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Serving Up More Than Cola
Coca-Cola and PepsiCo are seeking to reinvent themselves in the Indian market with locally sourced healthy and nutritious products. Will the dependence on juices, water and dairy variants work?
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Until not too long ago, cold drinks in India were synonymous with colas. So much so that thanda, which in colloquial Hindi also means a cold drink, became a generic term for Coke, Pepsi, ThumsUp and other aerated drink brands in the Hindi heartland. For most people, a thanda was the perfect foil for a scorching summer day. Coca-cola exploited this link beautifully by running a series of ads with the catchy tagline “Thanda matlab Coca-Cola”.
But for the past few summers, cola majors PepsiCo and Coca-Cola have been feeling the heat and losing their fizz, with sales turning flat and margins and profitability coming under a squeeze. The reasons for this are not hard to fathom. Cola drinks — defined as “carbonated water, with added sugar, added flavours that does not contain fruit” — are no longer considered “cool” by the health conscious millennials who prefer juices and non-cola beverages.
On the other hand, the government too has held aloft the health banner by categorising sugary fizzy drinks as “sin products” and taxing them heavily. Like other harmful products like tobacco, colas now attract 28 per cent GST plus 12 per cent cess or sin tax.
The upshot of all these has been a declining market share of cola products.
The initial response of the cola giants has been to counter the trend by pushing more variants and innovative products with zero sugar like Pepsi Black with zero calorie, 7UP-No Sugar, a Mountain Dew-No Sugar, Diet Coke, Sprite Zero and others.
But sales of cola products have continued to slip, as consumers have showed a strong preference for juices, juice-based beverages, packaged water and its variants, and dairy-based drinks. So much so that this has pushed the market share of the non-cola category beyond the 50 per cent mark, overtaking cola drinks that five-seven years ago dominated the beverages market with a more than 65 per cent share. What has also helped juice beverages and non-cola products is the lower 12 per cent GST that they attract.
Break from the past
Now, Coca-Cola and PepsiCo, the two biggest beverage companies by sales and product mix that for more than two decades depended overwhelmingly on colas, are changing gears in the Indian market. Both are furiously lining up products and innovations across the ‘health’ and ‘wellness’ category to get growth back as well as compensate for the sliding market share of their carbonated beverages.
This shift is also in response to the changing dynamics of the Indian beverage market which is now mature and complex. Local brands like Real (from Dabur), Paperboat (Hector Beverages), Frooti (Parle Agro) and several regional players have quietly carved a niche for themselves in the consumer consciousness and expanded their market share.
The fact is that while Pepsi, Coca-Cola, ThumsUp, Sprite, Maaza, Slice, Mirinda, etc. are still well established brands with a loyal consumer base, consumer preferences have evolved to accommodate newer brands as well. This has prompted the cola giants to innovate and localise their product mix.
In a throwback to the cola wars of the past, the cola giants once again find themselves pitted against each other and the rest of the market The difference this time, though, is that the tussle will be over ‘which products are healthier; have unique/distinct flavor offering value-for-money and are attractively packaged’.
Getting rid of the ‘sin factor’
To begin with, both PepsiCo and Coca-Cola have lined up a number of aerated sugary drinks that will eliminate the ‘sin-factor’ by marrying a mix of fruit juices (and reduced sugar content). While some of these will be purely fruit-based beverages with locally sourced fruits, others may be their variants. There could also be some innovations across tea / coffee / milk /dairy-based products / milkshakes / flavoured milk or fruit-based desserts too.
Recently, Coca-Cola India forayed into two new categories — enhanced hydration (Aquarius Glucocharge) and nutritious dilutables (Minute Maid Vitingo). Aquarius Glucocharge (packed with glucose, potassium, sodium, calcium, and fruit juice) has been developed exclusively for the Indian market. So is Vitingo.
Rival PepsiCo extends its concern beyond products sans the sin factor, and says it will enable 100 per cent equivalent recovery and recycling of its plastic waste in the next few years. In fact, PepsiCo is on track to pilot the first-ever plant-based, 100 per cent compostable packaging in India, before the year ends.
Coca-Cola, too, corelates its latest initiatives with the social good. T. Krishnakumar, President, Coca-Cola India and South West Asia says they are entering a whole new category as they “want to become more relevant as a ‘total beverage player’”. He goes on to talk about the company’s social agenda: “We are focused on fruits and fruit-based products because we believe we should create something for the community we operate in.”
PepsiCo India too is pushing its beverages, nutrition and snack-food business towards localised innovative products. “More and more healthier, tastier products are in the pipeline with innovations across products and packaging,” says Ahmed El Sheikh, the newly appointed President and CEO of PepsiCo India. He aims to double the India business over the next 8-10 years. But for an industry that grew less than 2 per cent last year that kind of growth seems too ambitious.
Are fizzy (sin) drinks selling less? “No not at all,” says Vipul Prakash, Senior Vice President, Beverages, PepsiCo India. “If we were selling 100 bottles of carbonated soft drinks (CSD) or fizzy drinks three years ago, today we are selling 105 bottles,” adds Prakash. The Coca-Cola India communication executive firmly rejects any notion of a decline: “If you assume that the CSD category is on a decline and that is why we are focusing on juice beverages, then you would be erring in your assumptions.”
