Managerial Economics Report on Tapal

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Group members:
Abdul Haleem (16823)
Ahsan Iqbal (16824)
Daniyal Mustafa (16726)
2018
12/26/2018

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ACKNOWLEDGEMENT
We bow towards, The Great Al- Mighty ALLAH for showing us, the strength and courage for all
the challenges throughout our journey in exploring the wonders of this visionary and dynamic
subject of “Managerial Economics”. Indeed, we are grateful to our mentor Sir Nishat Ahmed,
whose dedication, guidance and enthusiasm for the subject always persuaded a challenge for us to
become and prove that, how good we are business managers. We had at most optimum, placed our
sincere efforts and sheer hard work to satisfy our mentor with this report. We would always like
to remember and honor with gratitude toward our family & friends, in supporting and motivating
us during days, we felted low and finally, the TAPAL people specially, Mr. Asghar Abbas whose
endless support glimpsed a ray of hope and success to this project.
Thank You
Abdul Haleem (16823)
Ahsan Iqbal (16824)
Daniyal Mustafa (16726)

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Contents
EXECUTIVE SUMMARY ........................................................................................................................5
MARKET STRUCTURE OF INDUSTRY...............................................................................................6
COMPETITION AND MARKET SHARE:.............................................................................................8
TAPAL:....................................................................................................................................................9
VITAL TEA...........................................................................................................................................10
CUSTOMER TASTES AND PREFERENCES AND ELASTICITY OF DEMAND: .......................10
TASTE AND PREFERENCES:. .........................................................................................................10
BUYING BEHAVIOUR:......................................................................................................................10
AVAILABILITY:. ................................................................................................................................11
STONG BRANDING AND MARKETING: ......................................................................................11
DISSONANCE REDUCING BUYING BEHAVIOUR:....................................................................11
MARKET FORCES AND ENVIRONMENTAL FACTORS:.............................................................11
Technological.........................................................................................................................................11
Political ..................................................................................................................................................11
Economic................................................................................................................................................11
Stage of Business Life Cycle.................................................................................................................12
Inflation..................................................................................................................................................12
Social and Cultural Forces...................................................................................................................12
PORTERS FIVE FORCES MODEL......................................................................................................12
Threat of New Entrant .........................................................................................................................12
Bargaining Power of Buyer..................................................................................................................13
Bargaining Power of Suppliers............................................................................................................13
Rivalry between Competitors ..............................................................................................................13
Threats from Substitutes......................................................................................................................13
DISTRIBUTION AND TRADE: .............................................................................................................13
SEGMENTATION OF THE CONSUMER MARKET:.......................................................................15
Geographic.............................................................................................................................................15
South Region: ........................................................................................................................................15
North Region:........................................................................................................................................16
Size of Southern Region........................................................................................................................16
Size of Northern Region .......................................................................................................................16
Density of Southern Region..................................................................................................................16

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Density of Northern Region .................................................................................................................16
Where customers buy:..........................................................................................................................16
When customers buy: ...........................................................................................................................16
How Customers choose: .......................................................................................................................16
Why they prefer a product:..................................................................................................................16
CAPITAL INTENSIVE VS LABOR INTENSIVE:..............................................................................16
COST AND PRICING STRUCTURE OF THE FIRM: .......................................................................17
Pricing Strategy: ...................................................................................................................................18
FUTURE GROWTH TRENDS AND THREATS: ................................................................................18
BUSINESS OBJECTIVES AND TARGETS:........................................................................................19
BOUNDARIES AND FUTURE SCOPE: ...............................................................................................20
KEY LEARNINGS AND INPUT:...........................................................................................................20
Growth in market Size..........................................................................................................................20
Demand Forecast, Pricing and cost structure ....................................................................................21
How To Manage The Cost Structure? ................................................................................................21
What New To Offer For Urban Markets?..........................................................................................22
How To Penetrate Further Into Rural Market?................................................................................22
Improvement In Distribution: .............................................................................................................23
Advertising and Promotion:.................................................................................................................23

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EXECUTIVE SUMMARY
We were required to submit a report on "Managerial Economics”. There by we have full filled our
requirement and have listed our findings in the following pages. We were required to choose a
company and analyze all its activities in detail so we chose Tapal. Tapal had always ensured its
landmark in quality standards and because of this factor customer value and standards had proved
its ultimate goal of customer satisfaction. Today the market share of Tapal have reached the top
even in this economic crunch, but on to becoming a leader the company should provoke to raise
the bar on a continual basis and to address key success factors, only through mitigating the key
issues. In order to achieve the objective of this report we had to rely on our own analytical skills
as well the information we received from the major players in the Industry i.e. mainly the three
leading Tea manufacturers in the Industry as the likes of Tapal, Unilever, Clover Pakistan and
Eastern Tea. We even went further to compile the industry standards and dynamics of tea market.
To full fill the extensive requirements of this report we broke each and every one of the company’s
activities in order to conduct and procure a more in-depth and more meaningful analysis. For each
activity analysis tools such as In-Depth Activity Cost Analysis and Competitive Profile Matrix are
just some of the tools used in the following pages to bring a consistent and better analyzed answer.
We hope the following pages will be better able to answer and give thoughtful insight into Tapal
Tea, its competitors and the Industry in which it operates especially in the light of Pakistan’s
economy.

