Life Beyond Cola
Sumant Banerji August 21, 2017
Under its new President, T. Krishnakumar, Coca-Cola India has its task cut out. It wants to shed its image as just a cola company and become a brand for all types of beverages. This is part of a global strategy charted out by new global CEO James Quincey.
A predominantly beverage company, unlike rival Pepsi, which has a significant food and snack vertical, Coca-Cola is heavily dependent on fizzy drinks, which account for nearly 60 per cent of its India revenues. To realise Quincey's vision, it needs to diversify and launch products for the local taste. It has started with Kinley Flavors, an ethnic-flavoured sparkling water.
An old hand in the set-up - he was earlier the CEO of Coca-Cola's largest bottler HCCB (Hindustan Coca Cola Beverages) - Krishnakumar perhaps had an inkling of which way the company was headed; he had envisioned the new brand while he was still at HCCB.
The company is at the receiving end of a shift in consumer preference from high-calorie sugar fizzy drinks to healthier beverages and juices. Growth in sale of carbonated beverages has been lagging that of juice- and dairy-based drinks for a while now. The company has no option but to change.
While Kinley Flavors will lead the charge, existing regional brands - RimZim and Portello - would also be pushed. RimZim, acquired from Parle in 1993 along with ThumsUp, Limca and Maaza, is already being launched nationally in a phased manner. This will serve two purposes. One, it will reduce the dependence on colas such as Coke, Sprite and ThumsUP; this is essential for becoming a full-fledged beverage company and not just a fizzy drink maker. Two, it will deliver a counter punch to a clutch of smaller regional beverage companies that have done well over the past decade or so. Individually, most of these companies have a market share of less than 1 per cent, but together, they have been taking market share from the big players. Market estimates suggest that these companies - including Hajoori & Sons, Manpasand Beverages, Hector Beverages, Kalimark Bovonto, Fresca Juices, Xalta Cola, King City Cola and Jayanti Beverages - have cornered 10-15 per cent of the Rs60,336 crore soft drink market in India. And they are growing fast enough for Coca-Cola India to wake up and take on the challenge. The company's overall market share has slipped by two percentage points in the last two years, according to Euromonitor India. At least some of this is because of the rise of these regional players. Will Kinley Flavors be able to reverse the tide?
Plugging the Gap
Krishnakumar was clear about one thing - Kinley Flavors had to be radically different from Coca-Cola's existing products, both in taste and positioning as well as packaging and pricing. At present, the cheapest offering in Coca-Cola's India portfolio is Kinley packaged water (Rs10 for a 500 ml bottle). A 600 ml bottle of aerated drinks like Coke is priced at Rs35. Krishnakumar saw a gap the new brand could fill.
Deciding the product's flavour and texture was simpler. The popularity of the local brands, which have thrived largely by offering value-for-money beverages with local flavours such as jal jeera and nimbu pani, proved there was a market for such drinks that Coca Cola could tap.
"With Kinley, we have a trusted packaged water brand. People graduate from tap to bottled water and then to other packaged beverages, but the gap was huge," says Krishnakumar. "So, we thought, why not use this brand and give them some fun products? Affordability was the key and so we priced it at Rs15 for a 250 ml pack, significantly less than our other beverages. We have developed three flavours - orange, lemon and jeera. Kinley Flavors is the first recruitment pack for people who want to get into sparkling drinks. It is not an extension of water but an upgrade from there."
At present in a pilot stage, the brand has been launched in Gujarat, Karnataka, Andhra Pradesh and parts of Delhi. After launch, the company plans to make it available at 1,00,000 outlets within the first six months. The company has already doubled RimZim's presence in terms of number of stores over the past one year.
In Small Doses
A candid Krishnakumar admits that competition from smaller players has helped the market evolve in terms of flavours and packaging. The big companies were late to identify the emergence of small serving polyethylene terephalate (PET) bottles and tetra packs. The demand for PET in India has risen significantly in the last few years, from 600,000 million tonnes per annum in 2012/13 to over 900,000 million tonnes in 2016/17. Low crude oil prices since 2015 have also made PET cheaper, helping companies such as Fresca Juices, Manpasand Beverages, Jayanti Beverages and Xalta to come out with smaller 160-230 ml packs priced at Rs10-15. In 2014 and 2015, the big players were selling their colas in bigger packs of 300 ml or more. The price difference gave the regional players an opening, especially in semi-urban and rural markets.
"The Rs10 segment is a prominent one. It is the fastest-growing pack size," says Ashok Kumar Chopra, Country Head, Fresca Juices. "When you are new and small, it takes time for distributors to accept your product. Low prices and quantity mean high rotation. This gives confidence to distributors. We have taken substantial market share from other organised players and are confident about selling two million pack sizes annually by 2018. This pack is expanding fast. This gives us the edge."
This template is being followed by almost every company, not only with new brands such as Kinley Flavors, but also existing products. Since March 2016, Coca Cola has introduced 300 ml PET bottles and 180 ml cans for Sprite, ThumsUP, Coca Cola and Limca, priced at Rs20 and Rs25, respectively. The smaller servings also mean lower calorie and sugar intake, a point the health-conscious find it difficult to ignore. With Kinley Flavors, the company is launching flavours that will pit it directly against some of these regional players.
"When you see competition make good offerings which are region-specific, we notice them. It is good for any category," says Krishnakumar. "We will back ourselves on our strengths. We have a big distribution footprint that will enable wide availability. That is important for a category like ours where purchases are driven by impulse. It was all done in quick time; everything was developed in-house here. The opportunity is big."
The pricing is on a par with those of local firms. But will the company be able to get the taste right as well?
Given the complexity of the Indian market, home-grown companies tend to have an edge in getting the taste right. There is no one formula to success.
For example, Hector Beverages - started by two former Coca Cola employees - is still tweaking the recipe for its jamun drink, a good two-and-a-half years after the launch. It changed the recipe for its best selling aam-ras based on feedback from customers only last year.
Similarly, Dabur, a leader in the fruit and nectar category with its Real brand of juices, has not been able to crack the code for a drink based on kinu - a hybrid variety of mandarin orange; it has also been grappling with packaging and marketing of sugarcane juice for the past 15 years.
As a market leader for over a decade, Coca-Cola, too, has been through its fair share of hits and misses. Increasingly, it has shown a willingness to debunk global recipes and work on Indian drinks, which Krishnakumar says will increase in times to come. For example, the company started work on a lemon flavour for its Minute Maid range using its global lemonade formulation, which had strong lemon flavour, contained preservatives and colours and was sweeter compared with local lemons. When it was tested in India, the feedback from consumers was contrary to expectations. "They expected lemon juice to be like the home-made nimbu pani, with no preservatives or added colours, not very sweet, and with a flavour that reflected the local nimbu," says Lopa Mazumder, Senior New Product Development Manager, Coca Cola India. "We had to start again. After months of effort, we tested our new offering, which again required several tweaks."
Detractors, however, insist that a company with roots abroad will always be tempted to dip into its global line-up of products and cannot match the level of innovation of the local players. The company is unfazed. "It is alright to say we have been slow in some beverages, but we have also been ahead in many others. We are not market leaders for this long for nothing," says Krishnakumar. "Yes, we are entering a phase of high dynamism. We will keep experimenting, and if we find that some drink has national demand, we will take it national. Else, it will remain regional. Everything that we will do will not be a super-duper success but will add to consumer choice."
For a global firm, developing a new brand from scratch and experimenting with flavours to cater to the tastes of local consumers is unchartered territory. Its success will embolden the company to be more innovative in future. Failure will probably turn the clock back to the old ways. A lot rides on Kinley Flavors.