Indian Soft Drinks Market

1970s and early 80sthe entry and exit of Coke

India has proved to be perhaps the toughest battle ground for the Cola giants. CocaCola was the 1st international soft drinks brand to enter India in early 1970s. Indian market was dominated by domestic brands, with Limca being the largest selling brand. Cola was the largest selling flavor with market share of 40%, Lemon drinks 31% and orange drinks only 19%. Up till 1977, Coca-cola was the leading soft drink brand in India. But due to norms set by the Foreign Exchange Regulation Act (FERA), Coca-Cola left India and did not return till 1993 after a 16 year absence from the Indian beverage market. FERA needed Coca-Cola to reveal its secret concentrate formula as well as reduce its equity stake which was not acceptable. Pure drinks, Delhi launched Campa-Cola, to take advantage of Cokes exit and by the end of 70s, was the only Cola drink in the Indian market. In 1980, Parle, another major Indian player launched ThumsUp, the drink which till date is most popular soft-drink in India. Pure Drinksstrongly objected to ThumsUp being called a soft drink as it felt its taste is too strong. For over a decade, Parle led the Indian soft-drinks market, with its market share reaching a peak of 70% in1990. Late 80s and early 90s Pepsis struggle to enter India Pepsi saw the exit of Coke as a God send opportunity to capture then estimated 900 crore market of India. India was then a highly regulated market with International trade constituting only 6% of GDP in 1985. Foreign trade was subject to import tariffs, export tariffs and quantitative restrictions. Foreign direct investment (FDI) was restricted by barriers like upper limit equity participation, restrictions on technology transfer, export obligations and government approvals. Any foreign investment had a lot of political sensitivity to it. By thetime PepsiCo began its negotiations, the upper cap for equity holding in Indian companies was 40%. PepsiCo realized itll have to be creative to enter the Indian markets. Attempt 1: In May 1985, PepsiCo joined hands with the RPG group to form Agro Product Export Limited. It planned to import Cola concentrate and sell soft-drinks under the Pepsi label and in return offered to export Juice Concentrate from Punjab. The government rejected the proposal due to its using a foreign name and importing the concentrate.

Attempt 2: Pepsi decided to play the Punjab Card by promising to invest $15 million in Punjab, establish an Agro Research centre (costing Rs 1.55 crores), a potato and grain based processing unit (costing Rs 8 crores) and a fruit and vegetable processing unit (costing Rs 5 crores). Benefits and proposal included better market for rice, wheat and fruits in Punjab, creation of 25000 jobs in Punjab and 25000 more in other areas. In 1988, government agreed. PepsiCo entered as Lehar Pepsi and by 1991, it was clear that most of its promises were just on paper. The company did improved the productivity in India, introduced farmers to new technology, established agriculture research centers in Jallowal and Channo (in Punjab) and Nelamangla in Karnataka and invested more capital than promised (by the year 2000, total investment was Rs 18 billion), but the picture on many other aspects was gloomy. The planned operations in Punjab were delayed and as a result, local farmers had to bear a combined loss of Rs. 2.5 Million. Pepsi paid only 0.75 Rs/Kg of Tomato compared to open market price of Rs 2/Kg. Employment was provided to only 783 people as compared to 50,000 promised (although company claimed it to be 26,000 due to direct and indirect operations). It began exporting tea, rice, shrimps, glass bottles, leather products as against fruits and vegetable products. There was an even a show-cause notice to Pepsi by the ministry of commerce. Luckily for PepsiCo, in 1991, the government of India liberated the economy on grounds of severe foreign exchange crisis and Pepsi was freed from all the commitments it had made during entry.

Re-entry of Coca-Cola in 1993 On the 26th of October 1993, Coca-Cola re-entered the Indian market having acquired some of the leading Indian soft drink brands from Parle, namely Thums-Up, Maaza, Limca, Goldspot & Citra. These brands joined Cokes portfolio of international

brands i.e. Coca-Cola, Sprite, Fanta, Schweppes as Coca-Cola India took control of the top soft drink brands in India from the very beginning. From 1993 to 2003, company invested US $ 1 billion in India. The beginning of Cola War For the Cricket World Cup 1996, Pepsi was not theofficial sponsor of the tournament, Coke was. But Pepsi had a whole pool of best players roped in as brand ambassadors from the sub continent and abroad. The ad campaign of Nothing Official About it rocked the country and despite Coke being the official sponsor, it was Pepsi which hogged the publicity. In 1998, with the release of blockbuster movie Kuch Kuch Hota Hai, Pepsi took out another ace from its sleeve, featuring Shahrukh, Rani and Kajol in its ad. The punch line was Yeh Dil Maange More which was an iconic line and struck a chord amongst the people. Coca-Cola countered by spoofing the ad, using Sprite, to hilarious effect. Pepsi responded with a spoof of its own, starring Azhar and Jadeja hitting on the Coke line of Eat Cricket, Sleep Cricket, Drink Only Coca Cola with the punch line of More More Cricket, More More Pepsi. Coke again hit back, this time with Thumbs Up ad. They portrayed the cricketers as monkeys and ended the ad with Dont be a bunder (monkey) Taste the Thunder! Situation turned ugly with Pepsi going to court and finally ended with Coke withdrawing the ad. The Cola wars went on full-fledged till 2003, when a pesticide controversy forced Coke and Pepsi to fight on the same side in so called India's New Cola Wars. The Controversies Presence of Pesticides: In 2003, the Centre for Science and Environment (CSE) findings stirred the beverage industry in India. CSE claimed to find dangerous levels of pesticides in all the 57 samples of 11 soft drinks brands collected by the organization from 25 different manufacturing units of Coca-Cola and PepsiCo spread over 12 states. The study found a cocktail of three-five different pesticides in all the samples - on an average 24 times higher than norms laid down by government-run Bureau of Indian Standard (BIS). Rajasthan, Madhya Pradesh, Chhattisgarh, Gujarat and Kerala banned the sale of Colas in schools, colleges and government departments, and other states also took adversarial measures. The day after the CSEs announcement, Coke and Pepsi came together in a rare show of solidarity at a joint press conference. The companies attacked the credibility of the CSE and their lab results, citing regular testing at independent laboratories proving the safety of their products. They promised to provide this data to the public, threatened legal action against the CSE while seeking a gag order, and

contacted the United States Embassy in India for assistance. They roped in major film stars to explain their purity to public. Despite all these measures, sales dipped by as much as 80% in some regions. The soft drinks industry took over a year to get back on the growth track. Ground Water Crisis: Coca-Cola was recently accused of ground water depletion in many areas of the country. Coca-Colas bottling operations which extract hundreds of millions of liters of water from the groundwater resource have significantly worsened the water crisis as groundwater levels have dropped sharply since CocaCola started its operations. The company was also accused of indiscriminately dumping its toxic waste into the surrounding areas polluting the water as well as the land. The Coke reiterated its commitment to trim downwater usage and take steps towards environment sustainability and farmers welfare. However, activists retort that Coca Cola is in the business of water usage and wasting, creating a luxury product largely for the middle class. They are unlikely to put water concerns over profits, until they are forced to. The road ahead Amidst various allegations and controversies, the soft drinks industry in India, supported by its booming economy, strengthening middle class and low per capita consumption, is growing at a cruising pace. The focus has shifted from carbonated drinks to Fruit drinks, with both the companies launching Lemon drinks in 2009-10. In the next few years, the fruit juice category is likely to carry the growth flag forward as consumers become more health conscious. The companies are likely to take more steps to deal with environment sustainability. But the Cola wars are here to stay. We as customers can be assured of superior products and hilarious ads in the process. And are we complaining?