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MARKET STRUCTURE OF INDUSTRY
In many countries, people consider tea as an essential for healthy physical and mental life that
includes Pakistan. The history of tea drinking dates far back to the sub-continent. It got
improvement in the taste through ages. Pakistan is undoubtedly a nation of tea lovers, as dawn has
quoted the county’s per capita consumption at 1 kilogram which is one of the highest in the world.
Similarly, UNDP quotes Pakistan as the home of over 64% of young people ages below 30 years,
Pakistan ranks second youngest country in the South Asian region right after Afghanistan who
stands first. Also, Pakistan Bureau of Statistics says that out of 50million people in the country
ages between 18 to 25years, 55% are in urban areas. Furthermore, the country has seen rapid
urbanization since the past few years (40% in 2016 risen from 32% in 2011), along with it the
urbanization has seen rapid growth in past few years as well. Apart from that, the women to work
has seen significant increment as well as the increase in their purchasing power. Comparing the
global average with that to our per capita consumption stands way higher – 0.75 kg is the global
average while Pakistan’s per capita consumption is over a kilogram. The tea market of Pakistan
has unbranded (loose) to branded tea ratio of 54 to 46 respectively. Bulk importers sell tea to
retailers in loose form as well as packaged tea under brand names.
All tea in Pakistan is imported. Therefore, tea, a traditional hospitality item in Pakistan, consumes
a large amount of foreign exchange
• According to Pakistan Bureau of Statistics, almost Rs 5.028 billion worth of tea was
consumed in January 2017. Global purchases of imported tea totaled US$7.349 billion in
2017. Pakistan with most imports 7.5% following Russia 7.2% and U.S. 6.7%.
• Tea imports increased by 11.35 percent during first seven months of current financial year.
• From July-January, 2017-18, about 115,172 million tons of tea worth $339.997 million
was imported while in 2016-2017 import of 119,314 million tons valuing $ 303.343
million. (Pakistan Bureau of Statistics.)
Countries currently supplying tea to Pakistan includes Kenya and other African countries like
Uganda, Burundi and Tanzania, while multinational companies in Pakistan also import tea from
Sri Lanka, Indonesia and Bangladesh. The current tea imports are approximately 280 to 300
million kilogram (based on customs estimate), Pakistan is the second largest importer of tea after
Russia. Recently, the smuggled tea is creating massive problems in Pakistan’s tea market, simply
because of the high duty and taxes levied by the government on branded tea. The unbranded sector
on the other hand has been able to make their tea cheaper as it remains undocumented (evades
duties and taxes) compared to illegitimate players. Their network is spread across the country, and
is hurting the growth of the entire industry.

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There are two interesting aspects of Pakistan’s tea market. Firstly, the taste preferences of
consumers vary considerably with the variation in geographic zones. In the south, people prefer a
rich color and strong flavour but in the north, preferences shift to lighter concentrations. Secondly,
the brand of the tea is bind to the families from generations and this is why, despite the increase in
marketing of tea brands, unbranded/ loose tea (khuli patti), still accounts for a 40% share of the
tea market in the country.
Leaf and dust variants consists in the tea category; leaf tea is more suited to the tastes and is highly
popular among metropolitan population, while dust delivers its karak punch in every cup is being
loved in interior Sindh. Traditionally, leaf tea’s palette has suited the taste preferences of urban
populations while dust has owned the rural market, particularly interior Sindh, due to its taste,
strength and affordability. Industry experts suggest that dust tea is approximately 20% cheaper
than leaf, diffuses quickly, delivers a karak punch and lasts longer. The Pakistan Tea Association
(PTA) estimates that approximately 30,000 tonnes of dust tea is consumed annually, of which dust
tea brands account for 20,000 tea tonnes, with unbranded accounting for the remaining 10,000
tonnes hence have a ratio of 2 to 1 of branded to unbranded respectively.

