India’s US$10-billion soft drinks industry is growing at six to seven percent annually. Yet the country’s per capita consumption is still only 11 litres per year compared with 34 litres in China and 675 litres in Mexico.
Industry experts project the Indian market of 1.2 billion to explode in coming years, given the young demographics, rising affluence and changing lifestyles. Companies have started introducing energy drinks, flavoured water, sports drinks, and mixtures of dairy and juice.
Efforts are under way to attract first-time consumers as well with lower price points — especially in rural areas where the majority of people live and endure long, hot summers.
Coca-Cola chief executive Muhtar Kent said during his recent visit to India that the company and its bottling partners would invest $5 billion by 2020 in one of its fastest-growing emerging markets.
“We think there’s potential here and we want to stay ahead of the curve,” said Mr Kent. The investment outlay expands on a plan announced late last year to invest $2 billion in India over the next five years. The latter sum is equal to what Coke invested in India over the previous 20 years.
Coca-Cola left the country in the late 1970s after refusing to partner with an Indian company and hand over its secret ingredients. It returned in 1993 when more liberal economic policies were introduced.
It has faced other challenges since then. In 2006, the company took out advertisements in newspapers to counter unfounded claims by local non-government groups that its products contained illegal levels of pesticides.
Foreign businesses have suffered in recent years because of the country’s policy flip-flops, including plans to retroactively tax deals involving overseas investors.
Deepika Warrier, executive director of marketing for PepsiCo India, says big consumer goods and lifestyle companies can’t afford to ignore India’s growing middle class, estimated at about 20% of the population, despite difficulties of doing business in the country.
Pepsi began selling its cola in India in 1989 before Coca-Cola returned in 1993, giving it an edge. Homegrown Indian colas such as Parle Agro’s Thums Up also became popular in Coke’s absence.
On its return, Coca-Cola bought Parle’s four leading soft drink brands — Thums Up, Limca, Gold Spot and Maaza — giving the company an instant 60% market share. At that time, Pepsi had less than 30%.
The Parle acquisition also gave Coca-Cola a nationwide bottling and marketing system on which to piggyback its own brands. Now Coca-Cola accounts for nearly 60% of the retail sales value of carbonated soft drinks versus Pepsi’s 37%.
Coca-Cola’s dominance comes from Thums Up and Sprite — another of its brands — which both had a 16.5% market share, making them the country’s most popular carbonated drinks.
The juice market also holds great promise. The market research firm Nielsen estimated the growth in juices between April 2012 and March 2013 at 22%. The market is dominated by Dabur’s Real fruit juices with a 50% share and Pepsi’s Tropicana with 45%.
Mango drinks have emerged as the fastest-growing category over the last five years. As well, ready-to-serve fruit beverages are also showing healthy growth, says PepsiCo India’s Warrier.
While soda sales overall are estimated at $1.05 billion, the water market in India is valued at $750 million — including bottled, bulk and pouches. Almost every national beverage player has a water variant, and big brands such as Himalaya, Bisleri, Kinley and Aquafina vie with thousands of local players for a slice of the market.
“The packaged water segment is growing well,” said a Coca-Cola India spokesperson. “We believe it has growth potential due to quality and convenience. We will continue to undertake relevant initiatives to be able to meet the growing consumer demand and category opportunity.”
Soft drink companies say they are reaping the benefits of steady investments over the years, improving distribution networks and pushing sales throughout the year to reduce dependence on the summer months. This has resulted in higher sales volumes.
The companies have also worked on keeping their beverages chilled — a key to drawing new customers. For Coca-Cola, the number of outlets with chillers has nearly doubled to 600,000 over the past three years. In the next five years, it wants at least 70% of its 3 million retail outlets to serve soft drinks cold.
To make soft drinks, one needs water and it is this water that is often the focus of popular discontent. Many Indians cannot afford to treat themselves to packaged soft drinks and are resentful that their water is being used to produce these drinks.
There is also a line of thought that the giant soft drinks brands may dilute existing Indian traditions and cultures. Back in 2005, it was even proposed to ban soft drink sales on railways and instead offer the more traditional refreshment of buttermilk. These water and cultural factors have helped to make soft drinks in India a political issue.