Will Indian Companies Find Their Pot Of Gold In The Soft Drinks Market?

Thirty years after Indian cola czar Ramesh Chauhan sold out Thums Up, Fanta, Limca, Citra and RimZim in 1993 for about Rs 150 crores to the multinational giant Coca-Cola Company, Indian businesses with deep war chests are hoping to rediscover a big pot of gold in the $10 billion Indian soft drinks market.

Latest reports indicate that Burmans of Dabur and Bhartias of Jubilant are separately negotiating with Coca-Cola South Asia (India) for a 40% stake in its wholly-owned subsidiary Hindustan Coca-Cola Beverages (HCCB) for a total of up to Rs 12,000 crore valuing HCCB at about Rs 30,000 crores. The family offices of the Parekhs of Pidilite Industries and Danis of Asian Paints have also been reported to have shown some interest. Earlier this year, Coca-Cola India had also said that it made gains of $293 million by refranchising bottling operations in certain territories to local bottlers in the country.

On the other spectrum, Ravi Jaipuria who presides over RJ Corp, which has the listed company Varun Beverages in its portfolio, is not only the largest bottler of PepsiCo in India but also the largest outside its US operations. Jaipuria’s net worth is now about $3 billion spurred by huge stock jumps in his holding in Varun Beverages.

In March 2023, Reliance Consumer Products (RCPL), the fast-moving consumer goods arm of the group announced the relaunch of the iconic Campa brands of soft drinks.

While Indian companies have been taking steady steps into the non-alcoholic fizzy beverages markets dominated by the Big Two (Coke and Pepsi) for some years now, it is particularly now that the mainstream of India Inc, especially family businesses, are taking bigger and firmer strides. But the big question is: will they lose their shirts?

The Risks Involved

The soft drinks market in India has seen only modest growth. The younger generation and health-conscious consumers have moved away from the traditional fizzy drinks. Market research firm Nielsen NIQ said that over the past two years, “the soft drinks industry has seen a volume growth of 5 per cent CAGR.” That is just passable.

Second, Coke’s strategy seems to be in an evolving mode. There have been reports that thirty years after Coke entered the Indian market, it is looking to unlock value through an Initial Public Offering (IPO). As per the company website, the net worth of the company for the financial year 2021-22 was about Rs 11, 000 crores and the turnover about Rs 31,000 crores. But what is not clear is whether the latest move to bring a joint venture partner in HCCB is exclusive to the IPO plan of Coca-Cola South Asia (India). While these moves will bolster Coke’s bottomline in India, what about the Indian partners?

Additionally, over the years, the global business model and corporate structures of the Big Two (Coca-Cola and PepsiCo) have constantly evolved and changed and this has affected the various country operations of PepsiCo and Coca-Cola globally from time to time. The Coca-Cola Company’s global bottling operations are managed by the Big Investment Group (BIG) and PepsiCo’s by The Pepsi Bottling Group. While both of them have different strategies, analysts say, that overall, for the companies, it is more profitable to keep them outside the main corporate entities. But these models, again, have changed from time to time, which brings in an element of risk for the bottlers. Indian companies will have to manoeuvre these minefields.

Third, while the soft drink plans of the Jubilant Bhartia Group and Dabur India mesh well with its existing product portfolio, Rahul Mishra, professor of strategy at IILM Institute for Higher Education said, “The soft drinks market is an entirely different ball game from foods. While Indian businesses are rightly looking for more business opportunities, they should also be mindful of the bottom line.”

Finally, the fizz market world over is a long gestation one and in India, it took much more than a decade for both Pepsi and Coke to make operational profits. For example, Coca-Cola India after investing several billions of dollars into the Indian market over the last three decades made only a relatively small profit of Rs 722 crores in 2023.

Soft drinks, like aviation, are a high-profile industry worldwide, a factor that attracts many entrepreneurs. Therefore, unlike the many Indian aviation players bleeding red or going out of business, India’s homegrown soft drink players will have to find the right balance between profitability and profile.

Silver Linings

There are some silver linings on the horizon, though. With per capita consumption in India at just 19 litres, it is just 1/20th of that of the US, 1/10th of Kuwait, 1/8th of Thailand and 1/3rd of Malaysia. This potential is what the new Indian soft drinks players are betting on: a long-term market that needs deep pockets which the new Indian growth companies have. Reliance and Campa are examples of this.

Both Jubilant and Dabur are looking at strategic diversification. For example, Jubilant Foodworks, the Bhartia group’s food service arm, has a strong presence in the food services market through its South Asia master franchise with Dominos and its India franchise with Dunkin Donuts. An investment in HCCB will only bolster its related diversification strategy from foods to beverages. Similarly, Dabur India has a strong presence in the fruit juices market with its Real brands and food ingredients segment through Hommade.

As Indian companies are getting more excited about the prospects of uncorking new opportunities in the Indian soft drinks market, they should have a clear thought-out strategy to overcome the short-term bottlenecks and risks.