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COMPETITION AND MARKET SHARE:
Tapal competes in a monopolistic competition. Although, Unbranded/ loose tea (khuli patti), holds
the 40% share of the total tea market. Of the remaining 60% of the total market share it is hard to
estimate the figures, since both Tapal and Vital are private companies, they don’t publicly release
financial data. Unilever too doesn’t publish these figures. But by all estimates, Tapal is the
undisputed market leader, Unilever’s Lipton is a distant second, Eastern Tea Company’s Vital has
emerged to the third player and the remainder comprise small brands, strong in specific regions.
So, the market share is being analyzed on the quotes of any of these three major players. For
example, Tapal is the market leader in Pakistan’s tea industry with 45% of the market share
(source: Nielsen); Unilever is at second with 24% followed by Eastern Tea Company at 16%, rests
is distributed to smaller regional brands. Of Tapal’s 45% share, Danedar (the company’s premium
leaf brand) accounts for approximately 18%, also according to the company’s internal research,
Danedar has a wider penetration in the urban areas.
However, Euromonitor estimates Tapal’s share to be 36% of the retail value sale, not counting
exports and Unilever at 17%. The global research firm doesn’t count Vital in the top three and
instead estimates Tata Global Beverages (Tetley) to be the third-largest player with mere 8% share
in retail value sale in 2018. Then there is the Pakistan Tea Association, which relies on customs
data, and estimates that the market size is between 280 million kilograms and 300 million
kilograms, of which 50% is unbranded tea. Of the remaining half, Tapal imports around 50 million
kilograms, Unilever’s share ranges from 30 to 35 million Kilograms while Vital imports up to 15
million kilograms in a year. The legal import figures are authentic but most estimates including
those by global research firms do not include export data. Secondly, a large quantity of tea is
smuggled into the country, therefore, it is almost impossible to get the accurate data unless all the
brands share their figures.

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TAPAL:
Tapal Tea, is the country’s largest National Tea Company, and has three manufacturing plants in
the country of which two are in Karachi and the third is in Raiwind. The mother factory in
Karachiis the biggest producing capacity of 65% of the total Tea categories like Danedar, Mezban,
Family Mixture, Shades of Green, Chenak, Tezdum and Ice Tea to fulfill its major share
contributing south market. While, the other manufacturing plant in Raiwind, Lahore mainly
produces two categories i.e. Tezdum and Family Mixture.
The head office for the operations is based in the cities of Karachi and Lahore with warehouses
maintaining the organization’s presence in the cities of Hyderabad, Sukkur, Multan and Islamabad.
To meet customer requirements everywhere, Tapal Tea further expands its network through Utility
Stores, Army CED Stores and Modern Trade Network country wide. The only company owned
shop located in Jodia Bazaar Karachi to which it started his business in 1947 as both whole seller
and retailer. It’s Tea Blending and mixing center is located in Karachi.
According to a research by Euromonitor, with the branded tea segment Tapal‘s 36% or Rs51 billion
– the entire pie being Rs147 billion as of December 2018 – of retail value sales. Tapal was among
the 100 top tax-paying companies in fiscal year 2013, contributing more than Rs1 billion in taxes,
according to the details of Taxpayers’ Privilege and Honor Card Scheme, a part of Prime Minister’s
Tax Incentive Package.
The off-trade tea sales rose by 6% in terms of volume and 11% in terms of value in 2016, according
to Euromonitor. Tapal Tea led the market with 36% share in value. The research giant says tea
consumption was fueled by population growth and the shift from loose unbranded tea to branded
alternatives with taste changes in rural and urban areas. The share of unbranded tea is gradually
declining due to the increasing affordability of branded products as a result of rising disposable
incomes.

