Strategic Management Course Project

Analysis of Coca-Cola India

Debi Pati

Leipzig, 11 April 2023

ContentsCompany Chosen for Analysis......................................................................................3

Soft Drink Industry in India...........................................................................................3

Customers....................................................................................................................4

Products....................................................................................................................... 4

Competitors..................................................................................................................5

Industry Analysis.......................................................................................................... 5

Differentiation Strategy................................................................................................6

SWOT Analysis of Coca-Cola.........................................................................................7

Recommendations....................................................................................................... 7

Company Chosen for Analysis

The Company chosen for analysis is Coca-Cola. We focus on the Indian division of the cola

giant which functions as a separate Business Unit. The Indian division follows the structure

of the US parent and the concentrate producer is separated from the Company owned Bottling

unit. Coca-Cola India takes care of the advertising and sells concentrate to the company

owned bottler called Hindustan Coca-Cola Beverages Private Ltd (HCCBPL). HCCBPL

operates the bottling plants and manages distribution and sale of the products. They have

control over pricing, pack and the channels for sale. Coca-Cola has a celebrated BPPC model

which is Brand, Pack, Price and Channel. Coca-Cola India takes care of the branding aspect

through television commercials and other brand engagement programs outside the store. In

store promotion is again handled by HCCBPL.

Soft Drink Industry in India

The carbonated soft drink market in India is Rs 60 billion1 in size with Pepsi and Coke

dominating the market with 95% share. The soft drink Industry consists of the cola and the

non-cola segment with cola market taking 67% of the share. The fruit based beverages which

include fruit based drinks, nectar and juices form Rs 40 billion market2. The per capita

consumption of soft drinks in India is 5 to 6 bottles which is in stark contrast to a country like

Mexico which consumes 605 bottles per person3. Increasing the per capita consumption of

soft drinks is a major concern for both Pepsi and Coke. Pepsi and Coke fiercely compete in

the Indian market with Coke being responsible for 60% of the retail sales and Pepsi

accounting for 37% in 20114. The market is in a high growth phase currently, Coke reported

volume growth of 20%5 in first quarter of this year compared to 2% growth in its worldwide

sales. However with consumer’s becoming more health conscious the sales of the non-

carbonated drinks had a much high CAGR of 35-40%6. Another factor driving this growth

was the rising disposable incomes and consumers were willing to pay more for healthier

alternatives. In a report released by Associated Chambers of Commerce and Industry of India

(ASSOCHAM) the market for the non-carbonated beverages was expected to grow to three

times of 7.9 billion dollars.1 Source: Ministry of Food Processing Industries2 Source: Business Standard3 Wall Street Journal Article “India has 1.2 billion people but not enough drink Coke”4 Source: Euromonitor International5 Economic times Article: “Coca-Cola April-June Volumes up 20% riding on Marketing and Pricing6 http://www.foodnavigator-asia.com/Markets/Indian-non-carbonated-beverage-market-to-boom-says-report

The growth in the non-carbonated segment was led by juices. Dabur’s Real held more than

50% of the market share while Pepsi’s Tropicana held a 45% market share7. Coca-Cola’s

Minute Maid range of juices were a new entrant in the market and gaining market share in

this category was one of the focus areas of Coca-Cola. Coca-Cola operated 35 plants and 16

franchisees in the country while Pepsi had 20 plants and 23 franchisees8.

Customers

Soft drinks were purchased by all age groups. Though it was Coca-Cola company policy not

to advertise to children below the age of 12 there was a sizable consumption in this segment

as well. Traditionally the target audience of the Coca-Cola were teenagers. It was believed

that the consumption declined once a person reached 30 years of age so 12-30 was the

relevant age group for majority of Coke’s sales. However Coke came up with themes like

“Open Happiness” appealing to a wider audience as opposed to Pepsi which targeted the

youngsters. This was perhaps because Coke had brands like Thumbs Up which had a more

male persona and appealed to the adventurous Indian youth. Urban markets9 accounted for a

major share of cola purchases, low penetration in rural markets and modern trade growth in

urban markets were the prime factors responsible.

Products

In India apart from the flagship Coca-Cola brand, Coke sold Thumbs Up, Sprite, Limca and

Fanta. New drinks like Citra and Crush were launched10. These drinks had been acquired

from Parle and had been dropped from the product portfolio in favor of Sprite, Limca and

Fanta were brought back at lower price points so as to compete with smaller brands.

In the fast growing juices segment the Coke had entered with its Minute maid range of juices.

