The Hindu Business Line : A summer of content

This has been the year where Coke made its first net profits in the domestic market, both companies dropped prices across their brands while capacity expansion has happened at breakneck speed.

Sanjiv Gupta, Vice President, Coca-Cola India

As Sanjiv Gupta, Deputy Division President, Coca-Cola India, points out, "This year, we have achieved lower fixed asset costs, price compliance, costs efficiencies and packaging innovation. Till even two years back, sales of carbonated beverages was a highly seasonal market with over 45 per cent volumes being generated from three months in peak season. The industry dynamics are changing now."

Coke has reason to be buoyant. Spurred by net profitability and a 40 per cent surge in volumes this season, the company is now in the process of undertaking its fastest capacity expansion yet in the domestic market. To be specific, the soft drink major is in the process of setting into operation 30 new lines for its carbonated soft drink (CSD) business. The capacity expansion is being done for both glass and PET bottles. "Of the 30 new lines, six are new plants in Tamil Nadu, Andhra Pradesh and Karnataka, while 27 lines have been added in existing plants. These are a combination of company-owned and franchisee-owned operations. Besides, we have added nine million cases of glass in the first five months of the year," informs Gupta.

While he does not divulge specific numbers, Gupta says a significant portion of the $100 million investment allocated by Coke's Atlanta-headquartered parent company has been ploughed into this capacity expansion exercise.

According to Coke, other recent achievements are giving out additional 2.5 lakh refrigerators this year to retail outlets, and scaling down average costs by about 25 per cent during the last five years.

Shashi K. Kalathil, Executive Director-Marketing, Pepsi Foods

Shashi Kalathil, Executive President, Pepsi Foods, is equally gung-ho about Pepsi's progress so far this year: An unusually good start to the year thanks to the World Cup, topped by the bull run of its lime, neon-coloured beverage, Mountain Dew. The company says Mountain Dew has already gobbled up a 5 per cent share of the Rs 7,000-crore carbonated soft drink industry.

According to Kalathil, Pepsi India is now one of the large focus markets of PepsiCo globally. "India is a heavy investment market for PepsiCo, considering the sheer potential this country presents."

When the scope for growth and potential arises, an obvious question that comes to mind is that of the large, untapped rural market.

Elaborating, Kalathil observes, "Tapping the rural market involves a while lot of activity. It involves the right pricing strategy, and the products have to be chilled so retailers need refrigeration equipment. Besides, if PET bottle consumption has to grow, people need to have refrigerators at their homes. So the big challenge in cracking the rural markets is distribution and logistics."

Coke, meanwhile, says it has had an unprecedented rural thrust, having increased penetration by 40,000 villages this year. According to Coke, the contribution to volumes by rural areas has increased from 25 per cent to 35 per cent during the last few years. The company says it has increased its village penetration from 9 per cent two years ago to 25 per cent this year.

Another factor that has set apart the current season from the previous ones is a full-blown price war between the two arch-rivals.

While dropping end-consumer prices of returnable glass bottles does add to pressure on bottomlines, both companies are focused on driving volumes.

Pepsi, for example, dropped prices of its 300-ml returnable glass bottles in some high-consumption markets such as Delhi by almost 40 per cent - from Rs 10 at the beginning of the year to Rs 8, and then to Rs 6 about a month back. Just recently, the company rolled back the price drop, and has now settled for a price tag of Rs 7 for its 300-ml bottles.

Prices of Coke's beverages in 300-ml bottles, meanwhile, vary between Rs 7 and Rs 8, and the variable, region-specific price strategy is expected to continue.

Prices of 200-ml glass bottles continue at Rs 5.

Earlier this year, Coke introduced 600-ml PET bottles priced at Rs 12 each, beginning with Maharashtra. Pepsi - which was selling 500-ml PET bottles priced at Rs 15 each - reacted by reducing prices of its 500 ml bottles to match that of Coke. Prices of 1.5 litre and 2 litre PET bottles, too, were brought down to Rs 35 and Rs 40 respectively, against the earlier price of Rs 43 and Rs 50.

On the communication front, while the routine spoofing and warring on television advertising continues on and off, for their core brands both companies have adopted diametrically opposite ad strategies. Coke, for example, has been focused almost entirely on its desi ad positioning set against villages and small towns for Brand Coca-Cola, while Pepsi's flagship summer campaign is all about four city-bred youngsters (enacted by Bollywood stars) in a big-city backdrop.

Kalathil refutes the contention that Pepsi's current advertising will appeal only to city slickers. "It's a misconception that a rural looking ad will appeal only to rural audiences, and that an urban backdrop ad will go down well only with city people. As long as the advertising is aspirational, it works. The currently-on-air Kareena-Preity Zinta ad, for example, has gone down well with the rural youth."

The soft drink industry is obviously frothing with action this summer.

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