Is Less More?

Last month, Coca-Cola India introduced Limca in 200 ml bottles. This is its fourth brand (after Coke, Thums Up and Fanta) to be made available in a less-than-standard size (300 ml). Around the same time, Pepsi India invaded small screens across India to promote its flagship cola in a 200 ml variant (Yeh dil maange little more'). Nearly a decade after 200 ml bottles almost disappeared from shelves and consumer minds, they are back. And this time, both companies are actually expecting to move a virtually stagnant market with this back-to-the-200ml foray.

Till late 1980s, the standard SKU for a soft drink was 200 ml. Around 1989, Pepsi launched Lehar in 250 ml bottles and moved the market with it. When Coca-Cola re-entered India in 1993, it introduced 300 ml as the smallest bottle size. Soon, Pepsi followed and 300 ml became the standard. But around 1996, the excise component began spoiling the party. Prices crept up. A single 300 ml purchase was getting expensive. If you heard Don Short, Coke India's former CEO, in late 1997, you could not escape the continuous mention of Rs 5 as a comfortable price point. One way to do so was to lobby for excise reduction. It never happened. So both companies toyed with the idea of bringing back the 200 ml size to keep a single purchase affordable.

The 200ml bottles began surfacing in some parts of the country on an experimental basis as early as 1996. Coke was launched in Meerut and gradually extended to Kanpur, Varanasi, Punjab and Gujarat, followed by the south. Pepsi first tried the 200 ml size in Calcutta around 1997 but withdrew it soon after. Neither company put any marketing effort behind it. After all, the 300 ml meant higher per-unit intake and more profits for the company, bottler and the retailer. But that hypothesis worked well only till 1999.

The was hardly any volume growth last year. The soft drink market, which grew over 20 per cent in 1998 to 247 million cases, nudged upwards by a mere 5 per cent the following year. Was the Rs 9 price point (for 300 ml) stemming growth? "The value-for-money equation is being questioned in the soft drink market," believes Rohit Ohri, vice-president and client services director, HTA (on the Pepsi account). Coke too reasoned similarly.

So around July 1999, Coke went an extra mile to blast the 200 ml size on TV screens and billboards. Pepsi wanted to wait, but had no option. "Pepsi couldn't have waited and let the consumers switch to Coke which had introduced a Rs 6 bottle of Mini Coke," reasons Ohri. Vibha Paul Rishi, executive director, marketing, Pepsi, admits that competitive pressures forced them to react even as the company deliberated on other issues. Pepsi entered the market with its 200 ml bottles at the end of 1999 and advertising followed only this summer.

Deep and wide

So what led Coca-Cola to take the lead once again in altering bottle sizes? It argues the move aims to increase the depth (frequency) of consumption while bringing in new consumers (increasing width). So if three rural folks earlier shared a 300 ml bottle, they ought to now share two 200 ml bottles, it asserts. As you can see, the company has its eyes set on the semi-urban and rural markets, the lower SEC and teenagers across the country. It is pumping in huge sums on local and regional advertising which includes POP, cable TV and regional press. Analysts admit that Coke's TV campaign for 200 ml last year featuring Shekhar Suman was functional and did drive home the 'Small size, right price' proposition.

Pepsi's communication, however, seems city-centric with Cyrus Broacha and a cafe ambience. That doesn't mean it is not talking to non-city consumers, argues Rishi. "It's a fallacy that rural folks want to see rural images," she says. "They are as much part of development and changes in the economy as their urban counterparts... The task before us is to first deepen the consumption in towns and then aim for width." But the brand thought it wise to blend the cheaper price tag with the Pepsi flair. "Pepsi being an attitude brand couldn't say 'cheaper Pepsi' or 'Pepsi at a lower price', but since price was an important component, it turned it to attitude by using 'The joy of being broke' plank," explains Ohri.

Has this helped? Coke claims so. According to Sumanta Datta, senior brand manager, Coca-Cola India, the 200 mls have helped cut the seasonality in soft drink sales in semi-urban and rural areas. "Wherever 200 ml has been launched in the upcountry markets, we have seen almost 15 per cent change of seasonality, apart from increase in frequency of consumption," he claims. He also confirms that besides attracting new consumers in the non-summer season, the 200 ml size is helping such consumers upgrade to 300 ml in the peak season.

But what about overall consumption? Has the brand managed to make those three rural folk consume 400 ml instead of 300 ml? The answers are not easy to get in the absence of figures. Besides the bigger scepticism that the smaller size may actually end up decreasing consumption, both companies have to face the immediate issues of retailer resentment, new investments and cannibalisation.

Bleeding, yet sanguine

Glass is a big expenditure in a soft drink company's balance sheet. Which is why glass bottles are circulated, unlike PET bottles. The introduction of 200 ml bottles has meant heavy investments for both players both in glass as well as in new lines at existing plants. Estimates suggest there may be around 190 million 200 ml bottles in circulation in the market today. Pepsi, though, claims it has not made any significant investment, but simply diverted a part of investments on glass meant for the last year. In fact, it claims that its operations on the Rs 7 bottle (MRP) have begun to break even. "We have ensured that the price-value equation works for both, the consumer and the company," says Rishi. It is debatable, even as industry observers insist that Pepsi, like Coca-Cola, is losing money on the 200 ml gambit as of now. Both players are learnt to have spent well above Rs 50 crore in glass and assembly lines alone.

Now consider what this means to a retailer. Retailer mark-up, being a percentage of the retail price, comes to Re 1 on every non-chilled 300 ml bottle. "But a similar 200 ml bottle gives us a margin of only 40 paise," says a roadside retailer in Delhi. A random check on others revealed a slight reluctance to stock and push and the smaller size. The retailer, in fact, is the first person worried about a possible cannibalisation in the 300 ml segment. That is, drinkers of 300 ml are buying 200 ml now. Worry is, they are drinking as many bottles daily as before.

"Cannibalisation is happening," confirms a Coke insider. "But there is nothing alarming about it". A Pepsi source, however, says that the extent is fairly high for both. To address this, Coca-Cola is trying to control the flow of 200 ml bottles only to lower SEC pockets. For example, the small size is supposed to be seen in Delhi localities like Garhi, Narela and Chiragh Dilli, not Vasant Vihar. Similarly, some 3,000 small restaurants were chosen in Mumbai for 200 ml bottle promotion. Pepsi's Rishi does not buy that. Her logic is that, one, teens and school kids are pretty much the same everywhere in a city. Two, lower SEC localities are interspersed with upmarket areas which makes them difficult to be accessed in isolation. "The market is pretty much deciding on its own," she says.

Early days

Coca-Cola claims that 200 ml now accounts for almost 20 per cent of its total soft drink volume. It also claims it has seen a cannibalisation factor of just 0.5 per cent. Not many accept the company's claim that the remaining 19.5 per cent came from new consumers and switch-overs from the unorganised and local soft drink market. Pepsi claims a volume share of 4-5 per cent from its 200 mls in less than eight months of launch.

Whether the size will set the 260-million-case market on a healthy growth rate this year is anyone's guess. Both the companies publicly claim that the 200 ml segment is now here to stay. "Price compliance is the key to bring more people into Coke's fold," says Datta. The new bottles are available for Rs 6-7 depending on the region.

Ohri has a similar view. "Since both the players are planning to aggressively push the segment, there's little doubt that the 200 ml segment will grow," he says. How much it will affect the 300 ml and whether it will become the standard again remains to be seen. For now, Coca-Cola is busy pushing the 200 ml Limca. If history holds, Pepsi may follow suit with Mirinda.