Comment - Soft Drinks & Water - Invest in PR - and Cricket - to Unlock Indian Promise
Could India finally start to deliver the soft drinks and bottled water potential many have long forecast?
The path for international soft drinks companies in India has been littered with potholes. But, as a relative calm sets in, Richard Corbett assesses the opportunities and suggests how to hit the big time in the country.
With hopes of a duty cut on the horizon, the international wine and spirits folk are getting excited about India. But, the soft drinks industry has been enthused about the opportunities that India offers for some time now.
Coca-Cola Co is confident enough in the country becoming one of its "great markets" and is upping its investment in its footprint in the country to US$3bn over the next seven or eight years. PepsiCo too are splashing the cash and have sponsored the Indian Premier League (IPL) for the next five years in conjunction with other high profile advertising campaigns. Packaging giants Tetra Pak and Rexam are also reaching for their wallets: When the packaging companies are getting involved, then you know that domestic soft drink production is on the up.
All the indicators for soft drinks look good.
This is a soft drinks market that, according to Canadean, is currently around the same size as Italy’s in volume terms but last year grew by nearly a fifth. The Indian middle class was estimated at 250m people in 2007 and in 2030 is forecast to reach 600m according to McKinsey & Co, and it is these middle class Indians that are driving soft drinks demand upwards. Today, Indians drink around 65 litres of hot drinks annually and just 13 litres of soft drinks. What we will see is a shift in consumption from hot drinks to cold drinks over the coming years, facilitated by the expansion of refrigeration units in and out of the home.
The facts are there for all to see; as Indians become more affluent, they will firstly choose to drink safer, clean water and as the rupees build up in their pockets they will increasingly opt for refreshments which deliver more of a flavour experience. It is for this reason that the packaged water market is a third bigger than the carbonates market and growing at twice the speed.
The similarities with China are obvious, but India probably has more untapped potential because Indian per capita is so much lower than Chinese per capita, which is at more than 50 litres of soft drinks. The future would seem to be bright for the soft drinks industry in India.
Life sadly is never quite as straightforward as it seems and unlocking the huge potential of the Indian soft drinks market is far more complex than might initially appear.
The global soft drinks industry has not exactly been embraced by the powers-that-be in India. Their reception has been at best uneasy and at worst hostile, and the relationship has been volatile for many years. Coca-Cola even withdrew from India in the 1970s, and only returned in the 1990s, while PepsiCo stayed away altogether until 1989.
The big soft drink names were viewed with suspicion for a long time in India, and these suspicions were compounded by reports in 2003 that recorded high levels of pesticide residues in some brands. The reports triggered a ban in some schools and pages of negative media coverage, despite the fact the claims were robustly refuted. In one state, Kerala, the manufacture and sale of Coca-Cola was even banned in 2006, before a court failed to uphold the ban.
The problem for Indian soft drinks stakeholders can in part be traced to the fact that, to make soft drinks, you need to use water and it is this water that is often the focus of the dissent. 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 mega soft drinks brands may dilute existing Indian traditions and cultures. Back in 2005, it was even proposed to ban soft drink sales on the railways and substitute them with the more traditional refreshment of buttermilks. These water and cultural factors have helped to make soft drinks in India a political issue and, in the World’s largest democracy, this is a considerable handicap. Soft drinks in India are often an easy target for politicians looking for an emotive cause and a quick headline.
Sound public relations will be instrumental in ensuring soft drinks realise their potential in India. The formation of the Indian Beverage Association back in 2010 should go some way to encouraging dialogue between the Government and soft drinks players, allowing the contribution that soft drink operators make to the expanding economy to be highlighted.
Soft drinks operators will also need to demonstrate that they are using water sparingly and shrewdly. As both Pepsi and Coca-Cola have already identified, a strong association with cricket will also help soft drinks company’s overcome any suspicions that may exist among consumers.
In the short term, though, all is going well in India: According to Canadean, in the first three months of 2013, the soft drinks market jumped by 18% on the same period a year earlier.
In 2012, Cía de Bebidas Pepsico continued to adapt to the gloomy economic climate by holding back prices, offering its core carbonates brands at lower retail prices than its main competitor Cía Servic...
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