In the 100% juices segment they launched Orange, Apple and grape flavors, there were no

nectars launched and in the fruit based drinks category they launched 6 flavors namely pulpy

orange, mango, lime, apple, mixed fruit and grapes11. New variants like milk based drinks

were also being test marketed12. 7 Source: Euromonitor International8 Source: Report by Ministry of Food Processing Industries9 See Appendix 4: Market Segmentation in India10 Article: “Coca-Cola to revive Citra after 19 years, aims mopping up volumes”11 Source: Coca-Cola website and primary research 12 Source: Business Line article “Coke test marketing Maaza Milky Delight in Kolkata”

Competitors

In the carbonated drinks market Pepsi was the major competitor for Coke. The two firm

concentration ratio was 97%. Others players like Dr Pepper and Parle Agro had a negligible

market share (See appendix 1). The competition was intense and any product launch by Coke

was matched with a competing launch by Pepsi. The competition was visible publicly in the

ads aired by the two cola giants. The ads often took potshots at the rivals’ ads and there were

instances when the matter landed up in courts.

However Coca-Cola’s position in the non-carbonated market was that of a fringe player. The

Minute maid range of juices had been recently launched and the juice off take was much

lower compared to dominating rivals like Dabur’s Real and Tropicana. In the fruit based

drinks category however Maaza, a mango based drink from Coke held a 40% market share

and led the category.

Industry Analysis

The competition among existing rivals was intense with Coke and Pepsi battling it out in any

space. While Coke dominated in the carbonated drinks space Pepsi was dominant in the

juices category. Both players were actively investing and trying to increase volumes by

introducing new variants and slashing prices. With long drawn summers in India and rising

disposable incomes, the volume growth for both the cola majors had been spectacular and

India had come to be focus market for both the players. Both players also sought to enhance

presence in rural markets which formed a sizable chunk of the Indian markets. Innovative

coolers were launched to address the issue that in rural areas there are refrigeration problems

due to lack of power supply.

However given the presence of strong brands entry into this attractive industry was not that

easy. The threat that any entry would invite backlash from Pepsi and Coke discouraged new

entrants. Coke had bought over successful local brands like Thumbs Up, Citra when it

entered and continued nourishing some of them.

The switching power of consumers in the cola segment was relatively low. It was believed

that brand loyalty was an important factor in determining sales and consumers did not switch

brands often. Thus the cola companies tried to ensure high fill rates so that the product was

always available on shelf. The power of the suppliers was low as the concentrate producer

bought materials like sugar etc for which they could rely on a number of suppliers. The

bottlers were fully owned by the company and thus there was no major tussle over

concentrate prices. Also the bottlers had made heavy investment in setting up the plants and

distribution networks and it was difficult for new players to quickly gain access to outlets.

The threat of substitutes is looming large. Consciousness about health is rising with more

income and there is a clear trend towards more healthy drinks being preferred. This trend is

more apparent in Urban India. It was expected that juices and nectars would grow at a CAGR

of 22% opposed to 10% CAGR for carbonates13. Pepsi and Coke had both started making

investments in this direction. The growth in this category was fuelled with the rise of modern

trade in India and this gave the companies to showcase a wide range of products.

Differentiation Strategy

Coke thrived on differentiation through its brand. The core competencies of Coke were of an

intangible nature. Brand and customer base were the basis for Coke’s success. In blind tests

Pepsi was preferred over Coke but with the Coke labelling on it was Coke that was preferred

illustrating the power of the brand. However in India Thumbs Up and Sprite were more

powerful14 than the flagship Coca-Cola brand and attempts were being made to recruit the

young Indian into the flagship brand. Prices were slashed for the flagship brand to encourage

consumer’s entry into the category through Coca-Cola and not through Thumbs Up and

Sprite.

Coke also had a better reach to the outlets compared to Pepsi. The wide distribution network

gave them an edge over their competitors. But with Unilever and other FMCG giants

foraying into the health15 and wellness beverages category this differentiating aspect of Coca-

Cola was under serious threat.

With a trend towards healthier drinks this brand loyalty to Coke would have been a deterrent.

Any juice sold under the Coca-Cola banner would carry an association with the cola giant. In

order to avoid this association juices were marketed under the Minute Maid name. In case of

13 Soft Drinks in India, Industry Overview by Euromonitor International14 See Appendix 2: Market Share Of Different brands in the Soft Drink Market15 Source: Economic times article “HUL to foray into fruit-based beverages market”

juices the differentiation was through having a full range of juices and branding it as a must

have on the breakfast table. Tropicana sought to position itself as a breakfast item, they also

had a full range of juices. Real differentiated on the health aspect launching Real Activ Fiber

plus which was projected as being healthier compared to other juices.

