starbucks are now planning a separate company to manage the retail chain, Huq said.

The company expects 45 percent of its coffee production to be the arabica variety, which has less caffeine content, by 2015, up from 30 percent, according to Huq. The balance will be the robusta variety used to make instant coffee.

“The strategy is to insulate the company from cyclicity,” Huq said. Tata Global Beverages, part of the group led by Ratan Tata, owns 57 percent of Tata Coffee, according to data compiled by Bloomberg.

Arabica Prices

The company expects arabica coffee prices to decline to $2.3 a pound in the planting season starting October, Huq said. The price for December delivery on ICE Futures U.S. in New York rose 2.4 percent to $2.44 a pound yesterday.

Coffee production in India, Asia’s third-biggest grower, may rise 6.7 percent to a record next year aided by good rains, according to the state-owned Coffee Board.

Output for the crop year starting Oct. 1 may rise to 322,250 tons from 302,000 tons a year ago, the state-owned Coffee Board said in July. Arabica production may gain 11 percent to 104,525 tons, while robusta output may advance 4.8 percent to 217,725 tons next year.