Comment - Soft Drinks & Water - Poor Opportunities in India
India's emerging middle class may grab the spotlight, but it's the country's poorer citizens that soft drinks firms need to target, says Annette Farr
India has been identified as an emerging market for the soft drinks industry. There are fledgling trade shows Fi India this month and Drink Technology in November. This year has also seen the inauguration of its first beverage association, Yet India is a complex country of cultures, class divide and extreme poverty, and Annette Farr has a cautionary comment for newcomers to the market.
India's recent history of an accelerating economy with impressive GDP growth rates and increases in per capita income has led to significant blue chip investment in the country. However, with soft drinks having a mere 6% share of the beverage market, according to analysts Canadean - tea accounts for 50% of the beverage market followed by milk with 37% - the country still appears ripe for development.
On the face of it, it is a sizeable market. After all, the latest figures from the World Bank record a population figure of 1.14bn, only marginally behind that of China's 1.32bn.
But, the market is extraordinarily diverse. This 1.1bn figure is made up of a rich mix of cultures, languages and religions. Hindus account for some 80%, followed by Muslims (13.4%), Christians (2.3%), Sikhs (1.9%), Buddhists and then Jains.
Linguistically, too, it's complex. According to the 2001 census there are some 29 languages spoken in the country, with Hindi being the principal – Hindi has 23 different dialects of its own - followed by Bengali, Telugu, Marathi, Tamil and Urdu.
Geographically, India occupies a little over 2% of the world's total land area encompassing the Himalayas, the fertile plains of the Ganges and the Great Indian Desert. There are 29 states including the National Capital territory of Delhi and six union territories (UT). Each state and UT has a unique culture, demography, dress, as well as food habits and festivals, and is run autonomously.
If this wasn't challenging enough, there are further hurdles: India has yet to conquer poor working practices, allegations of corruption (as evidenced by the shambolic state of affairs leading up to the Commonwealth Games earlier this month) and appalling poverty.
The World Bank reports that, despite a fall over the past decade, the incidence of poverty nonetheless remains high at around 28%. Worryingly, the recent rate of decline is stagnating at about 0.74% per year with the poor being ever more vulnerable in the face of sickness and natural disasters.
So, how can soft drinks exploit this melting pot? After all, even if India is the tenth largest economy in the world, unless the country can get to grips with its social challenges then deceleration of economic growth is likely and beverage consumption will suffer.
Global giants Coca-Cola Co and PepsiCo have built up their portfolios by acquiring leading indigenous brands, such as Coca-Cola's purchase of Thums Up, and launching established mainstream brands, the latest being Pepsi's Pepsi Max. India's own major FMCGs, Tata Global Beverages and Rasna, are formulating and introducing new drinks to attract consumers away from their traditional non alcoholic drinks of milk and tea.
Rasna, for example, has plans to enter the health drinks segment with the launch of a glucose-based powder product. Available in nutrient-based powder form, the product is currently being test marketed in Kolkata and will be priced at less than INR10 (US$0.21).
At Tata Global Beverages' annual general meeting in Kolkata, chairman Ratan Tata said that the company is planning to expand across beverage categories: “We will continue to invest in innovation of new products,” he said. “There will be wide innovative products in the beverage company and we will focus on wellness and good health products.”
Packaged cold beverages, particularly carbonates, are viewed by Messe München International India, the organisers of Drink Technology India which takes place next month in Mumbai, as having potential for rapid growth. Euromonitor has estimated an annual growth rate of 6.7% for CSDs in the country between 2009 and 2013. There are over 100 plants across all states providing direct and indirect employment for over 125,000 employees. India has attracted one of the highest foreign direct investments in the country from Coca-Cola and PepsiCo.
Indeed, Coca-Cola, as official beverage partner of the Commonwealth Games, introduced a new campaign and logo for the eleven-day event, which was held in Delhi. More than 200 Coca-Cola branded product delivery vehicles were seen around the city sporting the message 'Go Dilli - Let Sports Win'.
Yet, both American soft drinks giants have had a chequered history in India. Earlier in the decade, they both had to counter accusations of anti-environmental activity, which was allegedly depleting local communities of their groundwater, and pesticide scares in their colas.
Since then, water sustainability projects have topped their corporate social responsibility agendas. PepsiCo reports that, in 2009, it was able to give back more water than consumed through various initiatives of recharging, replenishing and reusing water. In 2006, the average consumption of water in Coca-Cola factories was about 4 litres for every litre of beverage sold, but now the company has reduced that water consumption to about 2.5 litres. According to Coca-Cola India’s vice president of technical, Asin Parekh, the company's aim is to reach 1.1 litres.
Coca-Cola and PepsiCo's presence in India is high profile. They are a formidable marketing force using Bollywood stars in advertising campaigns and sponsoring the nation's beloved cricket. No matter what is said of the potential for further development, few companies are able to take on such mighty competition.
Yes, there is a growing middle class of young, westernised consumers, but there are considerably more living below the poverty line with increased inequality. A UN Dept of Economic and Social Affairs working paper on 'Poverty Reduction in China and India' concludes that “Indian poverty reduction has been relatively slow and certainly much below what would be expected given the rapidity of income growth in the past 15 years.”
Development going forward should focus on producing affordable healthy drinks for the vast numbers living on or below the poverty line. Coca-Cola India has made a right step in this direction by working with Bharat Integrated Social Welfare Agency, a leading NGO, to launch Vitingo, an affordable, nutrient-rich beverage, for those at the bottom of the socio economic pyramid in Orissa.
Until India can bring about effective social change to its impoverished society, protect the young and vulnerable, improve employment prospects so families can earn a living wage, then there is little room for consumption levels of soft drinks to increase.
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