A demand surge in the country is helping the cola majors at a time when sales have plunged in their traditional strongholds
Not so long ago, India was considered to be a regional outpost lab by the cola giants. Things have moved fast since then: A demand surge in this so-called outpost is helping Pepsico and Coca Cola at a time when sales have plunged in their traditional strong-hold, North America.
Consider the results announced a few days back. Pepsico said its overall volumes growth in 2009 was led by India, which witnessed an increase of 32 per cent, thus offsetting the decline in other markets such as China and North America. And Coca-Cola Chairman and CEO Muhtar Kent said India and China lifted its volume of unit sales by three percent in the whole year and as much as five percent in the fourth-quarter. Attributing the company’s upbeat yearly numbers to its performance in the fourth quarter, Kent said unit sales increased 20 per cent in India.
Both the cola giants say India will continue to shine for them for many summers ahead, given the potential. Even though India has led the growth in global volumes, the fact is that the country still trails even Pakistan in per capita consumption of packaged beverages. Also, sale of packaged beverages accounts for a mere 4 per cent of the total 120 billion litre of beverages sold in the country. So there is a huge headroom for further growth.
That’s the reason why Pepsico considers India to be among the three top markets, and as a result plans to unveil India-centric strategies to sustain the company's growth. Pepsico is planning to pump in an additional Rs 950 crore as equity in its Indian operations – the biggest in the beverage business since its entry into the country in 1989. The investment will be utilised in market infrastructure, supply chain, manufacturing capacity, fruit processing, agriculture and research and development. The company is targeting Rs 40,000 crore-plus revenue by 2020.
Coca-Cola, too, has invested around Rs 6,000 crore so far and is planning fresh investments.
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So what is driving growth in India? Both the cola majors attribute this to all- out innovations and key branding and marketing initiatives. Whether it was PepsiCo’s snack food segment bringing in a host of new products such as Aliva to the Indian market or Coca-Cola’s marketing gimmicks for its latest offering, Burn, consumers seem to be hungry for more.
Coca- Cola believes that what drives growth in India for certain is the clear cut alignment with all their bottling partners, and so execution of production of a desired beverage is realized sooner. Also, with the company now entering the Rs 250 crore energy drinks market, experts believe that Coke is ready to experiment in the Indian market, a move that was not considered by the cola majors even a couple of years ago.
“Though there have been innovations, the flagship brand, which is the original Coca-Cola still sees the highest growth rate of around 22 per cent in India”, says a company spokesperson who also pointed out that the overall investment and distribution in cooling equipment coupled with its 350 ml express packs has also contributed to its success.
PepsiCo, on the other hand, has a lot to look back. With the launch of Aliva, the company has very clearly positioned itself on the health platform. PepsiCo’s ‘Smart Choice’ cafes, which will even have gyms, will be launched in five cities shortly.
“PepsiCo India’s strategy of focusing on innovative products and establishing deeper connect with consumers in a difficult year paid off. Each of our brands witnessed a robust growth and did very well across the industry”, said a company spokesperson.
Mountain Dew, according to PepsiCo, emerged as the fastest growing beverage brand in the industry for the third successive year, while its products like Nimbooz did reasonably well.
Both the cola kings have also not left any stone unturned in wooing their rural consumers – their biggest challenge. “Electricity and problems of logistics are definitely prevalent in the rural markets, so freezers cannot be properly installed and operated”, points out a senior analyst. Besides, the presence of strong regional players is another key challenge. PepsiCo, for example, is planning to introduce smaller packaged snack products like Lay’s, Uncle Chips, Kurkure and Aliva in the rural markets where pricing is key.
The main concern, however, is while these initiatives will give volumes growth a push, margins may be a huge headache. For example, the better volume growth last year didn’t translate into an outsized gain in earnings for both the companies, mainly because price points are lower and profitability per case is lower in India. But the cola giants are optimistic and say margins will improve as they expand and build their infrastructure in the country.