Coke’s new message in a bottle

The country’s largest beverage giant is examining a crateful of new products to regain the fizz in sales

Asingle-digit fall in sales in the first quarter of calendar 2017 after years of steady growth, and a steep Goods and Service Tax rate of 40 per cent, up from 32-33 per cent before, have been a double whammy for The Coca-Cola Company in India.

Now, T Krishnakumar, the newly appointed president heading a new team at the top, is working on a new formula to put the fizz back in the company’s performance. “My formula is to provide consumers a wider choice that is not limited to only sparkling beverages and let them finally decide,” says Krishnakumar (informally known as “KK”), who took charge in May. As the former CEO of the Hindustan Coca Cola Beverages, the company-owned bottler, he has a hands-on understanding of the beverage market.

At the core of his strategy is an aggressive push into juices, entry into new categories like ethnic beverages, expanding the water portfolio to add fortified salts and minerals as well as flavours and a new renewed push towards ready-to-drink tea and coffee and flavoured milk.

The calculations are simple. The branded juice business in the country is only worth ~5,000 crore, just a fourth the size of sparkling beverages, but its margins are nearly double that of colas at 15 to 16 per cent. The additional upside is that the scope for growth is huge, given the sprawling size of the unorganised juice market. According to industry estimates, its two principal juice brands, Minute Maid and Maaza, account for only a fifth of the ~13,000-14,000 crore that Coke makes from sparkling beverages alone. Minute Maid, despite offering a range of 11 flavours, is still a ~500 crore brand, a third of the smallest sparkling beverage brand, Limca.

This unrealised potential is partly a function of limited reach — packaged juices are available only in retail stores — and a higher sticker price compared with the fresh fruit juices available from roadside vendors. Krishnakumar’s ambitious game plan is to expand the availability of juices from one million retail outlets currently to 2.6 million in just three years — which is to say, juices will be available at every outlet that also stocks sparkling beverages (and at ~10 for a 200 ml pack, the company has already introduced a value pack to attract consumers).

“It is a twin strategy, to increase juice availability and simultaneously create a demand,” he explains.

Krishnakumar is also betting on two other key components of his new strategy — piloting the test marketing of a range of new products and categories that he hopes will eventually yield reasonable volumes.

Currently, none of the new products are potential volume givers — fortified water under Aquarius, which has been launched nationwide, is an expensive niche product (~30 for 400ml). The company has been experimenting with cold tea (Fuze Tea) from 2015 but with limited success. The same is true for pilot projects in flavoured milk, started last year, where competition from Amul, Nestle and Danone is tough and Coke has no brand connect with this category in India.

But Krishnakumar sees value in persisting with them. “We look at products for the long term and two to four years of experimenting is good,” he says, pointing to the persistence with Sprite, a negligible brand in the nineties that has become one of the biggest sellers in Coke’s portfolio today.

Addressing the demands of health conscious consumers, Krishnakumar is also experimenting with a combination of stevia with sugar in drinks.

Can these initiatives succeed? Beverage industry experts say that his targets are ambitious. For one, his key challenge will be to convince retailers to stock the product. Unlike sparkling drinks, juices are slow-moving items that retailers may be reluctant to stock because it will block up their capital. For another, Coke will have to put in a huge marketing effort to convince consumers who prefer fresh juices to shift to a packaged juice.

As for sugar-free sparkling drinks, many argue that, unlike the US or Europe, the demand is small — about ~250 crore (less than 2 per cent of sparkling beverages) — and needs to be sustained by aggressive marketing. After all, India is still not a mature beverage market. Only 20 per cent of the country’s population has tasted a branded beverage.

In many ways, Pepsi is also pushing in the same direction —reducing sugar content in its core products and expanding its hydration and non-cola portfolio to include more options in packaged juices and flavoured water.

At Coke, all of this will have to be done even as the company has decided to absorb the additional hit on account for higher taxes. 2017 could well be the year of Coke’s biggest test.

Expand retail outlets for juice from 1 million to 2.6 million in three years

Lay out a plan for reduction of sugar content in all products

Foray into flavoured milk , ready-to-drink coffee and tea, fortified water and ethnic beverages like RimZim

CHALLENGES

Juice is expensive and dominated by players in the unorganised sector

The market for healthy drinks is very small; demand for zero sugar drinks is still to pick up

New products like flavoured milk face tough competition

Tea and fortified drinks are only niche products, not volume generators

Minute Maid and Maaza account for only a fifth of Coke's sparkling beverages sales

Persuading retailers to stock juices may be difficult; they are slowmoving items