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Tsubaco


Good Times
for the Tea-Bagging Business

BY RANDY ALTMAN

The most significant trend in the world tea trade is the drive toward a more “value added” product. This value-added trend applies directly to tea equipment suppliers. In fact, tea-bagging machine manufacturers are heading toward renewed success. The low prices for bulk tea push this good news for suppliers, as wholesalers create brands for the previously unbranded tea. The category of branded tea more often ends up at the retail level in tea-bag format. Thus, broad market factors will increase the percent of tea sold in tea bags.

Other market factors also point to profit for tea equipment suppliers. Sri Lanka is progressing with a comprehensive infrastructure upgrade, made possible by peace negotiations. Ceylon executives tell me confidentially of plans for entire new factories with tea-bagging machines. The new teabags out of Ceylon will include an increase in blends of Indian import, for global re-export. Sri Lanka is leading the way in modernization, even creating a private-sector “umbrella” body, called the Tea Association of Sri Lanka (TASL). Starting this year, major donor aid is expected to reach this island nation, to coincide with war’s end.

More tea-bagging machines will sell to Sri Lanka than tonnage levels alone indicate. Governmental rules will regulate the new blending of Ceylon tea with Indian, to protect the purity of Ceylon tea. The purity requires protection as national “Ceylon” branding expands, signified by more use of the Lion Logo. New regulations may force tea companies that blend with Indian tea to build dedicated factories restricted solely to the blending sector. The goal is close oversight with monitoring of factory input and output, to guarantee the separation in the marketplace of pure Ceylon from blended product.

Advances in engineering technology further accelerate the demand for tea-bagging machinery. Manufacturing companies are generally stable and soundly financed, allowing funding for engineering progress. The many successful supplier corporations provide an impressive testimony to tea trade sectors that do attain modernization. And, the modern consumer is increasingly turning to blended types of tea that lend themselves to bagging, such as chai.

One powerhouse supply company is known by the eye-catching 3 letters IMA. “IMA” is an acronym for Industria Macchine Automatiche. This venerable company carries the slogan, “leader in packaging technology for 40 years.” IMA’s success is demonstrated by an elevation on the Milan stock exchange to the STAR category, reserved for “prime quality stocks.” IMA started out solely in tea-bagging manufacturing supply, and now includes wholly owned subsidiaries in Italy and Germany, plus majority-controlled subsidiaries in China and India.

IMA fields a marketing division, also organized as corporate subsidiaries, in Austria, Hong Kong, France, Spain, Japan, U.S., U.K., Portugal, and Germany. These offices also handle customer service. This sensitivity to service is crucial to providing machinery desired by factory operators. Tea factory executives, after they wade through any new machine’s dazzling data of speed and computerization, first ask the question, “is the machine reliable?” The decision to make a “buy order” often rests on reliability factors like ease of repairs, availability of spare parts, and access to quick technical support.

The decision-making involves estimating a purchased machine’s downtime, with presumption of rapid return to service. The reliability issue cannot be overestimated, because so many machines operate in developing nations, with less access to repair capability needed for such specialized equipment. Tea-bagging equipment is both high-speed and high-tech, yet must run in some of the least developed regions of the world. With the increasing technological sophistication of the machines, customer service is now essential. IMA employs approximately 2,000, with 700 working overseas, a foundation for providing good service after the equipment is sold.

Mai S.A. of Argentina, another world leader, markets its machines with a special type of concern for reducing downtime in the factory. Mai, also known as Maisa, states that for over 25 years they have produced, “one of the simplest and economical teabag packing machines.” Their machine handles a diverse array of needs, from enveloping teabags (using various types of over wrap) to final options with cartoning. Mai reports over 2,000 of their units are used in 78 countries.

All of Mai’s tea-bagging machines are labeled under one series, the EC12, with the company known by the slogan, “Trust, Seriousness, Service.” A sign of the future is the EC12/B Packer’s accessory range. One accessory is called the “humidity chamber.” Control over the humidity variable allows wider applications, such as for different types of envelope paper. Mai machines can also pack teabags up to 3.3 grams, a feature that helps pack herbal teas. The ability to handle such large volume per teabag is an increasingly common feature of modern machines.

Another top company is Tecnomeccanica, of Bologna, Italy. Tecnomeccanica is a closely held enterprise, headed by chairman and president Andrea Romagnoli, who holds over 100 internationally, registered patents. Tecnomeccanica declares more than 1,500 tea bag machines sold since 1967 “all over the world” that are based on their patents. In the U.S., the corporate representative is Inland Packaging.

Tecnomeccanica’s vice president of marketing & sales is Lucia Romagnoli, who reports, at time of this writing, that additional units of their equipment are now consigned for delivery to Sri Lanka. Romagnoli states, “Regarding Sri Lanka, we agree that this country will continue to be a very important market for teabag machinery.” Their flagship machine is the T2 PRIMA, which already provides good use in Ceylon and is headed for further sales to that island nation. Tecnomeccanica, as a family held business, has maximally rapid response capability in corporate decision-making. Regarding technology, a modernizing feature is a gas flushing system designed to preserve flavor and freshness. Such a function implies longer shelf life for the final product.

