coca-cola india term paper

8/4/2019 Coca-Cola India Term Paper

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Distribution Network and Strategy

Logistics and Supply Chain Management

Submitted to,

Prof. Dr. M S Rangaraju

By,

Ragunandan V R

10095


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SDMIMD 2010-12 Logistics and Supply Chain Management 1

Table of Contents1.0 Introduction .............................................................................................................................. 2

1.1 Food and Beverages Sector .................................................................................................. 2

1.2 Soft Drinks Sector .................................................................................................................. 22.0 Coca-Cola India ......................................................................................................................... 3

3.0 Theoretical Background of the Distribution Network and Strategy of Coca-Cola India ........... 4

4.0 Practical Observations .............................................................................................................. 5

5.0 Gaps in practice ......................................................................................................................... 6

6.0 Conclusion ................................................................................................................................. 6

6.1 Coca Colas MDC Model ........................................................................................................ 6

7.0 Recommendation ...................................................................................................................... 78.0 Bibliography .............................................................................................................................. 8


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1.0 Introduction1.1 Food and Beverages Sector

India is the world's second largest producer of food next to China, and has the potential of

being the biggest with the food and agricultural sector. The total food production in India is

likely to double in the next ten years and there is an opportunity for large investments in food

and food processing technologies, skills and equipment, especially in areas of Canning, Dairy

and Food Processing, Specialty Processing, Packaging, Frozen Food/Refrigeration and Thermo

Processing. Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry,

Packaged/Convenience Foods, Alcoholic Beverages & Soft Drinks and Grains are important sub-

sectors of the food processing industry. Health food and health food supplements, is another

rapidly rising segment of this industry which is gaining vast popularity amongst the health

conscious.

India's food processing sector covers fruit and vegetables; meat and poultry; milk and milk

products, alcoholic beverages, fisheries, plantation, grain processing and other consumer

product groups like confectionery, chocolates and cocoa products, Soya-based products,

mineral water, high protein foods etc. It covers an exhaustive database of an array of suppliers,

manufacturers, exporters and importers widely dealing in sectors like the Food Industry, Dairy

processing, Indian beverage industry etc. It also cover sectors like dairy plants, canning, bottling

plants, packaging industries, process machinery etc.

The most promising sub-sectors includes Soft-drink bottling, Confectionery manufacture,

Fishing, aquaculture, Grain-milling and grain-based products, Meat and poultry processing,Alcoholic beverages, Milk processing, Tomato paste, Fast-food, Ready-to-eat breakfast cereals,

Food additives, flavors etc.

1.2 Soft Drinks Sector

The soft drinks market consists of retail sale of bottled water, carbonates, concentrates,functional drinks, juices, RTD tea and coffee, and smoothies. However, the total market

volume for soft drinks market excludes the concentrates category. The market is valued

according to retail selling price (RSP) and includes any applicable taxes.

The Indian soft drinks market generated total revenues of $3.8 billion in 2010,representing a compound annual growth rate (CAGR) of 11% for the period spanning

2006-2010.

Carbonates sales proved the most lucrative for the Indian soft drinks market in 2010,generating total revenues of $1.9 billion, equivalent to 50.5% of the market's overall

value.


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The performance of the market is forecast to decelerate, with an anticipated CAGR of9.1% for the five-year period 2010 2015, which is expected to lead the market to a

value of $5.9 billion by the end of 2015.

2.0 Coca-Cola IndiaThe Coca-Cola Company re-entered India through its wholly owned subsidiary, Coca-Cola India

Private Limited and re-launched Coca-Cola in 1993 after the opening up of the Indian economy

to foreign investments in 1991. Since then its operations have grown rapidly through a model

that supports bottling operations, both company owned as well as locally owned and includes

over 7,000 Indian distributors and more than 1.3 million retailers. Today, their brands are the

leading brands in most beverage segments. The Coca-Cola Companys brands in India include

Coca-Cola, Fanta Orange, Fanta Apple, Limca, Sprite, Thums Up, Burn, Kinley, Maaza, Maaza

Milky Delite, Minute Maid Pulpy Orange, Minute Maid Nimbu Fresh and Nestea Iced tea, the

Georgia Gold range of teas and coffees and Vitingo (a beverage fortified with micro-nutrients).

