How An Ethnic Drink Is Going All Out To Break The Cola Dominance

One afternoon in 2016, Nikhil Doda made his cousins Saurabh Munjal and Saurabh Bhutna try a drink he made using jeera, soda and a few masalas at his home with no intent of looking at it as a sellable product.

But when the three went on to dig a little deeper they found that within the beverage market, which was dominated by the colas of the world, jeera drinks and ethnic beverages at large — with flavours that are indigenous to the region — were largely unorganised products without a single national player. Thus it was the product that was made and tasted first, only then a market study was done.

“We just liked it enough at that point in time and the conversation swung from liking it to believing it that this may turn into something really big and has a lot of commercial potential. We bumped into Jeera more than anything else,” Saurabh Munjal, the co-founder of Lahori told The Core. This is how the brand Lahori, named after the common ingredient in all its drinks, Lahori salt, came about.

Lahori, a brand under Archian Foods India Private Limited based in Punjab is trying to build a brand out of what has largely remained a commodity — ethnic aerated beverages. “The cola flavour is not a natural flavour but an adopted taste for us (Indians). The tadka and the masaledar flavour is what comes naturally to us,” Munjal said. For Lahori, the goal is not to replace colas but to carve out a piece of the very large pie of aerated beverages for its ethnic cousins —the jeera sodas, masalas sodas and shikanjis.

This ethnic beverage market in India is a crowded one, with scores of regional brands selling similar products, duplicating formulas, bottling and distributing, often called me-too brands.

While in categories such as colas, lemon-lime and orange sodas you’d quickly spot market leaders like Coca-Cola, Pepsico or Parle, ethnic beverages that have native and nostalgic flavours have largely been a regional play. Lahori wants to change that. Its flagship product is the Lahori Zeera drink.

“The Jeera Drinks segment is in its nascence. With just a tad over 14,000 litres of volume generated, within the massive non-alcoholic beverage space, it occupies just 0.5% of the volume share. However, the segment has virtually doubled since MAT APRIL 2022, and has grown by 63% in just the last year,” K Ramakrishnan, Managing Director – South Asia, Kantar Worldpanel told The Core.

Experiments With Jeera

Jeera drinks have been in and out of the Indian market. Coca-Cola exited the Indian market in 1977 when they refused to adhere to the Foreign Exchange Regulation Act, 1973 under which all subsidiaries of foreign companies were required to bring down the foreign equity share to 40% or less and convert to Indian companies with at least 60% equity coming from local participation.

After Coca-Cola’s exit, it was Indian beverages’ time to shine. Rimzim was the first jeera soda launched during this time along with Thumbs Up, Limca and Gold Spot by Ramesh Chauhan, who owned Parle at the time. After Coca-Cola’s re-entry into the Indian market post-liberalisation, all of Parle’s brands were acquired by it.

Rimzim however got lost amongst the popularity of Thums Up and Limca and was discontinued before being relaunched in 2018 but failed to take off even then. Beverage industry experts that The Core spoke to believe that this is partly because priorities of such big brands are skewed towards the colas and ethnic beverages haven’t been able to command hefty investments from them because of lower volumes.

“They have certain global restrictions on what the taste can be, or what the ingredients can be, or what the profile of the product can be. And as a result of it even when they went and acquired some of these products they ended up modifying it such as per their global norms that it just ended up being a product that was not up to the Indian taste," Shagun Tiwary, Senior Principal, Verlinvest said. Verlinvest, a Belgium-based family office focused on consumer companies, put in $15 million in Lahori in early 2022.

Anjana Ghosh, managing director of business consultancy firm ScaleSherpas, estimates the jeera drinks market to be around 10% of the overall aerated beverages market, up from 6-7% a couple of years ago. Ghosh is also the former chief executive officer of Xotic Frujus Private Limited, the parent company of Jeeru, another popular jeera drink in Western India.

Lahori’s investor, Verlinvest also felt that market size of jeera was big enough to take the bet. “So the feedback we had got when we were doing the market work was Jeera was the largest category, followed by Lemon. So, but Jeera is still the largest amongst all the traditional drinks,” Tiwary said.

This pickup in consumption of jeera drinks and other ethnic beverages has also been attributed to a decline in preference for colas as consumers look for novelty. “The consumer wants a different drink but he is still not finding it. So he settles for a cola. This is a good time for ethnic beverages as Indianness is also going to become bigger and bigger,” Ghosh said.

In FY23, Archian Foods (Lahori Zeera’s parent firm) made nearly Rs 215 crore in total revenue with a modest Rs 7.88 crore in net profit. The previous year, total revenue was just under Rs 38 crore with Rs 2.85 crore in net profit, per company filings. The overwhelming majority of the company’s expenses in FY23 were in raw material but it also spent a modest Rs 2.46 crore, largely on below-the-line marketing.

Is Jeera The Right Bet?

Jeera is not a new ingredient for soda drinks in India and people have been consuming it as a digestive for decades. While this adds a layer of familiarity and utility to the product, it is also detrimental to the potential of the drink. “Can one picture opening a bottle of jeera soda while celebrating or at parties? People may drink an unbranded jeera drink for its digestive properties, but they wouldn’t buy a half-baked brand without an international positioning,” Ghosh said. The other colas are also often used as mixers for alcoholic beverages, something that jeera drinks won’t be able to replace.