SWOT Analysis of Coca-Cola

The Coca-Cola had huge strength in terms of its brand and distribution networks. Brands like

Thumbs Up and Sprite registered strong growths and there were regions in the South and East

where they dominated. The company was also dominant in urban markets which accounted

for 70% of cola sales16.Coca-Cola also invested heavily in the cooling equipment and

captured outlets by distributing their own captive coolers.

A major strength of the Coca-Cola is its distribution network which ensures reach. However

the reach (to 0.6 million retail outlets) is far below Unilever which reaches 6.4 17 million retail

outlets in India. The sales force which services the outlets is another major source of

advantage as they have been able to achieve superior level of service. A major weakness of

the company has been its inability to be the first mover into emerging opportunities. Even in

India’s cola space they entered late. A major setback for Coca-Cola Company has been the

fact that they moved into juices very late after Real and Tropicana had really established

themselves. The threat for Coke was the fact that the consumers in the urban cities were

becoming more health conscious. With a limited portfolio in juices, they were not well placed

to capitalize on this trend. The opportunity that Coke had was to expand its product portfolio.

They were already looking at a collaboration with P&G to enter the snack business, besides

with juices they had been successful outside India and thus it was possible for them to launch

a full range of juices.

Recommendations

Coca-Cola needs to promote its flagship brands at the expense of brands like Thumbs Up as

the major differentiating factor is the brand. With Thumbs Up drinkers entering the age of 30

or more the right time to recruit youngsters to the Coca-Cola brand is now. In that direction

the decision to use the 200ml Coke bottle as an entry point into the category by slashing

prices is a welcome move. Coca-Cola should also continue to strengthen their distribution

16 See Appendix 4: Market Segmentation17 Source: www.hul.co.in

reach as many parts of India are still unreached and represent a great opportunity for Coke. In

this regard more investment is required and there has been an infusion of 5 billion dollars18

for this purpose.

The approach to juices needs to change. A very broad portfolio of juices is required to

succeed at the store level. The company needs to introduce more variants and popular

variants like Litchi and guava in the 100% category. Further the company has no presence in

the nectar segment and is losing out on possible sales in the segment. Given that there is a

momentum towards healthier drinks which is likely to strengthen further with income growth,

it is important to become a big player in this category.

APPENDIX

Appendix 1: Market Share in India for Carbonated Drinks by Company

Companies 2006 2007 2008 2009 2010 2011

Coca-Cola Co, The 56.0 56.2 57.1 59.2 59.7 60.0

PepsiCo Inc 39.8 39.6 39.1 37.8 37.3 37.2

Dr Pepper Snapple

Group Inc- - 1.1 0.9 0.8 0.8

Parle Agro Pvt Ltd 0.3 0.4 0.5 0.4 0.4 0.3

Cadbury

Schweppes Plc1.1 1.1 - - - -

Others 2.8 2.6 2.2 1.7 1.7 1.6

Total 100.0 100.0 100.0 100.0 100.0 100.0

Source: Euro monitor International

Appendix 2: Market Share in India for Carbonated Drinks by Brands

Brand Company name (GBO) 2006 2007 2008 2009 2010 2011

Sprite Coca-Cola Co, The 10.7 11.4 12.3 14.1 15.0 16.5

Thums Up Coca-Cola Co, The 15.0 14.8 14.9 16.3 16.7 16.5

Pepsi PepsiCo Inc 14.0 14.2 14.5 14.9 14.9 15.0

Coca-Cola Coca-Cola Co, The 9.1 8.6 8.7 9.0 9.0 8.8

Limca Coca-Cola Co, The 8.7 8.9 8.6 8.2 8.3 8.3

18 Bloomberg Business Week :”Coca-Cola Masala Gets $5 Billion to Catch Pepsi in India”

Mirinda PepsiCo Inc 9.6 9.7 9.6 8.8 8.1 7.6

Fanta Coca-Cola Co, The 8.9 9.0 9.1 8.3 7.7 7.2

Mountain Dew PepsiCo Inc 4.3 4.2 4.1 4.5 5.0 5.4

Source: Euro monitor International

Appendix 3: Market Growth Rates in India for Carbonated Drinks

Year Market Growth rates

1990-91 to 1996-97 9.4%

1996-97 to 2001-02 7.8%

2001-02 to 2006-07 6.5%

2004-05 to 2009-10 5.4%

2009-10 to 2014-15 3.5%

Sensitivity Coefficient 5.2%

Source: Ministry of Food Processing Industries

Appendix 4: Market Segmentation in India for Carbonated Drinks

Region Share

North 24

East 18

West 32

South 26

Rural 30

Urban 70