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VITAL TEA
Vital Tea, the signature product of Group, has been operating since 1991 under Eastern Products
Private Limited, but it was mostly catering the need of rural areas of Punjab and Sindh, thus
remaining lesser known. When it launched in Karachi some eight years ago, it was selling 500,000
kilograms per year across Pakistan and couldn’t had even 5% of the market share. But based on
latest estimates, it grew and has been able to sell 1.5 million to 2 million kilograms per year, which
translates to a growth of 200-300%, highest by any brand in the review period. The company now
enjoys 15 to 17% share in the market based on industry estimates. Vital’s did not directly confront
Tapal or Unilever. Instead, they went to the hinterland, where the two giants had limited outreach.
Even when entering Karachi, it first went to the outskirts like Gulbai, Surjani, Landhi, Korangi
and Malir etc. Having captured the market there, it stepped into the mainstream wholesale market,
ventured into urban centers, to take on the big competitors. Vital is the only company that first
went to the rural areas and then shifted to the urban centers and hence approach oppositely of the
traditional approaches. Vital’s strategy is to offer credit to retailers. They would sell tea on credit
again opposed to Tapal and Unilever who would sell it for cash, one of the reasons why retailers
would prefer selling its products, said an industry expert.
Vital has been adopting strategies that were once Tapal’s: a strong marketing campaign, large distribution
network (better supply chain) and a good blend. It is so aggressive in free sampling that it even goes to
small events (with 15 to 20 people in attendance) like a kabbadi match in a small off the beaten track rural
town in Punjab and offer free tea to the whole crowd. The on ground free samples are complemented with
a strong electronic media campaign. For example, from initial commercials that would target labor class,
the ads have changed and now includes all income groups in a single commercial.
That said, experts and even Vital’s competition agrees the company offers a good blend of tea as marketing
and advertising alone can’t make people switch brands that easily.
Though Vital has grasped mainly into the market of Unilever, which has lost volumes in recent years,
market sources say it is catching up very fast and is now threatening Tapal’s dominance. In fact, the two
are even fighting for exports as Vital has expanded into all the international destinations where Tapal has a
strong presence.
CUSTOMER TASTES AND PREFERENCES AND ELASTICITY OF
DEMAND:
Customer always attach some secondary and primary attributes with the product. In Tea industry
primary attributes are Strong taste, Aroma, Color and Premium Quality where secondary
attributes are Price and Availability.
TASTE AND PREFERENCES: Consumers taste vary across different regions within the
country. People in south like rich color and strong flavor whereas Northerners prefer lighter
concentrations. Tapal developed a great understanding of consumer’s preferences which helped
them in developing products that became essential in their success.
BUYING BEHAVIOUR: Consumers buying decision varies from product to product. Tea is an
FMCG that some value as an important part of their lives while others value it as a necessity
depending on weather conditions. Tapal is a low involvement product and consumers don’t take
much of their time while making a buying decision.

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AVAILABILITY: When customers are buying daily used household products they often prefer
sticking to product that has been used in the family for a long time. Consumers normally do not
search extensively for information while buying tea however repetitive ads on television,
magazines and word of mouth can influence their choice as it creates brand familiarity which
helps in molding buyers decision. Customers don’t face any problem in acquiring Tapal as
readily available in the shops.
STONG BRANDING AND MARKETING:
Products with effective targeting and positioning are highly valued by customers. Tapal is the
market leader in the tea industry and has to appeal to its customer through its product.
Manufacturers at Tapal have to ensure they are fulfilling the need of the consumers by meeting
their expectations in terms of prices and benefits and the knowledge is transferred through efficient
sales promotion.
DISSONANCE REDUCING BUYING BEHAVIOUR:
Due to Tapal’s significant product differences from its competitors Dissonance-Reducing Buying
Behavior can also be applied on them where 10 % consumers in the beverage market had a bad
experience with competitors’ tea and due to this dissatisfaction they made the decision of buying
another product in the same category with much higher involvement.
MARKET FORCES AND ENVIRONMENTAL FACTORS:
Technological
Tapal initiated Soft packaging and round tea bags in Pakistan however to improve operational
efficiency the company acquired machinery from Germany that transformed the tea blending and
packaging processes. Adam Tapal founder gave key directives in adopting innovative technology
and establishment of a fully automatic facility. At this facility tea is blended and packed in hygienic
conditions, untouched by human hands whilst the hard packing technology keeps tea fresh and
packaging costs economical. Due to Tapal’s success in hard packing of tea other tea companies
have also followed Tapal's lead and launched some of their brands in hard packaging.
Political
Taxes and excise duties levied on tea products and its imports highly affects tea making companies
who also have to obey all the rules and regulations as per law. Fluctuation in the import duties and
dollar rates by federal government is an issue of great concern for all these Tea manufacturers.
Tapal existing foreign clients list includes countries like Canada, Saudi Arabia, and Dubai. Illegal
imports of tea products are very substantial and account for almost a third of domestic consumption
and generates around 81 million USD in business. Tea smuggling is a matter of great concern for
government as it results in huge losses on import duties for government and also imposes stiff
competition on domestic producers.
Economic

