Porter’s Five Forces Analysis of Lipton
Key Facts
| Name | Lipton (Brand Owned by Pepsi and Unilever – PepsiLiption till Mid 2021)
Pepsi Lipton (Untill Mid 2021) |
| Industry | Beverages |
| Founded | 1890 |
| Headquarters | Pepsi Lipton (Ireland) / Unilever (London)/CVC Capital Partners(Luxembourg) |
| CEOs | John Clark (CVC Capital Partners, New Owners of Lipton) |
| Revenues | €187.2million,2020 |
| Profit After Tax | €60.8 million, 2020 |
| Competitors | Twinings, Tata Consumer Products |
Company Overview
With a long history dating back to 1800, Lipton is one of the most well-known tea brands in the world. Sir Thomas launched the company in 1871 as Lipton Grocery Store in Glasgow, United Kingdom. Later, he established the Thomas J. Lipton Co. in Hoboken, New Jersey, the first business to offer loose tea. As of FY 2020, it has recorded revenues of € 187.2 million and a profit after tax of € 60.8 million. In 2022, it has a brand value of US$10.57 billion. In recent years, Lipton’s brand value has grown. The brand value of British tea increased from US$8.67 billion in 2018 to around US$10.57 billion in 2022.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is used to determine the company’s competitive position reference to it’s Industry for better strategizing the companies’ operations for higher profits and less competition, defined by Professor Micheal E. Porter in 1979,at Harvard Business School.
Lipton Rivalry among Existing Competitor
Lipton is a British tea manufacturer. It is currently run under the brand Ekaterra and is owned by CVC Capital Fund. The sale of Unilever’s worldwide tea company, ekaterra, to CVC Capital Partners Fund VIII for €4.5 billion was announced on November 18, 2021. With a portfolio of 34 brands, including Lipton, PG Tips, Pukka, T2, and TAZO®, with 11 manufacturing facilities across four continents and tea plantations in three nations, Ekaterra is the largest tea company in the world.The transaction boundary excludes Unilever’s ready-to-drink tea joint ventures with Pepsi Lipton and related distribution operations, as well as its tea businesses in India, Nepal, and Indonesia. More than 100 countries are home to the tea industry. The 2020 Lipton sales amounts tois €187.2 million.
CVC, a renowned private equity firm with offices across Europe, the US, and Asia, was founded in 1981 and currently manages around $125 billion. Across the globe, CVC funds have invested in over 100 businesses with a combined annual revenue of over $100 billion and a workforce of over 450,000.
Twinings which is a division of Associated British Foods, its primary activities are the procurement, blending, and selling of tea, coffee, and malt goods. The purchase of Twinings was made as part of a defined strategy for industry diversification. Since Thomas Twining founded the renowned Twinings Tea Shop on London’s Strand, Twinings has been blending tea. Queen Victoria gave Twinings its first Royal Tea Warrant in 1837, designating it as the Royal Household’s official tea supplier, a position it continues to occupy today. More than 200 teas from across the world have been added to the Twinings product line under the direction of ABF, and Twinings teas are now offered for sale to consumers in more than 100 nations.
In May 2002, ABF purchased the maker of malted drinks and snacks known as Ovaltine. ABF then combined it with Twinings to establish Twinings Ovaltine. Millions of people in more than 100 countries love the brand Ovaltine, which has been popular for more than 100 years.
Around 6.32 million individuals are expected to drink Twinings herbal, fruit, or green tea in 2020. Standard Twinings tea and other hot beverages came in second and third place. Revenue for the current fiscal year, which ends on August 31, 2021, is £221.89 million, down slightly (less than 1%) from the previous year’s £224 million due to a fall in restaurant and hotel revenues when the pandemic struck the world. Profit for 2021 is £64.75 million, compared to £67.68 million in profit for 2020.
Tata Consumer Products Limited traded, produced, and distributed consumer goods, primarily tea, coffee, water, salt, pulses, spices, snacks, and ready-to-eat packaged foods. It operated through two divisions: the first is a branded business that sells branded tea, coffee, and water as well as food items in a variety of value-added forms. The Group’s branded businesses are mostly in Australia, Canada, Europe, the US, and India. India is the location of the non-branded plantation industry, and the US, Vietnam, and India are the key regions for tea and coffee extraction. For FY 2021, it will generate US$ 1.38 billion in revenue from its branded business and US$ 148.92 million from its non-branded division.