But Prakash does allude to a decline in the market for dark-coloured cola drinks and juices being added to the product mix to shore up their health quotient. “Within CSD, it is the lime and lemon category which has outgrown the cola and therefore helping the CSD market grow,” he says.
But opening up a line of sub-categories of established brands (Mirinda and Fanta with juices) poses challenges of its own, says Harish Bijoor, a leading brand-expert. Bijoor refers to these fizzy drinks as “sunset categories”. “If brands in these categories need to stay relevant to the new and emerging consumer, all these changes are a must. A creature of compulsion, rather than choice. It is, in fact, a new light of dawn in an otherwise “sunset category” that is on the retreat due to consumer rejection,” says Bijoor.
But Coca-Cola offers a different rationale for the changes. Says Krishnakumar: “Coca-Cola India wants to become a ‘total beverage company’ with local roots. The goal: to give consumers beverages they want by building a portfolio of ‘consumer-centric brands.’”
Fruits of change
Coca-Cola also talks of leveraging what it calls the ‘fruit circular economy’. Says Asim Parekh, Fruit Circular Economy, Coca-Cola India and South West Asia: “We visualise a spurt in our local procurement of fruits. The circular economy initiative has the potential of having a transformative impact as it seeks to transform two-thirds of the carbonated soft drinks market to contain Indian fruits. As it is, we are one of the largest procurer of fruits from local farmers, and going forward, this will only increase and benefit farmers.”
Coca-Cola India is already one of the largest institutional buyers of horticulture produce in India. It sources more than 95 per cent of its ingredients locally and also exports them to operations in the global Cola-Cola network. This alone is a more than Rs 2,000-crore business for the cola major.
For Ahmed El-Sheikh, the newly appointed president and CEO of PepsiCo India, the target is to help the India business grow healthy double-digits. “We are tackling growth quarter by quarter and the first quarter of 2018 (both cola majors follow January to December as their financial year) has shown a healthy uptrend,” he says.
Sheikh talks of innovations and localisation of products across CSD, juices, water, nutrition and snack-food business being in the works. Already, PepsiCo has scaled up its 7Up range by cutting down sugar by 30 per cent and substituting it with Stevia, a natural sweetener. In the coming months, 7UP is likely to have no sugar/zero sugar/ with Stevia completely replacing it. (see The Green Sugar Substitute, published in March 3, 2018 issue of BW Businessworld).
Also, localised products in the PepsiCo India stable like Pepsi Black (in non-returnable bottles), Mirinda Joosy Orange (with real orange juice and available in Tamil Nadu), Slice Fizzy (a pilot project in select markets) are likely to be scaled up soon.
“7Up is entirely changed with Stevia. A no-sugar version of Mountain Dew is in the pipeline. Slice Fizzy was launched in seven months to cater to the local taste and consumer demand. Global brands like Pepsi and Mountain Dew will come with one or two innovations every year,” says Prakash of PepsiCo India.
Following the elevation of Krishnakumar as president, Coca-Cola India and South West Asia, the company has launched nearly a dozen localised products. Prominent among them are Minute Maid Pulpy Mosambi and Minute Maid Pulpy Santra (mosambi and oranges for these products were sourced from farmers in Maharashtra and Madhya Pradesh).
Fanta has come up with a fruity orange flavour, which has 5.3 per cent fruit juice mix. Another variant, Fanta Green Mango, has 10 per cent fruit juice added to it. “The variants launched for Fanta are helping to expand the market for orange products,” says Krishnakumar.
Under the Minute Maid brand, Coca-Cola has now localised variants with guava, nimbu fresh, mango, apple and mixed fruit flavours, which, as of now, do not have any fruit pulp. Minute Maid Guava has 15.5 per cent juice while the mango variant has 11 per cent pulp. Mango-based drink Maaza uses hapus and totapari mango variants and is being billed as the first juice brand that could touch $1 billion in revenues in a few years. In the CSD category, Coca-Cpla has launched Thums Up Charged and its no-sugar variant and intends to make Thums Up a billion-dollar brand soon.
But brand expert Bijoor cautions against this hurry to expand the fizzy-juicy category. “Both Coca-Cola India and PepsiCo need to define their categories of business carefully. Split your business and brand profiles into two. The first should be aimed on the existing categories —sparkling and still—into which crores have been sunk. Carbonated drinks have an audience to attract even now,” he says.
\The second vertical, according to him, needs to be ‘healthy and good for all’. “This category will aspire to catch the non-carbonated guy. This category has a story to tell, and a market to grow. My view is that the twain must not meet, as is being attempted to be done. When two distinct categories of choice meet and merge, they confuse. Milk is best as milk. And water is best as water. The two must not mix. You know what happens when they do,” he says.
