indian beverage industry

7/29/2019 Indian Beverage Industry

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Indian beverage industry's double-digit growth will continue, says IBASaturday, April 13, 2013 08:00 ISTHarcha Bhaskar, MumbaiThe Indian Beverage Association (IBA) expects the country's beverage industry to continue to grow in double digits in2013, despite the recessionary trends being shown by most economies the world over, including the Indianeconomy.

Speaking at an IBA-organised seminar titled 'Agenda for Growth: Indian Beverage Industry Leveraging InternationalPractices' in Delhi, experts from the beverage industry stated that it could witness a revolution, fuelled by changinglifestyles, a growing middle-class, rapid urbanisation and increased disposable incomes.

Participants in the seminar included Rakesh Kacker, secretary, Ministry of Food Processing Industries, Governmentof India; K Chandramouli, chairman, Food Safety and Standards Authority of India (FSSAI); Geoff Parker, president,International Council of Beverages Associations, and Patricia Vaughan, senior vice-president, American BeverageAssociation.

The non-alcoholic ready-to-drink beverage segment has been growing at a compound annual growth rate (CAGR) of13 per cent since 2009, and is one of the segments that have defied the slowing economic growth.

Arvind Varma, secretary general, IBA, said, "The non-alcoholic ready-to-drink beverage industry is one of the largestinvestors in the country and has contributed significantly to the growth of allied industries. This industry is witnessingrobust growth, driven by a combination of factors such as increased investments and innovations.

However, the government needs to take a long-term view on the industry while formulating policies or else there is achance this industrys growth may get derailed, he stated.

IBA aims to act as a catalyst to enable the non-alcoholic beverage industry to play an increasingly significant role inthe growth of the economy, by providing employment opportunities and driving income growth and therefore hasraised its expectations with the government authorities, Varma added.

IBA's suggestions

At the deliberations in the seminar, speakers observed that the macro-indicators and the demographic dividendsfavour robust growth for the beverage industry in India.

With an enabling policy regime, which includes a more rational tax structure, frequent consultations with the industryon food regulations, giving the industry its due recognition as manufacturers of high quality, healthy and nutritiousproducts as well as life-critical products like water, will further help the industry realise its potential, IBA stated.

As an industry that has strong backward linkages with agriculture, its growth will also benefit millions of farmersacross the country.

GST

One of the key areas where the beverage industry expects Central and state government intervention is goods andservice tax (GST) and direct tax code (DTC).

The beverage industry has learnt that a single rate for both Central GST and state GST, which was proposed earlier,is reportedly being talked about as three different rates. This defies economic logic and is indicative of difficulty inmoving forward the proposal of a Constitutional amendment in Parliament.

IBA also suggested that the beverage industry be made a key stakeholder in the introduction of GST, and should bea natural partner in the process of consultation while formulating the plan and roll-out of GST. The extent ofinvolvement of industry currently in the consultation process needs to be scaled up and made more intense andfrequent.

VAT


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The value-added tax (VAT) rate of six per cent is applicable to fruit juice and fruit juice-based drinks. Despite thestates coming to an understanding that VAT would be charged at the rate of six per cent on fruit juice and fruit juice-based drinks, some states have increased the VAT substantially. The move to increase VAT on fruit juice and fruitjuice-based drinks will subvert the growth of the juice industry as also the development of the fruit and vegetableprocessing industry.

The soft drink industry is already reeling under margin pressure due to the high rate of taxes it is paying to the Central

and state governments, but some states have also increased the VAT on carbonated soft drinks.

This increase in taxes will, therefore, have to be passed on to the consumer leading to an increase in the price of thesoft drinks, which will restrict purchase of soft drinks by the general mass.

This, in turn, will have an adverse effect on the beverage industry and industries that depend on the beverageindustry. An increase in price also favours spurious manufacturers to sell their products on the basis of cost arbitrage.

R&D

Industry players also felt that their prowess in research and development would help them move beyond globalbrands and develop local, indigenous products to suit regional palates, thereby driving further growth in the market.These innovations are meant to address the low per-capita consumption of packaged beverages and will create botha direct and an indirect impact.

Regulatory aspect

The industry also expects that the food safety authorities remove roadblocks and provide much faster clearances andapprovals on ingredients and new products, without compromising the safety and quality of new products.