The pertinence of technology to tea equipment suppliers extends to the Internet. Teepack uses the brand-friendly website, www.teepack.com, which contains sophisticated design and detailed information about machine specifications. The Internet is a powerful tool in attracting new customers and retaining existing clients. Teepack’s website allows for immediate access to technical information, especially webpages called “Data Sheets.” Teepack, part of Teekanne GmbH, of Düsseldorf, Germany, reports over 40 nations use their product.

Teekanne makes use of the image of “German engineering” as particularly precise. Their branded machines are the basic Constanta and the elite Perfecta. Tea machine companies’ websites are in English, plus perhaps their native language, which is usually not English. English is the universal language of the global tea business, to the extent a universal language can be claimed. This language consistency is significant for the progress of the tea business, and is a language consistency greater than that in the coffee trade, where Spanish is so important. English provides a mutual forum for communication about expensive tea machinery that is usually exported out of non-English-based nations.

The high cost of tea-bagging machinery is not conducive to corporate start-ups, and when a newcomer does enter the competition, a past connection with another equipment company is likely. Such is the case with Teamac, less than a year old, which is a spin-off from Mai of Italy. The Marchesini Group now owns technology engineered by Alberto Daunisi. The new machines’ brand names are MD25 and MD20. The reader will notice a pattern rare to the retail tea trade, but common with electronic equipment: branding with numbers. And, these machines are definitely electronic - the MD system includes a video camera for quality control over knotting and tags.

Tea-bagging machinery is among the most expensive outlays any tea company can make. The opportunity to upgrade occurs when money is available, more likely in good economy-of-scale situations. The elite small Darjeeling estates are suffering financially for many reasons, such as relatively high labor costs, but also poor economy-of-scale. Sri Lanka has credible economy-of-scale, an advantage that may intensify under the new, comprehensive TASL, whose inaugural c.e.o.

De Mel comes from Gordon Frazer, recently reborn as a major tea-exporting arm of conglomerate John Keells Holding. The managing director at Gordon Frazer is Michael de Zoysa, a former managing director within Unilever Brooke Bond. The pioneering re-organization at John Keells is enhanced by a new managing director of the plantation sector, Jit Gunaratne. Gordon Frazer is very old, yet relatively dormant during the recent past. Strategic planning now revivifies this grand company, proven by the influx of prestigious veteran executives. Gordon Frazer will rise to world-class prominence under the exciting new plans for value-added branded export.

Such a rise to prominence in a nation of the best tea businesspersons is good news itself. This same nation will probably soon experience extensive financial inflow from donor nations and agencies and from profit-seeking entrepreneurs. Sri Lanka represents the finest opportunity for tea-bagging modernization. This development has positive implications for the tea trade as a whole. Asia, where most of the world’s tea is grown, is not known for teabags. The process of tea bagging is actually a form of value adding (relative to the same tea sold loose or in packets) and increases income to the trade because the tea sells at a higher price at retail per volume unit.

As more tea-bagging machines are sold, the smaller retailer has better options for renting running time on the apparatus. Small and medium entrepreneurs who want to bag and buy are advised to seek the simpler machinery, such as Mai’s basic EC12 versions or Teekanne’s Constanta. Small retailers’ entry into bagging is enhanced by alliances with medium-sized tea wholesalers who market to different segments or territories. As the modern tea-bagging machines can handle larger volume per bag, look to more chai-style blends in bag format, further increasing demand. The popularity of chai is synergistic with tea bagging, especially as this blend is youth-oriented, often the least patient demographic. Youth want their desires met fast, such as already mixed in a tea bag.

The business prospects look good, from macro trends like international trade out of Sri Lanka to micro trends like small retailers renting more machine time. The increase in types of tea that is bagged, such as herbal and chai, also yields profit for suppliers. Financially, good news all around, with more money for tea equipment yielding more money for tea wholesale and retail. Tea bagging will increase consumer exposure to new types of complex blends, from Ceylon/India to chais to herbals to mixtures of tea/herbal and green/black.

Many of these blends in tea bags are oriented to the youth market, which the tea industry must capture from sodas and the horde of “alternative” beverages. These blends, suitable for teabag format, do have an image not just of trendy youth, but also of healthfulness. Modern tea bagging reveals multifaceted benefits: wholesalers move more “value-added” product and retailers get increasing consumer demand. The machine suppliers’ business is heading toward greater profits, with a nice consequence of higher volume of tea sales in bag format. This creates a “positive feedback loop” desired in all business strategy, where the further popularity of tea bags means even more sales for the equipment needed to perform the bagging.

Randy Altman has advised the United Nations and other transnational organizations, and has held directorships and offerships at various non-profit corporations. He also holds several adjunct academic appointments.


Tea & Coffee - March/April, 2003
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