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Conditions prevalent in the economy also have a major impact on Tapal’s strategy. The main
economic forces affecting the market are:
Stage of Business Life Cycle
Economic condition within the country affects the activities of Tapal and influences the demand
of their products. When economy is in a boom state the demand of the product increases, whereas
in recession the demand of a product falls since the buyers consume less of the product due to
falling incomes. Though fluctuations in the demand do occur, they are not major influencer as
demand for tea is inelastic in relation to price.
Inflation
Inflation plays a major role on the production strategies of a company due to two main reasons.
Firstly, it affects the consumers’ psychology and makes them more selective in terms of their
purchases. Secondly, it also results in increasing prices of the raw materials for the company which
in turn increases the cost of production. Second factor becomes very essential if the increase in
cost cannot be transferred to the consumers in the form of raised prices.
Social and Cultural Forces
Understanding of society and culture plays an important role in establishment of a great product.
Consumer adoption of a product depends greatly on portraying of the product in accordance with
the target markets beliefs, tastes and values. For example, Mezban tea was developed as a stronger
tea keeping in mind the taste of the consumers of interior Sindh.
PORTERS FIVE FORCES MODEL
Threat of New Entrant
Pakistan’s tea market observes a monopolistic competition and has a rising number of new entrant
in the Tea industry and are threat for some other key players in the market namely Tapal Tea
Private Limited, Unilever Lever Pakistan Limited, Eastern Tea Private Limited and Tetley Clover
Pakistan Limited.
Pakistan has a very diverse culture and is a home of different civilizations. The main competition
and rivalry in tea industry is between Unilever and Tapal. Unilever is a Multinational Giant in the
FMCG market and has a diverse product line whereas Tapal only operates in Tea manufacturing
industry. The other main competitors in the tea sectors are Loose Tea (smuggled) markets i.e.
Mushroom Brands, which has been successfully operating in the rural markets especially on price
pack. Tapal being the market leader can fight with these loose tea producers through differentiation
and lower priced tea products range without compromising on its quality of product.

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Bargaining Power of Buyer
Tapal provides a wide range of products and due to their strong market presence and quality
products bargaining power of Buyer is very low. Consumers from the upper and middle classes
are not price sensitive resulting brand loyalty. On the hand lower class consumers are highly price
sensitive and usually prefer loose tea because of its lower price.
Bargaining Power of Suppliers
In tea industry there are many distributors available but the market has limited number of suppliers
which increases bargaining power of suppliers. There is a large number of suppliers and new
markets for tea suppliers are also emerging because of which bargaining power of suppliers has
decreased. Kenyan tea is the preferred type of tea in Pakistan making it one the largest supplier of
tea and a major market for Kenyan tea.
Rivalry between Competitors
The main competition and rivalry in tea industry is between Unilever and Tapal. Constant efforts
are made for capturing each other’s market share and in the recent retaliation strategies Tapal have
been a bigger beneficiary. The market has a lot of potential and entry of two new stiff competitors
in the tea market Clover Pakistan and Eastern Pakistan have made the rivalry more intense. Major
factors intensifying the rivalry among competitors are; increase in the number of competitors and
price cutting. While other factors like customer’s inability to switch brands easily, barriers to leave
the market and fixed cost are moderate. After the entrance of Vital the rivalry has increased.
Smuggled tea poses an intense competition in the industry. Customer don’t switch brand easily
because of taste loyalty.
Threats from Substitutes
The main substitute for coffee is tea which is a hot beverage and also fulfils the need of
refreshment. Nescafe has a lion’s share of coffee market in the country and is an indirect threat of
substitute for Tapal because in the winter season people usually prefer coffee over tea. Cold drinks,
though not a direct substitutes, tends to be very popular with teenagers who are a market for tea
consumption.
DISTRIBUTION AND TRADE:
The distribution network in Tea industry is very important. After our analysis of the industry, we
have seen that because of poor reach in rural areas by the competing companies, smuggled products
have established there foothold especially in KPK and Baluchistan. To keep track of the rising
competition, both direct & indirect, in the urban markets, the Tea companies have to continuously
search for new markets and expand their distribution networks accordingly. As tea is a staple food
item, reach in consumers arm length will result in increase in sale. Wide spread distribution
networks are also important, to recognize customers’ needs and receive effective feedback.
There is added value for Distributors, Traders and Wholesalers. Distributors can benefit from
competitive margins and credit facilities. The Traders and Wholesalers also benefit from

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availability of High margins, Quantity Discounts, Trade promotions and incentives, Timely Order
Delivery and Shelf Space Rent.
1. Tapal Tea distribution structure mainly comprises of “distributors”. Tapal have
approximately 435 distributors who cover 114,000 outlets across Pakistan. However, there
are other ways through which tea is channeled to end consumers.
2. Distributors have a very good relationship with the company. Distributors must integrate
into total marketing mix because of time and money required to setup an efficient channel.
3. Whole sellers are very dynamic using Modern Trade channels to directly reach the
customers.
4. Tapal’s turnover share through distributor and direct selling is 70% and 30% respectively.
5. Tapal’s outlet coverage is very high in south reaching almost 85-95% whereas in North
they are still penetrating and have reached a share of 65%.
6. Distributors are basically hired by companies and play a very key role in the Tea Industry
covering massive areas with whole sellers and retailers.
7. Utilization of Modern Trades are the next sales drivers in the FMCG industry however they
can have an impact on company’s direct distribution strategy.
8. Rate of Exchange in terms of Export market also supports the business by making the
product more attractive.