But Coca-Cola is not perturbed. They believe they are doing product innovations, and have created an agile incubation model designed to build products in a short time-span. “We have ramped up our focus on product innovation pipeline aimed at building a localised consumer-centric portfolio,” says Sunil Gulati, Vice President — Technical, Coca-Cola India and South West Asia.
Minute Maid Mosambi, Pineapple and Tomato, Thums Up Charged, Thums Up Charged No Sugar, Aquarius Glucocharge and Minute Maid Vitingo are some of the successful innovations launched locally by Coca-Cola India. “The new incubation model allows us to cater to the new as well as niche demands emerging in the beverage segment,” says Gulati.
Now, what happens to the carbonated drinks? According to Vijay Parasuraman, Vice President (Marketing), Coca-Cola India & South West Asia, the company understands the diverse needs of consumers. “We will offer more options for consumers that want lesser calories in their beverage,” Parasuraman says, adding, “Consumers desire for more natural and functional benefits. They certainly want lesser calories in the beverages. Therefore, we are already offering Coca-Cola Zero, Diet Coke and Sprite Zero.
Parasuraman says the company will launch more beverages that provide nutrition/functional benefits. Already, there is talk in the industry of a lemony version of Sprite (with real lemon juice), or a range of milk-based smoothies or shakes under the Minute Maid brand using fruits like mangoes and banana hitting the market soon. The range of frozen fruit dessert too may be scaled up and more innovations are expected in the hydration category. In a bid to challenge the dominance of Pepsi’s Tropicana, Coca-Cola India will soon launch its acquired juice brand ‘Rani Float’, a juice brand available in the Middle-East. Rani Float has real fruit pieces along with higher juice content, reduced sugar and real fruit flavour, the spokesperson adds.
More Value-Added Products
On the beverages side, PepsiCo India too is betting big on a number of brands. Aquafina, its water brand, is already a Rs 1,000-crore business. It is now tapping into the fast-growing value-added hydration and functional beverages segment. Recently, it launched a vitamin-fortified water product, Aquafina Vitamin Splash (in kiwi lime and raspberry mint) across 20 cities on e-commerce platforms. This can be scaled up too.
PepsiCo India is also working on a strategy under which two-thirds of its beverage portfolio will contain less than 100 calories by 2023 as opposed to the global target of 2025. It has selectively launched Mirinda Joosy with less sugar and more fruit juice in Tamil Nadu.
On the food business side, PepsiCo is committed to reducing the salt content in Kurkure, its flagship snacks brand, in line with its global nutrition objectives. The first low-salt Kurkure packs have already been rolled out. Says Jagrut Kotecha, VP (Snacks), PepsiCo: “In line with our ‘performance with purpose’ agenda, we are constantly improving our snack products through a step-wise reduction approach. In India, we have been successful in reducing 21 metric tonnes of sodium from our entire snack portfolio till last year and aim to reduce sodium in 75 per cent of our food’s portfolio by 2025.” He informs that the new variant of Kurkure has 21 per cent less sodium.
According to Kotecha, PepsiCo continues to lead the snacking category, growing in double digits. “We aim at doubling our volumes in the next five years,” he says, adding, “Lay’s, our global master brand is the market leader in potato chips and has held its market leadership while Kurkure, our second master brand in the snacks portfolio, is an indigenous brand from PepsiCo India to go international — Canada, UAE, Pakistan, Bangladesh and Nepal.”
Today, apart from potato, PepsiCo sources 100 per cent of the corn for Doritos locally.
On the nutrition side, PeppsiCo boasts of a Rs 1,000-crore brand like Tropicana and Quaker Oats (and its variants), one of the fastest growing breakfast options in India. Says Deepika Warrier, Vice President, Nutrition, PepsiCo India: “Tropicana is doing very well for us. Within that, Tropicana Essentials is doing extremely well. They are our fastest growing innovation right now. Over 50 per cent of our sales in modern trade (through organised retail) today are due to Tropicana Essentials.”
What about cold-pressed juices as a category? Or milk and juice-based innovations? “We have this unique capability of doing convergence products. We can do a juice plus milk also. But it’s about getting the model right,” Warrier explains.
On the juice business, Warrier says Tropicana Essentials is a locally relevant innovation, as it addresses specific nutrient deficiencies among Indian consumers.
Sheikh talks of the localisation of PepsiCo India and its growing partnership with the agri-community. He says that PepsiCo works with 24,000 farmers in nine states across India. “For the snacks category, all ingredients are locally sourced. Sixty-five per cent of all the fruits used in making Tropicana is locally sourced too. We are the largest buyer of chip grade potato in India,” he informs.
According to Ahmed, PepsiCo has stringent targets for localisation. For instance, PepsiCo India’s potato procurement through collaborative farming was 45 per cent of the total procurement in 2017. “We are looking at increasing this to 70 per cent by 2021. Also, we are now exporting potato mini tubers to Egypt and Saudi Arabia,” he says emphatically.
Of the myriad changes being effected by the cola giants in their product portfolios, some may work and some may not as a business propoposition. But one thing is for sure — for a nation that is increasingly becoming health conscious, people are going to be choosy and picky about what they eat and drink.