Selling sodas in India isn’t easy, and Coca-Cola learned that the hard way.
The American soft-drink giant first entered the market in 1950 but withdrew from the country in 1977 following major policy changes by the then ruling Janata Party government. It would take over 15 years for Coca-Cola brands, including Sprite and Fanta, to return to supermarket shelves, following the eventual opening up of India’s economy to foreign trade in the early 90s.
Since then, the American company has been slowly building up its business in the country, even acquiring local favourites such as Limca and Thums-Up. India is now Coca-Cola’s sixth-largest market in the world, up significantly from a decade ago, when the country barely made it to the top 20.
However, the difficulties of doing business here haven’t diminished. The company has battled a number of regulatory challenges and political upheavals. Its latest crisis comes from the southern state of Tamil Nadu where shops are boycotting both Coca-Cola and PepsiCo’s products, accusing the multinationals of straining the state’s limited water resources and calling on consumers to buy local colas instead.
However, with rising incomes and a booming youth population, India remains a goldmine for large consumer companies and beverage-makers in particular: The country still has one of the lowest per capita rates of cola consumption in the world, meaning that there’s plenty of room to grow.
In a conversation with Quartz, Venkatesh Kini, president, Coca-Cola India and southwest Asia, explained that no matter what, the company will weather the storm.
It’s been over a month since foreign cola brands were boycotted in Tamil Nadu. Where do you stand today?
In Tamil Nadu, we’ve been in conversation with various stakeholders. We’ve been sharing all the facts of our business, stuff they probably didn’t know before they began making these demands for a boycott. For instance, we source 50,000 tonnes of mangoes from Tamil Nadu for Maaza (one of the targets of the boycott); we are (also) supporting sugarcane farmers there. Once we began sharing these facts, there was an indication that we could begin a conversation. I wouldn’t say the problem is completely resolved, though.
What is it like to do business in India?
I can tell you with a lot of confidence that a lot of things have improved.
For example, launching new products. The Food Safety and Standards Authority of India (FSSAI) would earlier take as much as a year or two to give approvals. Now you get approvals in a month or two.
Take GST (the goods and services tax) for instance—the kind of impact it will have on our economy in terms of just sheer streamlining and smoothening out of operations; it will probably be the biggest reform since liberalisation. We see GST as an opportunity and not threat, i.e. we don’t see it as inflationary but as a tremendous boost to business.
Don’t regulatory and policy issues alter the way you plan investments in the country?
We operate in over 200 countries. To be honest, the kind of issues we face in India are very small compared to some of those that we face in other markets. For instance, there are countries undergoing 100% devaluation in currency right now.
Surely, in terms of the sheer size of India, an issue in one part of India is almost equal to an issue in a country in Africa. In India…there is no shortage of confidence. We recognise that in a country like India, which is a thriving democracy with multiple stakeholders and voices, there will always be some challenge somewhere or the other.
Such as the recently announced ban on liquor sold near highways?
Of course, we sell to a lot of hotels and bars along the highways and if a few thousand of them shut shop it impacts business. But that’s the cost of doing business in a thriving democracy.
You’ve recommended taxing beverages based on their sugar content, but under the new GST regime, beverages could fall within the highest slab rate. What do you think about that?
Taxation policies are evolving around the world (for beverages) based on the sugar and calorie content of the product. We are all optimistic that whichever direction the government takes will eventually gravitate towards a scientific basis for determining which products fall under the higher tax brackets and which fall under lower tax brackets—based on product ingredients, science, and on sugar content, as opposed to just the carbonation.
Besides new products, you’ve also introduced new pack sizes. Is that an affordability play?
We recognise an increasing trend of consumers wanting personal pack sizes and also consumers seeking portion-control, so we have now developed a range of packages allowing consumers to drink the right amount for themselves and not more. So, we have an 180ml can and 250ml bottles for our carbonates and fruit drinks. When we say portion control, it is not just about calories, it is just how much of the beverage we should offer to the consumer. India is still an underdeveloped market for beverages where we see that smaller sizes are preferred by consumers.
Your focus on non-carbonated drinks seems to is increasing. Is that the strategy from now on?
Our non-carbonates portfolio (i.e. juices, still drinks, and dairy) is currently 35-40%. Today, only one out of 100 servings of liquid that consumers have in India are fizzy drinks…99 other servings are juice, tea, coffee, dairy etc. So, most of the market today in India is still non-carbonated. That market will rapidly start converting to packaged forms as the consumers’ ability to spend increases and their desire for convenience goes up. While we feel the carbonated segment will grow, the non-carbonated segment in the packaged form will grow faster because of the conversion from unpackaged to packaged.
Are colas getting a bad reputation in India as much as they are in West, especially as urban consumers demand more nutritious products?
The truth today is that the mass, or average, consumer here still loves soft drinks such as Coke or Sprite. There is probably more than necessary conversation (about the content of aerated drinks) on social media often fueled by misinformation and misconceptions and partial truths that are circulated.
But urban households are now looking to consume healthier foods and beverages…
Health means different things to different people. In many other parts of the world, a majority of consumers face a problem of over-consumption of calories. In India, that problem is restricted to a very narrow affluent segment. Here, the challenge for a majority of people is still the lack of calories, not excess calories. And even among affluent Indians, the level of knowledge or understanding of calories or the source of those calories is not yet as high as it would be in another part of the world. It is still an emerging concern.
If you go to any developed market, like Japan and the US, our portfolio is even broader than in India; in Japan, half the portfolio is non-carbonates. So, eventually, India will look like most other countries, where there will be an equal mix of carbonated and non-carbonated drinks.
The slowdown in rural markets has hit consumer good companies. What about Coca-Cola?
Well, rural is picking up after two years of slowdown; we are cautiously optimistic. We are anticipating that this year will be better as more government programs play out to better rural demand. The rural opportunity is really about wider distribution. There’s also a misconception today that rural India is only about price. Even among rural consumers in India, there are different segments with different levels of affordability. It is not accurate to cast rural as purely an affordability play, but it is definitely a distribution play. Which means that being able to get your product into rural (areas) is a bigger challenge, but once you get there, the rural consumer could demand anything from juices to carbonates to dairy.