The Carbonated Drinks Industry in India; A Perspective

"The very fact we have started in first week of January means we are going to give lot of

flavour to consumer and doing it at part of year which actually kicks off the season earlier

than normal," VP Marketing, PepsiCo India, Vipul Prakash

The Rs.17000 crore market of carbonated drinks industry in India looked really bad just after

the “Pesticide” controversy last year. But some cool promotions and quick reactions by cola

companies have handled the crisis satisfactorily. The controversy has thought the industry

few lesson or so and in the process consumer and the economy also benefited.

“Colas, contributing more than 50 per cent to fizzy drink sales, saw a huge slide after the

pesticide controversy, but are believed to be making a come back. Thanks to increased

advertisement spends which is over 20 per cent higher than last year.

There is some good news on the non-cola segment. The lime and lemon segments with

brands like sprite and 7up have registered a 30 to 40 per cent growth, although on a smaller

base. “1

"The very fact we have started in first week of January means we are going to give lot of

flavour to consumer and doing it at part of year which actually kicks off the season earlier

than normal," VP Marketing, PepsiCo India, Vipul Prakash said.

Nevertheless, the battle between two cola giants, Coke & Pepsi, did not go any slow.

Rather it has become fiercer. They are now fighting each other even at the local

level. That too the trend is as old as start of this millennium.

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Molshree Vaid, , January 28, 2006, www.cnn-ibn.com
 “All’s fair, as usual, in a cola war, even a slugfest between two real-life brothers!

Always thriving on ambush marketing activities, the two cola giants Coca-Cola India

and PepsiCo have now gone to the extent of putting up two real-life brothers (who

also happen to be celebrities) against each other with the strategic aim to gain rapid

market share in one of the country’s largest carbonated soft drinks (CSD) market:

Andhra Pradesh (AP).In the latest move, the brothers who are also Telugu cine stars

—Chiranjeevi and Pavan Kalyan—have been pitched against each other by their

respective sponsors Coke and Pepsi using a peculiar below-the-belt technique.“2

The present scenario of the carbonated drinks market is behaving the way it has all

to do with a duopoly situation. A duopoly is a competitive situation where there are

two competitors, normally of roughly equal size. Although in every place they have

local competitors and there is a huge unorganized flavoured water market. Yet

again, packaged water is also a competitor to the cola brands and in this category

neither of the two cola companies are market leaders. However, as far as the

carbonated drinks are concerned there are only two brands, Coke and Pepsi.

Therefore, we can safely say that this condition does qualify to be a near duopoly

situation and thus there is such intense competition. Unless, the two parties in a

duopoly collaborate with each other, which is certainly not the case in the cola

market worldwide or in India, this battle is not going to slow down even a bit! Rather,

it would grow stronger with every passing day.

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www.magindia.com, June '19, 2002, FE
In a situation like this it is very interesting to observe marketing strategies in general

and Product & Pricing strategies in specific of the players, merely because the action

of one player is bound to invite similar reaction from the other. As if, the third law of

Newton, that “every action has an equal and opposite reaction”, can’t fit better in any

other situation!

In a duopoly like situation, as far as cola industry in India is concerned, it can be said

that it is foolish to cut prices unless, one of the two parties has a much lower cost

base. But that is not the case in India. In fact, both the companies, Coke and Pepsi,

invest heavily in advertising and in distribution through their franchise as well as their

own systems. However, a great deal of attention is paid by both companies to cost,

particularly in the development of a tightly effective supply chain system in which

economies are squeezed out and, wherever possible both overheads and working

capital are controlled.

Therefore, it is extremely difficult to for both the parties to play with the prices.

Rather, it is counter-productive exercise, as when prices are reduced in a particular

area by one of the cola brands, the second must follow. However, there have been

some instances of price reduction, but generally either in the local franchise level or

by the local sales management level of a particular. Otherwise, in general, prices

have only been reduced in the recent past if there has been a reduction in

Government taxes, either at the Central or State level.

If we look into the history of pricing of these two particular players of the carbonated

drinks industry, we will see that the first major initiative in the price front took place

some years ago when the brand Coca-Cola came back to India. At that point of time

colas were available only in 200 ml bottles. Coca-Cola, in it’s come back trail, broke

the tradition by launching Cola in the 300 ml size bottles but at the same price as

Pepsi, which was then in a 200 ml bottle. With this strategy, Coke expected to gain

advantage in the market especially in India, which is traditionally a highly price

sensitive market. However, Pepsi, as being a fierce competitor was prepared for it

and soon launched its colas in the 300 ml sizes. Thereby, in India, it was the 300 ml

bottle which became the standard in most parts of the country, making the price a

parity issue between the two brands.

Then, a few years ago, one litre and 1.5 litre non-returnable PET bottles at a

discount in comparison to, a 300 ml returnable glass bottle, the traditional packaging

in this product category, was launched by Pepsi. It was a successful move resulting

in significant increase in the consumption level especially amongst the loyal

consumers in the urban areas. And part of the rule of the game, Coke followed Pepsi

in the above move in order to reduce the cost per glass to the consumer.

Then came the days of a 500 ml non-returnable PET bottle which was advertised

almost totally on the cost of the consumer per 100 ml of cola! Nevertheless, the

great advantage that the PET bottles provided is that they have increased home
consumption level which was not of much significance compared to out of home

consumption till then.

And in very recent times the Coke did a u-turn that is price cuts. The latest move of

reducing price to the consumer is the very opposite of what has been happening to-

date. It has now re-launched a 200 ml bottle at a unit price of approximately 2/3 rd of

the 300 ml price, thus making retail purchase look cheaper. This strategy was meant

to fight consumption pattern of smaller towns and rural areas where two people

share a 300 ml bottle. Importantly, by making the bottle smaller it has only reduced

unit price without affecting the trade margin.

It has been reported that Pepsi has been cutting the price of its 300 ml bottle in

some places, until an inventory of 200 ml bottles was built, as an answer to the

Coke’s strike. However, this act of Pepsi might boomerang as there is a strong

probability of having some negative effect on the supply chain and other inventory

cost in the long run.

“…………….. If the move is successful it would generally increase brand

loyalty and the depth of consumption. In the second case, if successful

the lower unit price pack would widen consumption by bringing more

non-cola drinkers into the fold and hopefully increase the size of the

market.
In a competitive situation such as the one that exists in the cola market,

the important thing is not the price; it is the value that the consumer

gets. And that always increases in proportion to the ferocity of the battle

in the marketplace.”3

Once again the summer hotting up and so is the battle between these two

cola giants. It’s going to be interesting yet again. Let us just wait, watch

and, as they say, ENJOY!

By:

Jagadish Nath

Faculty Member

ICFAI National College, Guwahati

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The Hindu Business Line, June '2,2006