This is most relevant in case of proprietary foods, where inordinate delays result in food and beverage companieshaving to wait for many months before launching new products.

IBA also suggested that CODEX should be made a reference point for national food control agencies. Theinternational food standards, guidelines and codes of practice laid down by CODEX contribute to the safety, qualityand fairness of international food trade.

Referring to CODEX will help the Indian beverage industry contribute a higher share to the global food and beveragetrade, which is estimated at $200 billion dollars.

TOI 25 Jun 2012,15:08Growing at a compound annual growth rate of about 35%, the Indian non-carbonated drink market which includes fruit drinks, nectars and juices, is likely to touchRs 54,000 crore by 2015 from the existing Rs 22,000 crore, ASSOCHAM said. Factors that have fuelled the industry's growth are greater disposable incomesparticularly in urban areas and consumers seeking healthier beverages even if they are relatively more expensive.

Coca-Cola Co. (KO)is spicing up its struggle withPepsiCo Inc. (PEP)for dominance in India, the companys fastest growing major

market.

The worlds biggest soft-drinks maker is reviving RimZim, a masala soda flavored with cumin and other spices shelved after its

1993 takeover of local rival Parle Group. Coke is bringing back old brands and expanding distribution networks as part of a $5 billion

drive in India, where its sales per capita are one-seventh the global average.

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A stall selling only Coca-Cola Co. beverages and snack products operates along a road in New Delhi. Photographer: Prashanth Vishwanathan/Bloomberg

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Muhtar Kent, chief executive officer of Coca-Cola Co. Photographer: Prashanth Vishwanathan/Bloomberg

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Empty Coca-Cola Co. and "Thums Up" bottles sit in a PepsiCo. crate at a market in New Delhi. Photographer: Prashanth Vishwanathan/Bloomberg

Coca-Cola has struggled to replicate the global success of its eponymous cola, which trails Pepsi in India as well as Thums Up --

another Parle acquisition. Brands appealing to local tastes and investment in Parles old bottling and logistics systems are crucial to

meet Chief Executive OfficerMuhtar Kents target of doublingworldwide revenuethis decade.

To be first to reach out to the entire mass of India is a virgin opportunity, said Ankur Bisen, associate vice president, atTechnopak

Advisors Pvt., a Gurgaon, India-based firm that advises consumer companies. There are still many pockets that most of these soft

drinks have not gone to.

Dilapidated infrastructure means Coca-Cola is only reaching about one in five, or 1.7 million, of the potential outlets. Thats higher

than PepsiCo, which says it has 1.2 million and wants double that in five years. Coke says it aims to be in at least one in three

outlets within three years.

Indias 1.2 billion people on average consume 12 Coca-Cola beverages a year, compared with a global figure of 92. With about 350

million people aged under 15 -- more than the combined populations of Brazil andMexico-- and the changing lifestyle that goes with

economic growth and urbanization, the potential for the Indian beverage industry is unlimited, saidArun Kejriwal, a director of

advisory firm Kejriwal Research & Investment Services Pvt. in Mumbai.

$7.5 Billion

Indias market for soft drinks is expected to expand to $7.2 billion in 2015 from $3.1 billion in 2010, according to Euromonitor

International.Chinas will rise to $79 billion from $40.2 billion in the same period, the London-based researcher estimates.

Markets outside the U.S. are increasingly important as consumption of fizzy drinks there declines. The volume of carbonated soft

drinks sold in the U.S. fell 1 percent in 2011 to about 9.27 billion cases, the lowest level since 1996, according to trade publication

Beverage Digest.
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About 80 percent ofoperating incomeat Coca-Cola came from outsideNorth Americalast year. PepsiCo got 55 percent of itspretax

incomeoutside the U.S., according to data compiled by Bloomberg.

Indian Sales

Coca-Colasaidin July that Indian sales by volume in the second quarter of this year jumped 20 percent. Its share of the Indian

carbonated-beverage market rose to 60 percent last year, from 55 percent in 2005, Euromonitor data shows. PepsiCos share

declined to 37.2 percent from 41 percent.