The Coca-Cola Company has invested nearly USD 1.1 billion in its operations in India since its re-

entry back into India in 1992. The Coca-Cola system in India directly employs over 25,000

people including those on contract. The system has created indirect employment for more than

1,50,000 people in related industries through its vast procurement, supply and distribution

system. They strive to ensure that their work environment is safe and inclusive and that there

are plentiful opportunities for their people in India and across the world.

The beverage industry is a major driver of economic growth. A National Council of AppliedEconomic Research (NCAER) study on the carbonated soft-drink industry indicates that this

industry has an output multiplier effect of 2.1. This means that if one unit of output of beverage

is increased, the direct and indirect effect on the economy will be twice of that. In terms of

employment, the NCAER study notes that an extra production of 1000 cases generates an

extra employment of 410 man days.

As a Company, their products are an integral part of the micro economy particularly in small

towns and villages, contributing to creation of jobs and growth in GDP. Coca-Cola in India is

amongst the largest domestic buyers of certain agricultural products.


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3.0 Theoretical Background of the Distribution Network

and Strategy of Coca-Cola IndiaAt the core of their business in India, as in the rest of the world is their production and

distribution network, which they call the Coca-Cola system. Globally, the Coca-Cola system

includes their Company and more than 300 bottling partners. The Coca-Cola Company

manufactures and sells concentrate and beverage bases. Their authorized bottlers combine

their concentrate or beverage bases as the case may be with sweetener (depending on the

product), water or carbonated water to produce finished beverages. These finished beverages

are packaged in authorized containers bearing Coca-Colas trademarks -- such as cans, refillable

glass bottles, non-refillable PET bottles and tetra packs -- and are then sold to wholesalers or

retailers. In India, additionally, the Company also sells certain powdered beverage mixes such

as Vitingo and Fanta Fun Taste.

Their beverages reach their ultimate consumers through their customers: the grocers, small

retailers, hypermarkets, restaurants, convenience stores and millions of other businesses that

are the final points of distribution in the Coca-Cola system. What truly defines the Coca-Cola

system, and indeed what makes it unique among businesses, is their ability to create value for

their customers and consumers.

In India, the Coca-Cola system comprises of a wholly owned subsidiary of The Coca-Cola

Company namely Coca-Cola India Pvt., Ltd. which manufactures and sells concentrate and

beverage bases and powdered beverage mixes, a Company-owned bottling entity, namely,

Hindustan Coca-Cola Beverages Pvt., Ltd.; thirteen authorized bottling partners of The Coca-

Cola Company, who are authorized to prepare, package, sell and distribute beverages under

certain specified trademarks of The Coca-Cola Company; and an extensive distribution system

comprising of their customers, distributors and retailers. Coca-Cola India Private Limited sells

concentrate and beverage bases to authorized bottlers who are authorized to use these to

produce their portfolio of beverages. These authorized bottlers independently develop local

markets and distribute beverages to grocers, small retailers, supermarkets, restaurants and

numerous other businesses. In turn, these customers make their beverages available to

consumers across India.


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4.0 Practical ObservationsCoca Cola uses the following distribution channels:

Retail Stores including convenient stores Vending machine / Self Service Slot machines Hotels, Restaurants, Cafes including Fast food outlets, Cuisine Restaurants etc. Mobile Carts Entertainment Zones

The Coca-Cola global value chain is followed in India as well. There are suppliers who give the

ingredients, water and the packaging materials to the Coca-Cola Company which has the

formula for the concentrate. They distribute the concentrate to their bottling partners. The

Company and the bottling partners constitute the Coca-Cola System. The bottling partners

bottles and distributes it through various channels i.e. using warehouses, distributors who in

turn deliver it to the customers.

In urban areas, it used the Centralized Distribution System, where the product wastransported directly from the bottling plants to retailers.

Coca-Cola India uses a different strategy to reach to the rural market since taking stockdirectly from bottling plants to retail stores would be very costly due to long distances

to be covered.


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Initially the company used auto rickshaws, cycles, hand carts and even animal carts totransport to village retailers. It then shifted to the Hub and Spoke system for distributing

in the rural markets.

Under the hub and spoke distribution system, stock was transported from the bottlingplants to hubs and then from hubs, the stock was transported to spokes which weresituated in small towns.

It also changed the type of vehicles used for transportation. The company used largetrucks for transporting stock from bottling plants to hubs and medium commercial

vehicles transported the stock from the hubs to spokes.

5.0 Gaps in practice Even after covering a lot of rural markets, lot of opportunities are left Lack of control over the bottom end of the supply chain. Though the distribution system

is tailored to meet the requirements of the rural markets it is not yet completely

efficient

The distribution channels used is not enough since there are different types of retailersin the rural market

The number of hubs is not enough for satisfying the growing demand This gap can be solved by introducing a control over the already existing extensive

distribution network and a new model

6.0 ConclusionThere is a requirement of a robust and controlled distribution system that has to beimplemented in India to get a more efficient and effective Supply Chain with higher Supply

Chain Surplus.

6.1 Coca Colas MDC Model

MDCs are independently owned, low-cost manual operations created to service emerging

urban retail markets where classic distribution models are not effective or efficient.

Common characteristics include: A central point for warehousing of product, with a manageable coverage area and

defined customer base (typically about 150 retail outlets).

Distribution of product is mostly manual (e.g. by pushcarts) to keep costs at a minimum. Outlets served are typically low-volume with high service frequency requirements and

limited cash flow, requiring fast turnaround of stock.


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Coca-Cola Sabco first developed the MDC model as a pilot, which created ten MDCs in Addis

Ababa, Ethiopia, in 1999. By 2002, it had implemented the model on a broad scale throughout

its markets in East Africa. Although the exact number of MDCs changes on a regular basis, as of

November 2008 there were 165 MDCs in Addis Ababa and 651 in Ethiopia as a whole,

accounting for 83% of CCS sales nationwide. Also as of November 2008, there were 152 MDCsin Dar-es-Salaam and 412 in Tanzania as a whole, accounting for 93% of CCS sales nationwide.9

CCS now relies on the MDC model as its core distribution model in Ethiopia, Kenya, Uganda,

Mozambique, Tanzania, and to a smaller extent in Namibia.

7.0 Recommendation Coca Cola India can adopt the MDC model it has used in Ethiopia, East Africa and

Tanzania since it has shown good business results there

Some benefits are:o Facilitates delivery in road-poor settings:

The MDC model allows for access to areas that are hard to reach by large trucks,

such as crowded urban settings where roads are not built, are too narrow to be

accessible, or are in disrepair.

o Allows for small drop sizes at retail outlets:The close proximity of the MDCs to their retail outlets allows them to make

frequent, small deliveries, enabling outlets to carry less inventory and to purchase

more on a demand-driven basis, addressing some of the financial and space

limitations that the retail outlets face.

o Provides improved customer service:Whereas under the traditional model, retail outlets had to wait for infrequent truck

deliveries and risk running out of supply, outlets have constant access to products

under the MDC system (12 hours a day/six or seven days a week). Also, through

regular interaction with retailers, the MDCs and CCS can ensure that merchandising

standards are also better adhered to and that problems are rectified faster than in

traditional models.

o Overall, the model has led to positive business results in Ethiopia and Tanzania andhas been a contributing factor to Coca-Colas sales and volume growth in these two

countries, as well as elsewhere in East Africa.


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8.0 Bibliography bottling partners of The Coca-Cola Company. (n.d.). Retrieved from Coca-Cola India:

http://www.coca-colaindia.com/ourcompany/bottling_partners.html

Coca-Cola system worldwide and in India. (n.d.). Retrieved from Coca-Cola India:http://www.coca-colaindia.com/ourcompany/coca_cola_system.html

company history. (n.d.). Retrieved from Coca-Cola India: http://www.coca-colaindia.com/ourcompany/company_history.html

Kaye, J. (n.d.). Coca-Cola India. Nelson, J., Ishikawa, E., & Geaneotes, A. (2009). Developing Inclusive Business Models.

Harvard Kennedy School and International Finance Corporation.

coca-cola india term paper

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