This also explains why Lahori Zeera has stayed away from the digestive properties of the drink in its marketing communication altogether. Its campaigns instead focus on tag lines like ‘Har Koi Peera, Lahori Jeera’ (Everyone is drinking Lahori Zeera) and ‘The Thanda of India’ (The cold drink of India). “We want Lahori consumers to feel cool when they're consuming our product,” Munjal said.

“The marketing communication is more about taste because that's what we feel is the real reason people pick up the product," Tiwary said.

Lahori Zeera has also made changes to the standard jeera drink to stand out amongst local players. “Lahori Zeera is much lighter in colour (than other jeera drinks) and it has floating particles too. Anecdotally, people have complimented the taste and said that it is better than what regional brands are selling,” P Rajan Mathews, who runs a brand consultancy firm called Pro Next Food, told The Core. Verlinvest also backed the product after conducting blind taste tests where Lahori stood out, Tiwary said.

However, having a better product is only half the battle won, placing the product on shelves across the country is a whole other play.

Fending Off Local Players

Location is a key aspect in a category like beverages. The reason why smaller brands exist in pockets of the country is because logistics are a cost that most companies do not want to factor into a product with a selling price as low as Rs 10. So, local companies tend to stick to their regions. Scaling beyond a particular legion requires setting up additional plants, something that regional players just don’t have the money for.

Lahori started with a facility in Punjab and after establishing a strong enough presence in the neighbouring states, the company decided to send products from their existing plants to the Western parts of the country, Maharashtra and Gujarat. Lahori now has a facility in Vapi, Gujarat too.

“Even though freight was obviously a huge part, we knew as and when the facility would be ready, at least there will be some acceptance of the product in the meanwhile,” Munjal said.

Currently, these two manufacturing plants supply to 17 states across the country, which includes Northern, Western and Eastern states. While North and West are cheaper to supply to, reaching the Eastern parts of the country involves considerable shipping costs.

“We are not stopping ourselves just because this is an expensive affair. Because right now, we understand that this expensive affair is just for this year,” Munjal said. In the coming years, Lahori plans on setting up more plants.

However, according to Kantar Worldpanel, Gujarat, and Punjab are the two big markets for Jeera Drinks. They together contribute nearly 2/3rd of all the jeera drink volume. So, scaling in regions where jeera is not a popular drink might become a challenge for the company when trying to build a pan-India brand.

In markets where the prices are at an early level of Rs 10 and not much can be moved around with product differentiation, distribution becomes a key aspect of gaining market share. Lahori Zeera’s initial distribution strategy involved approaching retailers directly instead of big distributors as they wanted to work on an advance payment basis only.

To get retailers to stock and push the product in newer regions like West and East India, Lahori started offering double the margins that other brands are offering for the same-priced products which they Munjal said will be gradually adjusted as the brand picks up.

Big Spenders With Thin Margins

Lahori raised $15 million of funding from Verlinvest, a Belgium-based consumer-focused investor in early 2022 which it is now using to “enhance capacities” and “technology upgradation”, according to Munjal.

Up until last year, Lahori did not spend at all on advertising, but of late we’ve spotted Lahori Zeera in TV commercials and even a half page advertisement on the front page of The Times of India, claiming to be “The Thanda of India”. Marketing and communication is one area where Lahori has been recently putting their money at a scale that no one ethnic beverage brand has attempted before.

“They have initiated a huge campaign and it looks as though Lahori Zeera is not a new brand, but it is an established brand,” Mathews said.

To compete with the many players in every market, Lahori decided to price the drink at the entry level of Rs 10 for 160 ml. In comparison, Bindu Fizz Jeera Masala costs Rs 12 for a 200 ml bottle, Jeeru Masala is priced at Rs 20 for 300 ml. Coca Cola and Pepsico sell 250 ml bottles of its drinks for Rs 20.

In 2021, the tax rules for aerated beverages with or without juice changed. Initially, the GST rate for carbonated cold drinks was 12% and now companies pay 40% tax, with 28% GST and 12% compensation cess, on these products. “At Jeeru, we decided to go the premiumisation route because you can’t be selling a Rs 10 bottle and pay Rs 4 tax on it,” Ghosh said.

Lahori, on the other hand, decreased the quantity from 250 ml to 160 ml to keep the prices at entry level and profitability intact. “Then some tweaks on the packaging items, some tweaks on the formulation side, being a little more judicious in the way you're sourcing, etc. All of those things went into reformulating the product," Tiwary said.

Since the tax component is an external factor, on a unit basis, Lahori is trying to eke out a profit out of the Rs 6 that’s left after taxes. With the investments being made in marketing and the margins being offered to retailers, the profit margins for the company are wafer-thin.

As Munjal puts it, “It’s very cutthroat right now, and the only way to succeed is by volume.”

This year, armed with fresh investments, Lahori has increased its spending on advertising and offering double margins to retailers even as it sacrifices profitability for scale. It will also set up new plants hoping to replicate the success of Lahori Zeera with its other products and across the country to potentially create an ethnic beverages brand.

The market exists too, but soon big beverage players are expected to enter the market. “Everyone will want to do an ethnic drink sooner or later. It will boil down to who puts in the most investment and where,” Ghosh said. Parle Agro, for example, is taking its jeera drink ‘Dishoom’ nationwide, which was earlier sold in only the rural and small-town markets. They enjoy a much stronger distribution network and production capabilities, which may put brands like Lahori Zeera in a fix.