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 GT = General Trade (general stores, Kiryana stores, Medical and General stores)
 IMT = International Modern Trade (departmental stores/Hyper Market such as Imtiaz,
Metro etc.)
 Whole seller = provides a direct route to the rural areas and offers quantity discounts
 USC = Utility Stores corporation – Govt. subsidized shops
 CSD = Canteen Stores Department – Cantonment subsidized shops
SEGMENTATION OF THE CONSUMER MARKET:
Geographic
Tapal has divided its operations in to two regions namely:
South Region:
South side looks after the Karachi, Hyderabad and Sukkur.

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North Region:
North side includes Multan, Lahore, and Islamabad.
Size of Southern Region
Karachi population size is 19,315,843 till 2010, area 4,227 km² (1,356 sq mi)
Hyderabad population size is 1,847,275.
Sukkur population size is over 1 million 5,165 km² (1,994 sq mi)
Size of Northern Region
Multan population size is 4 million (approx), area is 3,721 km² (1,437 sq mi)
Lahore population size is 8,896,000, area comprises to 1,772 km² (684 sq mi)
Islamabad population size is 805,000 (1998), area 906.0 km² (350 sq mi)
Density of Southern Region
Karachi3,491.9/km² (9,082.5/sq mi)
Sukkur 175.9 persons/km²
Density of Northern Region
Multan 838/km² (2,170/sq mi)
Lahore 3,660/km² (9,479/sq mi)
Islamabad 880/km² (2,279/sq mi)
Where customers buy:
Tea is sold through two different places, one is the where customers directly buy the product from
general retailers, USCs/CSDs, Modern Trades and the second is the institution sales where
customers (institutions) directly buy the product from Tapal’s Out of Home Sales department
(OOH) who directly maintains links with different institutions.
When customers buy:
The consumers usually buy Tea at the start of the month in bulk amount for family usage or when
the Tea desire strikes that can suffice them for that particular month or the commencing one too.
How Customers choose:
Customers choose Tapal through advertising, print ads, promotional schemes & word of mouth.
Since it proudly caters to the different tastes and preferences of people belonging to diverse
lifestyles, Tapal Tea is the primary choice of tea lovers nationwide.
Why they prefer a product:
As tea fulfills a core need of refreshment. Tapal’s brands remains favorite around the country with
its grape -nutty appearance, rich golden color and strong refreshing taste. In fact its popularity is
such that other companies have launched their own versions of these blends, but Tapal's remains
the original and ultimate.
CAPITAL INTENSIVE VS LABOR INTENSIVE:
Tapal is always striving to install the most innovative technology in their firm. In the production,
Tapal has Hesser & Sohrab machines require less human requirement and whole work is

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automated only the finished product are packed in cartons by the workers. Although Tapal can
automate this process too but in this case workers working their might lose their jobs.
COST AND PRICING STRUCTURE OF THE FIRM:
S. No
Contents contribution%
n
1 Raw Materials and components consumed 86
2 Direct Labor 1.2
3 Technical director’s remuneration 0.01
4 Salaries, wages and benefits 1.6
5 Employees’ severance cost -
6 Stores consumed 1.7
7 Light, heat and water 0.8
8 Insurance 0.2
9 Rent, rates and taxes 0.05
10 Repair and maintenance 0.3
11 Royalty 4.08
12 Technical assistance 0.7
13 Traveling. Conveyance and entertainment 0.2
14 Postage and telephone 0.07
15 Printing and stationary 0.03
16 Vehicle running 0.03
17 Depreciation 3
18 Canteen 0.17
19 Newspapers, magazines and subscription 0.01
20 Staff training 0.04
21 Intangible assets amortized 0.011
22 Other manufacturing expenses 0.003
Total Manufacturing Cost 100%
 For Tapal Tea, highest value adding component in the total manufacturing cost is Raw
material, i.e. 86% which the company import from Sri Lanka, Kenya and Bangladesh
 Tapal Tea has reduced it costs, as compared to its competitors, buy changing it Raw
material Supplier source and auction. It purchases “premium quality” Tea from Sri Lanka,
Kenya and Bangladesh. These countries are relatively high annual Tea producer in the
world.
 Cost effectiveness achieved by increased localization.

