The Hindu Business Line : As cola wars rage, this price bubble won't burst

COMPETITION is a wonderful thing as long as consumers benefit from it. Then those who love quaffing carbonated soft drinks (CSDs) should be voting with their feet.

In several pockets of the country, the bruising cola wars between Coca-Cola India and Pepsi has seen a rollback in prices of colas and other flavoured drinks. According to industry analysts, the current prices of these soft drinks in select markets are the same as what it was way back in 1997.

It has everything to do with either cola brand's "weak market strategy". Which means wherever one of the brands is strong, the other one moves in with a pre-determined price-cut, leaving the stronger brand with no choice but to reduce its prices and protect turf.

Take the Tamil Nadu market, for instance. Trying to make inroads into a strong Pepsi market, Coke triggered a price war, cutting prices all over the State except in Chennai. Pepsi soon followed suit, with the result that a Pepsi or a Coke cost Rs 7 for a 300 ml bottle and Rs 5 for 200 ml — prices prevailing in '97.

In Chennai, however, colas and other flavoured brands such as Fanta and Mirinda cost Rs 8.50 (300 ml) and Rs 5.75 (200 ml). Sources say volumes for both companies have shown a spurt as a result of this price drop. According to analysts, if one were to factor in inflation and input costs, a soft drink bottle should cost around Rs 12 for a 300 ml bottle but competition and lacklustre economic conditions have kept prices in check, indeed lowered them.

Another factor which influences price drops is the fact that Tamil Nadu is a flavour-driven market, especially for orange drinks such as Mirinda and Fanta, and lower prices help combat strong regional brands like Torino and Kalimark.

The market responds favourably to price cuts and promos, say analysts.

However, the prices of colas and other CSDs in Mumbai and Delhi rule higher at Rs 10 for a 300 ml bottle. In Bangalore and the rest of Karnataka, it costs Rs 9 (300 ml). Both Pepsi and Coke claim equal share here, so there has been no price war.

Pepsi triggered a price war in Kolkata, a weak market for the company. The result is that a 300 ml CSD bottle costs Rs 8 there and 200 ml Rs 5. The sources say Pepsi's Kolkata market has grown because of this strategy.

Till 1996, the standard bottle sizes for a CSD was 250 ml and it was priced at Rs 6. The cola majors then introduced the 300 ml bottle at Rs 7 and subsequent hikes saw prices settle at Rs 10 in 2000. There has been no upward price revision since. Instead, competitive conditions have seen a rollback of prices.

Kerala too saw a rollback of CSD prices to '97 levels earlier this year. Not only are there cola wars in God's Own Country but soda wars as well. With a huge unorganised sector producing sodas, Coke took the plunge with Kinley and dropped prices to Rs 3 for a 300 ml bottle; half of what it was selling at. Pepsi too followed suit with its Lehar Evervess brand of soda.

Andhra, however, continues to be a strong Thums Up market. Prices for CSDs in Andhra, reports say, continue to be Rs 9 for a 300 ml bottle.

By the end of summer, the cola majors should know whether consumers have taken to their low-price gambit.

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