Coca-Cola Has Big Plans For India

+7.77%
Upside
60.13
Market
64.80
Trefis
KO: The Coca-Cola Company logo
KO
The Coca-Cola Company

The Coca-Cola Company (NYSE:KO) is planning to tap into the immense growth potential of India, and intends to make the country among its top three global markets, up from its sixth position currently. One factor identified by the company that has been holding back their growth in the region is the lack of the right product at the right price point. This dearth of a sufficient number of products has prompted the company to expand its portfolio across categories, and in this regard, it is testing 20 new products made locally. Moreover, it has made a $5 billion investment commitment in the region in the past, and as a part of this, Coca-Cola is setting up its 20th manufacturing unit in the country. This first phase of this greenfield initiative is expected to start in the first quarter of 2018. The company has also set a target of sourcing 40% of its energy requirements from renewable and clean energy fuel before the end of 2018.

See our complete analysis for The Coca-Cola Company

Focus On Non-Carbonated Beverages

Relevant Articles
  1. Should You Pick Coca-Cola Stock At $60 After Q4 Beat?
  2. Down 10% This Year Is Coca-Cola Stock A Better Pick Over AbbVie?
  3. What’s Next For Coca-Cola Stock After 4% Gains In A Week Amid Q3 Beat?
  4. Down 15% This Year Will Coca-Cola Stock Rebound After Its Q3?
  5. Which Is A Better Beverage Pick – Coca-Cola Stock Or Monster Beverage
  6. Pricing Actions To Bolster Coca-Cola’s Q2?

As is the case in the developing countries, Coca-Cola expects a strong performance in the non-carbonated beverages to drive growth in India in the future. As the beverage industry undergoes a transformation with carbonated soft drinks losing their position and consumer’s preferring “healthier” beverages, it appears that Coca-Cola is now looking to focus on innovation to introduce new/modified beverages which will attract consumers. It is focusing on flavored water, bottled water, and dairy beverages to diversify its portfolio. In the past 15 years, the contribution of carbonated beverages to the company’s revenue has come down from 90% to 70%. By 2025-2030, this percentage is expected to fall further to about 50%. A decade ago, the company had only one brand – Maaza – outside its carbonated drinks portfolio in India. It is now focusing on other beverages such as milk-based product Vio and packaged coconut water brand Zico, and is now the largest juice and water player in the country.

While Coca-Cola’s carbonated drinks segment is still growing in India, at a rate of about 5%, its non-carbonated drinks categories are growing at a much faster rate. In a bid to revive its double-digit growth in the region, the company is focusing on locally-made products, such as Nagpur orange juice for the state of Maharashtra. The company also has a pilot project running in Bengaluru called Perfect Fruit, a concept which has been sourced from Australia. This involves storing local fruits in an ice dispenser, freezing it, and offering it to customers as a sorbet, without any artificial sweeteners or flavors. If this concept works, the company intends to roll it out in other markets, using a combination of local fruits.

Significant Growth Potential In The Country

While the environment seems to be soft in the region with the uncertainty surrounding the Goods and Service Tax (GST), which was launched in July, and other policies such as demonetization, such moves should result in the long-term improvement in the health of the economy, according to CEO James Quincey. Hence, despite a few quarters of weakness in the market, the company is still focused on India. The aforementioned steps taken by the company will go a long way towards curbing the market share loss that it has been facing in India. According to Euromonitor, the beverage giant’s market share in the region fell from 35.5% to 33.5% between 2014 and 2016. On the other hand, while the company’s profits in the region have increased in this time period, on the back of a solid 22% revenue growth, the country accounts for a mere 1% of the total sales posted by Coca-Cola in 2016.

Although the Indian fruit-based beverage market has been dominated by the unpackaged fresh fruit juice segment, there has been a surge in the popularity of packaged juices in recent years. India’s packaged juices market is led by local brand Dabur, which has captured over 50% of the market, followed by PepsiCo’s Tropicana.

Coca-Cola plans to invest $800 million over the next five years to procure processed fruit pulp and fruit concentrate for its portfolio of juice and juice drinks. The main driver for the explosive growth expected in this segment is the increased health awareness among consumers. India’s non-alcoholic beverages market is worth about $5 billion, according to Indian Beverages Association. The health beverages market in this is a $300 million strong segment and is the fastest growing. Between 2010-2015 the CSD (Carbonated Soft Drinks) segment in India grew at a CAGR (compounded annual growth rate) of around 13% compared to the nearly 28% number for juices. This strong growth is expected to continue, at a CAGR of 17% between 2016 and 2021. Given the high growth predictions, Coca-Cola’s future in the market depends largely on tapping the potential of this segment.

Have more questions on Coca-Cola? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Coca-Cola

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology