The Hindu Business Line : Beyond colas, the Coke recipe

ON a hot, dusty afternoon many summers ago, a team of top Coca-Cola officials led by President Sanjiv Gupta was travelling in the country's interiors. A thought struck Gupta when he saw two men sharing a cup of tea, in a tradition called cut chai. In rural and semi-urban India, it is a common practice to divide a humble cup of tea into two - the drink is then called cut chai.

When Gupta saw cut chai being ordered even on a hot afternoon, the sight made an impression on him. Then when Coke officials realised that people buy cut chai not only in the semi-urban areas but also in hip and happening Delhi, they wondered why the company should miss out on the huge market potential India holds for tea and coffee when it can deliver the same at an affordable price. And thus the idea of Coca-Cola India venturing into the tea and coffee business through vending machines was born.

Recounting this little anecdote, the company is careful to add that the idea of branching out into non-carbonated beverages is part of a larger objective of being present in all segments of the non-alcoholic beverage market which Coca-Cola practises worldwide. Nevertheless, Coke's foray into this fiercely competitive business has not been without some trepidation, as it is directly in competition with giants such as Hindustan Lever and Nestle.

But then, Coke has learnt the hard way that in India it needs to spread out into areas other than carbonated soft drinks (CSD) to register desired growth levels, especially after the pesticide controversy hit the company's CSD sales hard late last year.

Besides, India is a vast and complex market and is, in fact, considered one of the toughest to penetrate in the world. There are a whole range of issues companies have to contend with, such as the extreme price sensitivity of consumers, low per capita consumption of many food and beverage products which are in demand across the world, typical Indian taste preferences and then the mind-boggling logistical requirements of such a vast country.

While Coke understood these challenges better in its third coming to India since 1993, the company has only recently put in place a multi-pronged strategy to drive growth. This strategy revolves around two key issues: driving volumes through affordability and accelerating the non-CSD business in India.

What Coke has been able to achieve with its affordability strategy in the CSD category has already been well documented, but the company's new-found initiative in the non-CSD category is also reaping it rich dividends. For Coke, non-CSD business comprises four distinct product segments in India: Maaza fruit-based drink, Kinley packaged and bulk water, Sunfill powder soft drink concentrate and the tea and coffee business under the brand name Georgia.

"We will continue to drive initiatives in the non-CSD category with passion," is how President Gupta defines Coke's emphasis on the non-cola business in India.

Adds Vice-President Sunil Gupta: "We are pushing our non-CSD business aggressively. While it accounts for only about 15 per cent of our total business in India at present, it is already registering a strong double digit growth and will be our future growth driver."

Growth in the non-CSD business comes from the fact that products here provide access to a much larger consumer base and thus lead to increased penetration even in the rural area. Take, for example, Sunfill. "Since we launched Sunfill in two more flavours at huge price discounts, Coke has straightaway gained access to another 200 million-strong consumer base which was not being touched despite the chhota Coke launch at Rs 5. For many people in this country even a Rs 5 drink is beyond reach".

Sunfill was earlier available only in the regular pack but the two new variants, Sunfill Anand and Sunfill Tarang, have broken the price barrier so that each glass costs less than a rupee. Tarang is being made available in two options: 18 glasses for Rs 15 or 22 glasses for Rs 10. Anand is a sachet which makes two glasses in a rupee.

Realising that Sunfill is gaining popularity even in the rural markets, the company has decided to appoint 400 separate distributors exclusively for this product. Makes sense if one compares the consumer base. While the carbonated soft drink consumer base, after years of marketing and brand building in India, is only this year expected to touch 300 million, that for Sunfill alone will be 200 million in the same time span.

"We are using Sunfill Anand and Tarang as initiation price for the CSD business. When consumers try Sunfill, they can be more easily converted into soft drink consumers." Fruit drink Maaza has been growing steadily but this summer Coke has take several measures to accelerate the growth rate. This includes launching 125 ml pack size in cartons — in direct competition with Frooti and Jumpin' — as well as slashing prices of 200 ml to Rs 6 and 250 ml pack size to Rs 7.

Earlier, Maaza was available in only 310 ml glass bottles for Rs 10.

The company claims it is the market leader in the fruit drinks segment with a 44 per cent share (according to latest market research data). While the growth in the packaged and bulk water business has not been huge, the company continues to be market leader with more than 35 per cent share, ahead of Bisleri as well as Pepsi brand Aquafina.

But the real non-CSD business growth appears to lie in the tea and coffee business, which Coke embarked upon in 2001. Gupta says while the total market size for tea and coffee in India is estimated at a staggering $45 billion, the market for "out of home" consumption is $7 billion and this is what the company is eyeing with its Georgia brand of offerings.

"The out-of-home tea and coffee business is witnessing a healthy growth rate of 15 per cent ... this is a market which holds immense potential," Gupta says. Should be, considering Coke has worked so hard before getting into the hot tea and coffee part of the business that now Indian operations have become a Centre for Excellence for this model to be replicated in several Coke operations worldwide.

While this does impart glory to the research and development potential for Coke, it may also generate revenue for the Indian operations in terms of some sort of royalty payment by countries which use Indian expertise. So, while the business does generate revenue in India, it may also give an extra something by overseas use.

In fact, it is for the first time anywhere in the world that Coke has partnered McDonald's in hot tea and coffee vending.

Meanwhile, as the company realised that experimentation with hot tea and coffee reaped dividends, it has now extended the Georgia Gold brand to ice tea and cold coffee, which will also be sold at McDonald's outlets across the country.

Coke has realised that tea and coffee can also be used to realise its ambition of becoming a complete non-alcoholic beverage company in India.

However, despite its stress on affordability, the company has resorted to premium pricing for Georgia Gold tea and coffee even as the beverage sold outside McDonald's outlets is priced much less. So, it seems Coke has realised that it needs to spread its risks in both the CSD and non-CSD categories in India.

In soft drinks, the company is already claiming explosive sales growth after the 200 ml pack was launched last year and says this pack size already accounts for 60 per cent of its total CSD sales in India. What remains to be seen is whether it can replicate the same measure of success with products such as tea, coffee and Sunfill powder concentrate.

Besides, the soft drinks business is seasonal and the per capita consumption in India is extremely low compared to global levels. One more reason for Coke to do more than just sell colas.

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