Are the India CSD & bottled water markets set to boom?

Are the India CSD & bottled water markets set to boom?

The soft drinks industry has been buzzing about China for quite some time. But, look in its shadow, and one can see India - a market that could eclipse its neighbour in the future. Ray Rowlands casts his eye over the market.

An essential element of any product’s success is, of course, a market audience. With a population approaching 1.4bn, you cannot get bigger than that offered by China. Moreover, the country’s economy has been moving forward in leaps and bounds. China’s annual GDP growth has averaged 8% over the past 30 years and, according to the World Bank, was 10.3% in 2010. Compare that to the disappointing results achieved in Western economies, and you can see the great attraction that China holds.

In line with the country’s rapid economic development, the soft drink market has also enjoyed vigorous growth, buoyed by the pursuit of an improved lifestyle. According to trade sources, the Chinese drink 40 litres of soft drinks per head. Multiple that by the number of inhabitants and you are not far short of 60bn litres. That’s a sizeable chunk of the total global market.

The progress of China’s soft drinks market has attracted many international players. According to The Coca-Cola Co, the country is now its third largest global market. It is no surprise, then, that the US-based giant has invested heavily here. In August, it announced plans to spend a further US$4bn on new bottling plants, expanding existing facilities and funding initiatives in distribution, marketing and cold drink development. Rival PepsiCo has also made a serious commitment to the country. In 2010, it announced a further US$2.5bn investment programme for its combined beverage and snacks business.

However, after years of rapid growth, there are reported signs that China’s soft drink market may be heading towards saturation. A slowdown in population growth since the introduction of the ‘one child’ policy in 1979 won’t have helped. At the same time, endless market expansion could never have been expected. The on-going contraction of the leading US CSD market since 2003 bears witness to this.

Just across the way from China is another developing market whose potential, to my mind, is grossly under-rated. The market is India. Its population is already almost equal in size to that of China and is expected to exceed it in less than 25 years. Furthermore, over 50% of its population is below the age of 25 and more than 65% come in below the age of 35. These are ideal target groups for soft drinks. India’s GDP growth is pretty healthy too, with the World Bank registering a rise of 9.7% in 2010.

India is already the largest milk- and tea-producing and -consuming country in the world; given sufficient encouragement, it could be a major soft drinks market too. As things stand, soft drinks represent only a fraction of the country’s total commercial beverage consumption, with per capita levels well below China's. But, there are close similarities between the structures of the soft drinks markets in both countries. Both have a strong CSD and bottled water following. Both have expanding sports & energy drinks markets, and a growing penchant for more healthy drinks. One major difference is that Indians are not proving that receptive to iced tea, despite hot tea being the country’s favourite beverage. Nonetheless, the opportunity is there, given the right marketing support. In other words, India presents comparable product preferences to those that have attracted the multi-nationals to China.

That is not to say that India has been ignored by the leading lights in the soft drinks industry, far from it. Coca-Cola has been active in the country since its re-entry in 1993, about the same time that PepsiCo entered the market. They are both leading non-alcoholic beverage companies in India today and have supported their position and the advance of the country’s soft drink industry with substantial investment. It was announced in December, for example, that Coca-Cola India is creating a new division to facilitate innovation, launch, incubation and development of non-carbonated drinks.

According to Coca-Cola India's website, the company has injected nearly US$1.1bn in its operations since its re-entry. PepsiCo claims a similar amount (for its beverages and snacks combined). But, compare these sums with the level of investment applied in China and you can see that India is receiving the short straw. The potential offered by India is phenomenal, however, with average soft drinks consumption as low as five to ten litres per annum.

Demand is growing but the problem in India, as in China, is that disposable income is not evenly distributed. To date, soft drink companies have targeted the middle income groups which only represent 150m to 300m people out of a total population of almost 1.2bn. That excludes the bulk of inhabitants who obviously still buy drinks (e.g. sugar cane and coconut juice) that they can afford, which are not necessarily branded, commercialised products.

Whilst the middle class sector is increasing and urbanisation and disposable income levels are rising, improvements to the environment need to be encouraged in order to bring more consumers on board, such as further investment in the country’s infrastructure, increased rural market penetration, greater emphasis on affordable packaging and closer adherence to local tastes. With the right investment and appropriate product portfolio India easily has the capability of becoming the next rising star in Asia.