Atlanta, Georgia-based Coca-Cola quit India in 1977 after the government demanded companies reveal ingredients in their products

-- which would have forced Coke to hand over its secret cola formula. It returned in 1993, four years behind PepsiCo. Both

companies have been dogged by accusations that their drinks were contaminated with pesticides and their bottling operations

depleted water tables.

PepsiCo hasnt ceded ground easily. Gautham Mukkavilli, who heads itsIndiabusiness, estimatessalesgrew double digits in 16

of the past 22 quarters. Like its competitor, PepsiCo is boosting distribution and relaunching brands purchased in the 1994 takeover

of 105-year-old Indian soft-drinks maker Duke & Sons Ltd. for an undisclosed amount.

Pepsi has re-introduced Dukes Masala Soda brand, and is testing a spiced lemonade under its 7-Up brand called Nimbooz Masala

Soda, Mukkavilli said.

National Network

Still, in Parle, Coca-Cola acquired 54 bottlers and a nat ional distribution system. Duke was focused on the western state of

Maharashtra, said Harish Bijoor, whose Harish Bijoor Consults Inc. in Bangalore advises companies on brands.

Coke CEO Kent on a June visit toNew Delhisaid the company and its local partners plan to spend $5 billion in India by 2020, part

of which will be on new trucks, refrigerators and bottling plants.

The emphasis will be on Cokes distribution network, to make it stronger, and on its advertising and marketing, so that it can reach

more people, said Sananda Mukhopadhyay, an analyst atNetscribes Inc., a consultancy company.

PepsiCo has spent $1 billion in India over the past four years and hasnt announced any new investment.

Thums Up

Parle also gave Coca-Cola Indias two favorite drinks at that t ime. Sales of Thums Up, a cola with a stronger flavor and more

carbonation than others, grew 15 percent in 2011, the company said in its annual report, and had a 5.9 percentmarket share.

Maaza, a mango drink, accounted for 5.5 percent of non- alcoholic beverage sales after an 11 percent jump last year.

Thums Up finally lost its top spot last year -- to Coca- Colas Sprite, which held a 6.1 percent share of the market. Leveraging off its

bigger distribution network, Sprite outsells 7-Up by more than two-to-one.

Coca-Cola is now preparing toresurrecta lime beverage acquired with Parle called Citra -- selling it at a price 30 percent below

Sprites to take on cheaper local brands.

Coca-Colas trademark Coke held a 3.2 percent market share in India, behind Pepsis 5.4 percent, according toEuromonitor.
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The companys standard-bearer accounted for 49 percent of worldwide sales by volume, according to Coca-Colas annual report for

2011. Thats down from 51 percent in 2009. Growing concerns over obesity and diabetes are also shifting consumers to juices and

less sugary drinks globally.

Nostalgic Taste

Six decades after Coca-Cola first branched out into new beverages with its orange-flavored soda Fanta, the company has more

than 500 brands worldwide, tailored to local tastes, according to its website.

Rimzim, I loved it! said Nikhil Kumar, 29, New Delhi- based managing director at The Storytellers Pvt., a public- relations company.

For me and my friends, it will be nostalgic, itll bring back some memories. Its a really good, typical Indian drink.

To contact the reporter on this story: Malavika Sharma in New Delhi [email protected]

To contact the editor responsible for this story: Ben Richardson [email protected]

Coke has been the only brand for which the beverage firm brought down prices to Rs 8 earlier this year. In terms of market share, brand Coke

continues to lag behind Thums Up and rival cola Pepsi.

Last month, Coca-Cola global chairman and CEO Muhtar Kent announced fresh investments of US $3 billion on accelerating the beverage maker's

pace of growth, bottling, brand building and distribution expansion by year 2020.

The $3 billion investment is over and above the $2 million the maker of Thums Up cola and Kinley water had announced last year November. Kent had

said he expects India to be among its top 5 markets soon, up from its current No 7 ranking.

Globally, Coca-Cola reported higher-than-expected quarterly profit, with consumption of its beverages in emerging markets making up for declining

growth in Europe. The company said its worldwide volume growth at 4% in quarter was 'well-balanced' around the world. Coca-Cola said emerging

markets like India grew 20%, while Russia grew at 9%) and China at 7%. Worldwide sparkling beverage volume was up 2% in the quarter, it said.
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