Lockdown impact: India market drags down Coca-Cola's global performance

The impact of the lockdown and economic distress in India continue to haunt global beverages major Coca-Cola. Like in the previous quarter, the company's poor performance in the September quarter in India dragged its global performance down, the US major informed its investors on Thursday.

The cumulative impact of the Covid-19 induced crises in India and South Africa led to a 10 per cent drop in its bottling business. “Unit case volume declined 10 per cent, driven by India and South Africa, due to the impact of the coronavirus”, it said. This despite the depreciating local currency that offered it some “tailwind” at the operating income level.

“Across our channels and regions our brand portfolio is working hard to return to pre-Covid levels of growth and we have made progress in the quarter,” said James Quencey, CEO, The Coca-Cola Company. Further, the “local champions” such as Thums Up in India saw growth in the third quarter, he added.

Quencey said, while “China is on its way to emerge stronger through solid performance in sparkling soft drinks, recovery efforts in India and Japan continue and we have seen a meaningful improvement in the face of ongoing restrictions.”

In the previous quarter, its operating income for the BIG segment shrank a whopping 98 per cent (in CC terms) during the quarter, driven by top line pressure in India and South Africa due to the outbreak.

During the April-June quarter, Coca-Cola’s operations took a significant hit due to the stringent and prolonged lockdown in India. Disruption in the Indian market impacted all aspects — from volume offtake to its key sparkling beverages business. Global volume offtake dropped 16 per cent year-on-year (YoY) and its aerated drinks business fell 12 per cent YoY, with the lockdown being the major factor. 

Products under its flagship Coca-Cola contributed significantly towards the decline in its sparkling beverages business. The trademark Coca-Cola business fell 7 per cent, while the Coke Zero Sugar segment declined by 4 per cent.

The category, which constitutes the majority of Coke’s volume and revenue, was severely hit led by the decline in India, Western Europe, and the fountain business in North America.

Despite strong recovery in the China market, during the September quarter, in the Asia-Pacific region, its volumes fell by 4 per cent, “primarily due to coronavirus-related restrictions in India and Japan”, Coke said. In fact, Coke posted solid growth in the sparkling soft drinks business in China. Poor performances in India and Japan resulted in its operating income declining by 5 per cent.

Coke's business during the quarter was worse than it appears. The refranchising exercise that Coca-Cola India underwent last year aided its financial performance during the quarter, but failed to stop the slide. “The structural benefit to gross margin was primarily due to the refranchising of certain bottling operations in India. The refranchising activity has been included as a structural change in our analysis of net operating revenues on a consolidated basis as well as for the Asia Pacific and Bottling Investments operating segments”, it said.

In June, India, its third-largest market in Asia and fifth-largest globally, dragged the regional business for Coke to a great extent. Volume offtake in Asia-Pacific plunged 18 per cent, “primarily due to the strict lockdown in India”, said the firm. Operating income fell 9 per cent for the region in constant currency (CC) terms.