Here’s How Coca Cola Could Benefit From Its “Small” Initiative In India

While most of the growth in the carbonated soft drinks (CSD) market is likely to come from emerging markets, India seems to be an exception. The average consumer in India drinks about two bottles of Coke every year, significantly lower than the industry number of one bottle a week.  According to Nielsen data, juice and juice drinks have pushed fizzy drinks out of the top five highest sold beverages across modern retail chains in India in the first half of 2016. While this data is only for modern trade, it indicates that consumer preferences in urban India are shifting towards healthier beverages in line with developed nations.  In order to increase consumption in the region, The Coca-Cola Company (NYSE:KO) is now introducing more small packs in the market for nearly half of its portfolio of products in India. By including India in its global strategy of smaller packs, the company believes that the frequency of consumption will potentially increase, leading to higher consumption. As consumers look to reduce calories in carbonated soft drinks and opt for healthier beverages, Coca Cola is implementing a strategy of small bottles – smaller portions that mean fewer calories and less sugar. We believe Coca Cola’s strategy to increase the volume of smaller bottles in India and slowly phase away large bottles can improve the company’s revenues and profitability in the region.

We estimate that Coca Cola’s international revenue per case be around $ 0.984 by the end of our forecast period, slightly lower than the $0.997 number for 2016.

A faster pace of increase in this metric can lead to an upside to our price estimate. A favorable price mix is helping Coca Cola in the U.S. to increase its revenue despite a decline in consumption. Around 15% of Coca Cola’s total U.S. CSD volume is in smaller cans and bottles and the company is adopting a similar strategy in India. We believe as consumers look to consume less sugar and calories from one portion of a carbonated beverage, a smaller can or bottle works well to suit this requirement. With a growing economy and increase in disposable income, India is a strong market for Coca Cola and its strategy to promote small packs in the region should drive consumption in the country.

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