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 Tea Companies are importing Tea fully from Sri Lanka, Kenya and Bangladesh which in
actual increase their costs tremendously as Tax. The end result for them is increased prices.
Pricing Strategy:
 Unilever happens to be the trend and price setter for the whole industry. The other major
player in the industry, i.e. Tapal, Eastern Tea, Clover Pakistan and Loose Tea its followers.
 These players generally follow the Cost Plus and variable methods for pricing. Fixed
margin 3.36% and 5-8% pass on Distributors and Traders respectively.
 Loose Tea has been smuggling through borders so mushroom players offer high margins
to trade and create tough competition in the market.
FUTURE GROWTH TRENDS AND THREATS:
1. Tea is expected to post an off-trade value compound annual growth rate of 8% (at constant
2016 prices) over the forecast period that ends in 2021. The Euromonitor forecast is
optimistic about the growth of tea in Pakistan and identifies Tapal as a strong brand well
placed to cash in on the opportunity.
2. Branded Tea segment is showing healthy growth especially in rural markets where as
market is gradually saturating in urban area.
3. In the Tea Industry, Dust and Leaf has a major chunk of the Tea industry in terms of Black
Tea. However the dust category is now become 2ND
most demanding brand and has been
continuously increasing among the core tea users especially in rural areas because of two
major concerns as:
i. Per capita income has been increased which caused in increase of Tea consumption
with the growth in the population rate.

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ii. people are serving Tea as an economic point of view and with draw from the serving
of cold soft drinks to their guests as an expensive drink
4. Bottom of Pyramid market
5. In Mixture category which was the legendary brand of the time and initially blended by
Tapal when first started its business in Pakistan is now either being matured or cannibalized
by other brand.
6. Green Tea has developing bit-by-bit as the health awareness level gradually build in the
mind of the consumers. This segment is very niche as the consumption pattern has
restricted consumer with the diet planning, health issues and exposure to particular social
class.
7. Iced Tea portfolio has yet to be waited for the acceptance from consumers as the brand is
premature for the industry and need few more years to be established.
8. Tea prices in international market are randomly increasing in a fiscal year which
caused cuts in profitability in major brands.
BUSINESS OBJECTIVES AND TARGETS:
1. To strengthen the regional brands by brand building strategy

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2. Seek out the areas where new products can be introduce to diversify the core business
3. Investing to increase production capacity, in order to meet expected demand in coming 5 years.
4. To increase localization by the end of 2011 in order to maintain and improve cost
effectiveness.
5. To optimize the introduction of new products by developing products with new designs and
features for youngsters segment.
6. To broaden export functions and prove and maintain product existence in International
markets.
7. Modernize the company’s operations by acquiring greater technical expertise.
8. Increasing field force and distribution network.
BOUNDARIES AND FUTURE SCOPE:
- Matching production with increasing demands in the future.
- Bringing new products (ranges) for new segments and untapped markets
- To broaden exports function in Middle East and other international markets; and prove
existence in international markets.
- Modernizing operations and optimal capacity utilization.
- Restructuring strategies for the bottom of pyramid customer base.
- Customer oriented pricing strategy
- Tactical media strategy for each brand
KEY LEARNINGS AND INPUT:
Growth in market Size
1. Overall the industry has natural growth with respect to the Population growth rate.
Therefore, good pricing strategy related to bottom of pyramid market i.e. Rural Market
could capture more returns for the company as well as market share. However Green Tea
and Ice Tea needs to be milking to sustain their growth.
2. Tapal must sustain its current position in the industry but strive to capture the share from
the competitors and Loose Tea market by offering good value for money to consumer at
every price point. Women are the key part of the overall Tea purchasing and making so
targeting this gender and rewarding would be effective for Tapal to grab the market share.
3. Since the industry is on the growth as population expansion in Pakistan especially in
rural areas so the arrival of new entrants has major impact on the industry.