(Conversion rate used 1US$=81.52INR)
Lipton Threat of New Entrants
- Established Brands: The largest tea company in the world, Lipton is sold in more than 110 countries and has been around for centuries. Today, Lipton offers a huge selection of teas that can be enjoyed hot or iced. From a variety of fruity infusions and green teas to delectable iced teas, black teas, and matcha blends.
- Market share of World Leader: Top global tea companies hold a very small percentage of the global tea market; Lipton’s fiscal year 2020 revenues are €187.2 million.TATA Consumer Product Branded Division revenue of US$ 1.38 billion for FY2021 (which includes sales of tea, coffee, water, and foods products), Twinings’ revenue for FY2021 is £221.89 million, and if we look at the global tea market, its revenue is predicted to reach US$247.20 billion in 2023. As a result, the top tea brands collectively hold a very small portion of the global tea market, so it leaves room for new players to enter the market.
Lipton Bargaining Power of Suppliers
- Diversification of suppliers: Due to its substantial purchasing power and the availability of substitute suppliers, Lipton has a significant negotiation advantage over its suppliers when sourcing its raw materials from them. According to information provided by the company, it sources its tea from 815 different suppliers in India, 63 in Bangladesh, 29 in China, 1 in Colombia, 1 in Ethiopia, and 7 in Argentina. North 193 are in South India, 16 are in Indonesia, 3 are in Japan, 37 are in Kenya, 8 are in Malawi, 2 are in Nepal, 9 are in Rwanda, 3 are in South Africa, 1 are in South Korea, 53 are in Sri Lanka, 2 are in Taiwan, 5 are in Tanzania, 10 are in Turkey, 3 are in Uganda, and 9 are in Vietnam.
Lipton Bargaining Power of Buyers
- Largest Buying Pool: Supermarkets, convenience stores, cafes, and restaurants are among Lipton’s principal clients. The business is also present on websites for online shopping like Amazon, Walmart, and Target. Additionally, a variety of Lipton products are sold at conventional retail locations like pharmacies and grocery shops.
- Brand Loyalty: Tea drinkers are very devoted to Lipton as a brand. In recent years, Lipton’s brand value has grown. The brand value of British tea increased from US$8.67 billion in 2018 to around US$10.57 billion in 2022.
Lipton Threat of Substitute Products or Services
- Product Differentiation: When Unilever acquired Lipton in 1971, it made the tea business segment one of the largest in the world and it has remained one of the largest ever since. Now, this tea business, known as ekaterra, was acquired by CVC Capital Partners Fund VIII for €4.5 billion, making it the largest tea brand seller in the world. Consumers of Lipton are highly brand-conscious, and the company has enjoyed special status for centuries. However, Lipton has long held a distinctive place in the minds of its customers.
- Growth of Coffee Market: Coffee is a common alternative for tea, and its market has been expanding more quickly than the worldwide tea market. The global tea market is expected to generate US$247.20 billion in revenue in 2023, growing at a compound annual growth rate of 4.22%, while the global coffee market is anticipated to generate US$495.50 billion in revenue in 2023, growing at a compound annual growth rate of 4.47%, outpacing the growth of the tea market. Therefore, if the trend persists, the tea business could see a larger share of sales go to other beverages.
References
- Associated British Foods: an 85-year history |ABFofficalWeb
- Twinings products ranked by number of users in Great Britain from 2013 to 2020(in 1,000s) available at Statista
- Twinnings Annual report or section 172 statements |Twinnings
- Official website of Ekaterra
- about our company Ekaterra
- Press releases by Unilever available at Unilever
- Annual report of Tata Consumer Products available at |TATAWebsite
- Time for tea: Unilever publishes full global list of Tea Suppliers available at Unilever
- Brand value of Lipton worldwide from 2018 to 2022(in billion U.S. dollars) at Statista
- Coffee market growth – Worldwide Statista
- 1971 – Lipton International turns Unilever tea business into one of the largest in the world|Unilever
- Tea market growth- Worldwide Statista
- Global Database,(12-31-2020) Pepsi Lipton International Limited, Available at Global Database
- Statista (January, 6 2023) Brand Value of Lipton worldwide from 2018 to 2022 (in billion U.S.dollars) | Statista. [online] .AvailableatStatista
- Lipton,History, In The Beginning, Available at Lipton
- Statista (January, 6 2023) Lipton tea products ranked by number of users in France from 2014 to 2019 (in 1,000s)| Statista. [online] .AvailableatStatista