Much has been written about the rapidly developing alcoholic drinks market in India. But the potential in the comparatively undeveloped packaged soft drinks market is nothing short of immense. Ray Rowlands of market analysts Canadean looks at current consumption and growth potential across different soft drinks sectors, and asks why international beverage companies are not paying more attention to this sleeping giant.

Despite India's hot climate and status as the world's largest milk and tea consuming country, iced and ready-to-drink (RTD) tea consumption in India is surprisingly still negligible. Indian consumers are not receptive to new products and flavours. Indeed, this not only applies to iced and RTD tea but to iced/RTD coffee, soy drinks, and sports and energy drinks.

However, this is changing. Soft drinks are taking share from other beverages in a growing market. And the potential is significant. Consumption of hot tea is close to 70bn litres or eight times the size of the entire soft drink spectrum.

After dipping in 2006 the carbonates market has resumed a modest rate of increase. Marketing efforts are focused on the younger generation because carbonates currently have limited appeal to adults, except as a mixer with alcoholic beverages. Carbonates still have to overcome the problem of appealing to post-teen consumers if the category is to remain in growth.

Cola continues to be the outstanding flavour of choice but its influence is waning with time. Lemon and lemon-lime drinks are fast catching up whilst orange continues to be a popular flavour, especially in the south. These three flavours combined now actually exceed cola on a volume basis. Just four years ago they were barely half its size. Yet, apart from soda water, which remains important as a mixer with alcoholic beverages, other flavours are failing to make any real impact.

Packaging is having an increasing influence on growth. The 2-litre PET bottle offers good value for money and recent supplier focus on this pack type has resulted in increased carbonates volume. There is also a general shift towards PET, but the plastic is not yet available in all size formats. The popular 20cl and 30cl 'on-the-go' sizes are still in refillable glass bottles; glass retains a major stronghold.

Water beginning to flow

It was not so long ago that the bottled water category in India was a miniscule market catering to only the upper strata of society and five-star hotels. However, the past decade or so has witnessed tremendous growth. Volumes today are five times the level of just ten years ago. There are now ten national and hundreds of local and regional brands vying for shelf space. However, recent category growth has come from increasing 'on-the-go' consumption at bus terminals, roadside kiosks and railway stations.

The water business is highly competitive and transport costs from centralised filling units are relatively high. This has allowed hundreds of local and regional fillers to spring up across the country providing stiff competition to national brands. Most brands use table water but natural spring water is growing from a small base; however its premium price keeps demand low. Spring water has less than a 5% market share.

Glass does not feature in water packaging, and the 1-litre PET bottle is the container of choice. There is also a large market for small plastic pouches. The inexpensive packaging material makes these single portions incredibly affordable to meet the needs of low-income consumers. Yet even today, in comparison with the global and regional scenario, the Indian packaged water market is a relatively small one.

Freshly squeezed

Indians prefer fresh-cut fruit to packaged juice and so the packaged pure juice market is relatively minute, with consumption mainly limited to people on higher incomes. Juice is, in fact, one of the smallest categories in the soft drinks market.

Nectars (drinks with a juice content of 25-99% juice and therefore including sweetened juice) are far more common. Nectar volumes are ten times the size of the pure juice market and growing rapidly. Because of their lower juice content, nectars are cheaper than juice and more attractive to consumers. This is a major factor contributing to their growth. Whilst most pure juice comes from the orange, the nectar category boasts several core flavours including apple, lychee, guava, orange, mango and pineapple, with other flavours like pomegranate emerging.

Lime still maintains its impressive lead in the still drinks market (products with a juice content below 25%). Volumes of this flavour alone are almost on a par with the bottled water market. It is little wonder therefore that still drinks are the leading soft drink category in India. Fresh lime, coconut water and sugar cane juice are important flavours in the street-vendor market. Street-vendor loose sales are still over five times larger than the packaged still drinks market.

Mango with natural fruit flavours remains the favourite in the smaller packaged segment. Most packaged volume still comes in refillable single-serve glass bottles, but larger-sized PET packs are growing rapidly to meet the demand for family packs, and will soon be on a comparable level with glass. Cartons are also growing rapidly but other packaging is largely underdeveloped.

As in the rest of the world, economic growth in India has slowed and soft drink consumption will suffer to some degree as a consequence. Longer term however, the country remains ripe for development. As a comparison, and with the exception of dilutables, the per capita consumption levels of all soft drinks are lower in India than in China. Yet it is China that has been the target for so many international beverage suppliers eager to expand their market. Perhaps it is time for these companies to home in on the latent potential that India has to offer.

Source: Soft Drinks International

For more information, go to