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Demand Forecast, Pricing and cost structure
4. Tea prices in international market are randomly increasing in a fiscal year which caused
cuts in profitability of major brands. The key issues identified were the Manufacturing
Cost, Price and Quality. Consumers are becoming very price sensitive in purchasing
Tea for either further selling or personal consumption. Tapal is already working on
horizontal integration, improve the technology, cost minimizing and optimal
production capacity utilization
5. Proper forecasting of demand and inventory management can reduce the impact of
uncertain dollar prices.
6. Seek out for avenues such as Tea could be manufactured cheaply on the local grounds
rather than depending on dollar price. The following measure would help slash the
manufacturing cost on two key risks, devaluation of local currency and unrealistic demand.
7. A structured Resource program to be devised emphasizing on intellectual and technical
skills that can be made available in obtaining technology of specialized in manufacturing.
This entity would achieve two factors, firstly reducing considerable production cost and
secondly exposing the company to an additional market which can be supplied with desired
profit margins.
8. Since the SEC classes have been stretching towards the upper middle level therefore the
demand of the premium product has increased as well as low price products in lower
middle
9. The product constitutes 80% of the customer requirement i.e. customer is more concerned
about the non-price factors which include the brand Image, Quality, Aroma, Taste and
Color.
How To Manage The Cost Structure?
10. Through strategic partnership between vendors/suppliers delivering Raw Tea,
packaging materials, and machinery required to improve the efficiency of production
assembly and simultaneously through lead time management techniques such as
maximizing stock delivery turnover.
11. This can be achieved through effective production processes and a strong link between the
Logistics and distribution spread in the market. An integrated system to be devised where
by the vendor/supplier and distributor would log in the details of the ordered product on
the computer screen and the same would be available to the company plant office. The
plant office will start production; each level of completion can be monitored through the
intelligent system. This would ensure that the delivery process bottle necks are reduced
and also an MIS can be generated to observe the delays, reasons and even the frequency of
orders and preference. Subsequently a separate “SOP’s – Standard Operation Procedures”
to be devised which would contain the details and timing of production at different stages
of production

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12. Achieve further capitalization and investment outlay production of more profitable
segment and divest non profitable business units. This will benefit the Tapal Tea by milking
to more demanding segments and production. Simultaneously Tapal will have to work out
a strategy to reduce the prices of its above price products as they have major share but also
focus on the economy packs as volume drivers by consistent in their supply, while entering
into a new untapped markets.
What New To Offer For Urban Markets?
13. To further increase their market share, and keeping in mind the significance of urban
penetration for the brand’s growth, in 2014 Tapal realigned it’s positioning with the
objective of drawing in a younger age bracket into their consumer fold. The result was the
campaign ‘Tum, Mein Aur Aik Cup Chai’ featuring Fawad Khan and Momal Shaikh
released in late 2014, and a follow-up campaign in January 2017, featuring Sanam Saeed
and Adeel Hussain.
14. The 2014 campaign promoted the bond between husbands and wives, but with a gender
role reversal theme, by showing the husband helping his wife with household tasks, such
as making tea. The current campaign goes a step further and now the husband is not only
helping out in the kitchen, he is also taking care of the child
15. Majority of Pakistanis now have a preference for ready-to-consumer products and
beverages, Tapal decided to add instant tea to their product portfolio of over 20 leaf and
dust tea variants.
16. More herbal-tea product lines are likely to include some real tea now. Tea polyphenols,
like polyphenols from other sources, can be detected in blood, urine and feces. Most of
their health benefits are attributed to their ability to scavenge free radicals or to act as
chemo-preventatives by binding to carcinogens or oxidative enzymes. The publicity
surrounding the health benefits of tea is a key
17. Rise of Dhabba culture: Tapal should focus Chai Dhabbas to use Tapal Tea for strong chai.
How To Penetrate Further Into Rural Market?
1. Dust tea is an interior Sindh phenomenon and price is an important consideration, given
that the majority of target audience are daily wage earners. Launching the sachet was to
widen the horizon of market by creating awareness for the less affluent that they now have
access to a premium brand, without any dilution of blend quality, at an affordable price
point.”
2. The addition of a new SKU did not prompt a change in Mezban’s packaging. The deep
maroon Sindhi, ajrak-inspired motifs on the packaging remain the brand’s USP.
3. An enhanced distribution effort should be made for brand availability across Sindh, even
in remote areas where the terrain is difficult to access. In fact according to Neilsen
estimates, Mezban has a sales weighted average of a 100% in the Sindh retail landscape,

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implying that Mezban has a shelf presence at every tea retail outlet in Sindh – a statistic
said to be unmatched by any other tea brand in the region.
4. The retail brand assortments are changing and shops and dhabas that previously only
stocked loose tea are adding Mezban sachets to their shelves. This change is reflective of
the changing preferences of tea consumers who now demand a consistent taste and quality
5. Further expansion in the distributions to increase coverage and reach more consumers
and market share.
Improvement In Distribution:
6. Tapal should reduce the cost of operation and logistics to not only retain its current
distributions network but also minimize the margin gaps amongst the sales sources.
7. The booking time and delivery is a major cause and concern of the customer which may
shift the customer to other brands. The current delivery period of Tapal is every alternate
day when booked an order which is a great concern of product availability.
Advertising and Promotion:
1. Heavy investment in the marketing promotions can build strong and long-term relationships
with the corporate businesses and other complementary goods manufacturers.
2. The positioning of the each segment would be such that it would compete with the Unilever
and Eastern Tea but would create an impression of better quality and value innovation
without facing the internal canalization. We expect that the customer can be drawn towards
each segment even if there were price war.