How Coca-Cola Can Make It Even Bigger In India — Part 2

In the first part of the series, we highlighted the steps The Coca-Cola Company (NYSE:KO) is taking to grow its business in India. In this part, we will focus on other things the company can do to multiply its growth rates in the country. Unlike the developed markets, where the growth comes from the price mix, and not volumes, in a country like India, the focus is needed more on the volumes than the price, which impacts the profitability. The products of the company are still considered premium, and hence, consumption is limited to occasional drinking. Moreover, the rural market in the country is largely untouched, which the company has not been able to tap into up till now. We’ll explore these and other factors below.

We have a $48 price estimate for Coca-Cola, which is slightly higher than the current market price.

Recruiting New Customers

Most of Coca-Cola’s marketing campaigns have focused on the urban and semi-urban population, with scant attention paid to the rural market. However, if the company is able to crack the code on this segment, it will open itself up to a large number of new customers. However, as the tastes and preferences are very different from what is found in the urban areas, there can be a number of obstacles. These include an absence of adequate refrigeration, due to erratic power supply, and a price or taste mismatch.

India being a tropical country, the people in rural areas typically have a preference for cold drinks, such as the traditional yogurt-based drink lassi, and lemon juice. Hence, refrigeration is a key element in the region, given the hot climate. The company can give greater incentives for retailers to self-fund these to ensure rural grocers stock Coca-Cola beverages. Moreover, as Coca-Cola products are considered premium, the company’s strategy of innovation can come into play here. By developing varied products and expanding its portfolio, the company can see to it that it has different products at different price points, with the consumers getting value for money. Smaller sizes and low price points will be needed to win over the rural customer. Coca-Cola also needs to adapt to the tastes and sensibilities in the country and put an increased focus on localizing its portfolio of beverages.

Focus On Packaged Juices And RTD Tea Market

As is the case in developed markets, India too is moving towards the healthy beverage segment, and hence, Coca-Cola needs to look beyond its carbonated drinks portfolio in order to maximize its growth in the region. While the company has been doing so, its market share is being sucked away by regional players who focus on the local tastes and sell products at lower prices. In India, the company should concentrate on the packaged juices and ready-to-drink tea market, as other markets such as sparkling water and energy drinks may be too niche to have an expanded portfolio.

At present, the Indian packaged juice market is a $290 million market, with impressive growth rates expected in the future. A rise in disposable incomes, increasing health awareness, and the adoption of western culture are some of the factors driving the growth in this market. Packaged juices are gradually cementing their place in the urban markets, but replicating this success in rural areas is a struggle as consumers in these regions prefer fresh juices. It is not a doubt that gaining significantly in this market will be a tough task, but it is definitely where the growth lies in India.

India is a country of tea lovers, with tea being a staple drink. Despite this, the RTD tea market is still at a nascent stage in the country. Meanwhile, countries such as China and Japan, which also have a high consumption of tea, have a large market for packaged teas. Coca-Cola itself is a big player in the RTD tea market in Japan. The RTD tea market in India has been estimated to be worth $22 million currently, with an annual growth of 9%-10%, driven by the health benefits received by the consumption of such drinks. Hindustan Unilever (HUL) has managed to garner 85% value share in the market, largely due to its first mover advantage. Coca-Cola also has the ability to make the investments needed to be a challenger to HUL, as well as the distribution network to scale its volumes. Hence, given an immense scope for growth, a concerted focus on this market can ensure long-term success for Coca-Cola in India in the long run.

The first part of the series can be read here.

See our complete analysis for The Coca-Cola Company

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

• How Is Coca-Cola Turning Around Its Business? (Part 1)
• Soda Tax Repeal: Big Win For Big Soda
• Could Monster’s Takeover Be On The Cards For Coca-Cola?
• Can Topo Chico Be The Next Honest Tea For Coca-Cola?

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