Wider choice of products, pack sizes and better chilling infrastructure are fuelling the sales growth of Coke and Pepsi.
The beverage majors are on a new high in India and setting a scorching pace of growth. Both Coke and Pepsi grew their sales by over 30 per cent in the quarter ended March, a feat they are expected to repeat in the June quarter as well, the figures for which are yet to be released.
The growth in the same quarter last year was 12 per cent. So what’s driving the business? There is a lot of latent potential in the Indian beverage market which is driving the business. And as an industry, they have just about started to unlock the potential. The key to growth in this industry is to be able to provide consumers with the product of their choice at the right place at the right time and at the right price.
That is the key difference from earlier years. ‘The consumer today has lot more choice(from juices to colas to Nimbooz to Gatorade) and in different pack sizes (from affordable glass bottles to PET bottles if you are ‘on the go’, to slim cans). The industry is doing a better job in meeting the consumer’s varied needs.
The weather gods have also been kind to them. The summer this year was strong and long, especially in North India, after winter finished abruptly in early February. ‘The weather has been great for the soft drinks industry. Last year, May-June was a washout.
The beverage majors have also been able to hold their price line even as commodity prices spiked. This made the colas more affordable and encouraged relative indulgence.
‘Certain negative aura, which had got created due to the pesticide controversy, is now behind. The market is catching up to its potential. The industry has been growing at a nominal rate of 15 per cent, which declined during the pesticide controversy. ‘Growth is coming back to normal. There was latent demand, which was egged on by the summer and pricing.
The beverage majors have also stepped up investments in India in the last couple of years, which had slowed down when the companies were in trouble. Two years ago, Coke announced an investment of $250 million to be spent over three years to streamline bottling operations, enhancing infrastructure such as coolers and bottling lines and investing in sales, equipment, trucks and distribution.
PepsiCo is investing $220 million (Rs 1,000 crore) in 2009, its highest amount in India in the last 19 years, thanks to good growth and significant momentum. The company decided to invest an additional $110 million, taking its total investment in 2009 to $330 million. The proposed investment is part of the $500-million investment plan announced by PepsiCo.
Growth is helping justify investments. Coke achieved a volume growth of 31 per cent during the quarter ended March 2009, after boosting growth of 28 per cent during the quarter ended December 2008; its business has been growing for the last 11 quarters in volume terms. Pepsi has followed a similar trajectory. The growth in 2008 was double that of 2007 and 2009 has been higher still.
This growth has been led by our continued focus on the route-to-market strategy and ongoing investments in technology, infrastructure and consumer marketing. Coke India has been working with its bottlers to ensure availability of chilled products, build capacity to service anticipated demand and offer innovative packages at affordable price.
What’s helping them is market expansion through the launch of new products. Take PepsiCo’s Nimbooz, sour lime water sweetened, which has clicked with the Indian palate. The response was so good that Pepsi was struggling to supply to the marketers and had to curtail the launch to a certain set of cities. It is asli nimbu and resonated well with the customer. There’s no fizz; it appeals to the palate and culture. It is real, genuine and natural, which has appealed to a wider number of people.
‘There have been innovations on new products (Nimbooz) and packages (Pepsi’s slim cans, which have been a hit with the youth) and more chilling equipment. All this is showing results today. It is expected that volume growth in the quarter ended June to exceed that in the quarter ended March. Coke and Pepsi also say consumers today are more receptive to packaged beverages and are buying them more often than earlier. The cola majors would hope the good times last longer.–