Alex Von Behr, CEO, Coca-Cola India: rough ride ahead

Meet the new new Coke. After the disastrous 1985 attempt by the Atlanta-based beverages major to refurbish its best-known and best-selling cola, one would expect its managers anywhere in the world to meet queries regarding change with some amount of trepidation. But in a country where Big Red has stumbled not once, but thrice, change, especially if it holds the hope of something better, is a way of life. Which is why, 12,000 kilometres from Atlanta, in Gurgaon, the response of Alex Von Behr, the President and CEO of the Rs 3,200 crore Coca-Cola India, comes as no surprise.

''Earlier, Coke's mentality here was that we'll only sell carbonated soft drinks (CSD),'' admits the 42-year-old Von Behr, whose first brush with India came when he was still a toddler. Back then, his father was the engineering whiz who was helping TAFE with its production of Massey Fergusson tractors.

The link between colas and tractors is only a trifle less obvious than that between colas and Coke's new strategy-at least when viewed through the filter of Coke's sacred philosophy of not messing with a winning formula. That philosophy isn't proving to be so sacred, and the company has strayed away from its winning ways globally (In India, of course, it has always played catch-up).

HOW COKE BOTCHED ITS FIRST THREE ATTEMPTS
	JAYADEV RAJA: 1992-mid-1995 The jury is still out on whether Coke should have taken over the four Parle brands (Thums Up, Gold Spot, Limca, and Citra). And, in hindsight, the introduction of 300 ml bottles, against the prevailing 250 ml ones, seems a MIS-step.
	RICHARD NICHOLAS: June 1995-March 1997 Nicholas' reign was dotted with strife: Coke always appeared to be at loggerheads with its key bottlers. Worse, its primary strategy seemed to be built around killing the four brands it had acquired.
	DON SHORT: April 1997-December 1999 The company embarked on a discount-led strategy to build volumes. While this didn't work, Coke seemed reluctant to go all out on the key take-home pet segment. Soon, Short's focus seemed to be buying bottlers, not streamlining operations.

Spurred by a stagnant market for CSD, a bleeding bottomline (accumulated losses, by some reports, tot up to a whopping Rs 650 crore), the tangle the company has got itself into with the FIPB over its public issue, and reports in the media over missteps in the execution of its debatable bottler-acquisition strategy, CCI has set itself a new mandate: leveraging its strengths to sell any ready-to-drink (RTD in industry lingo) beverage that it can.

Intrinsic to this strategy seems to be the realisation among the CCI top brass that it isn't Pepsi they are against (although neither Behr nor any of the other senior managers BT met used the P-word): it is anything that the Indian consumer uses to quench her thirst, tea, coffee, juice, even water.

This was a blinding flash of the obvious waiting to happen. Per capita consumption of CSD is just 1.5 litres a year. This, after CCI and Pepsico India, no mean marketers both, have tried their hand at developing the Indian market for just around a decade. And so, Coke's India management team is now talking of price (yes, another dreaded P-word in CSD), and products (another P-thingamajig but we won't push it)-things they wouldn't dare breathe about just a few years ago.

Sell Anything That Is Drunk

Well, almost anything. The first non-Coke thing CCI has done is to launch Sunfill, a RTD soft drink concentrate powder, in a single-serve pouch. The product is priced at Rs 2 and Sanjiv Gupta, Senior Vice President, estimates that Sunfill, which will go national in the summer of 2002, will be worth around Rs 200 crore by 2003. That's almost equal to the soft drink concentrate market's current size, with Rasna (from Ahmedabad-based Pioma Industries, which refused to speak to Business Today), the dominant brand with a marketshare upwards of 85 per cent.

Possible? May well be. For, CCI's business model for Sunfill is a low-cost one with elements like bulk-purchasing (CCI is the largest private sector buyer of sugar in India), contract manufacturing, and a grocery channel-led distribution strategy. As far as distribution is concerned, CCI doesn't mind partnering with regional marketers (like Medimix for the Tamil Nadu market) if its own reach doesn't suffice.

Sunfill has a clear mandate: bring the 200 million otherwise economically-active Indians, mostly from smaller towns and lower socio-economic classes, who do not consume CSDS, into the CCI fold. The fact that most of these consumers are likely to be older than those for its CSD business, and that most of Sunfill's consumption will happen at home is just icing on the cake. In effect, the company's strategy for Sunfill is a reprise of its successful one for its packaged drinking water brand Kinley. Launched in late 2000, Kinley has carved a 25 per cent share of the Rs 1,200-crore bottled drinking water market. Today, it is a Rs 300-crore brand, second only to market leader Bisleri from Parle's fold.

''We're on a roll with water. We'll break even here by next year,'' exults Gupta. So much so that Kinley, a low-margin volume-driven business, launched through just 30-odd company-owned bottling operations (COBOs) is now being aggressively courted by CCI's 18-odd franchisee-owned bottling operations (FOBOs). That will certainly be music to the ears of CCI's parent, Coca-Cola Inc., not just because it wrote off a $400 million investment in CCI last year (this primarily went into the disastrous acquisition of FOBOs starting 1996), but also because Kinley lags behind Pepsico's Aquafina in the global market.

Aquafina has enjoyed a limited success in the Indian market and a spokesperson for Pepsico claims this is deliberate as the brand has chosen not to participate in the discount-game being played by ''other leading players''. Meanwhile, CCI hopes to close 2002 with Rs 500 crore in sales from the brand.

However, it is the company's approach to carving up the market on the basis of regional businesses that is radically different. The difference isn't in the strategy of three-by-three-by-three that CCI is following as it de-constructs regional markets. That translates into three top brands, three top channels, and three top packs for each market. It (the difference) has to do with the company's intention to launch specific brands to cater to regional tastes. So if the southern market is strong on flavours, CCI is test-marketing Portello, its black currant brand. And a coconut-based drink is in the offing for Kerala.

''It makes sense to fill existing need-gaps in the market with brands that don't need much advertising support,'' explains Gupta. The company does not expect any of these to be among its top three brands in any region. But they help increase the viability of bottling operations (CCI claims it has achieved an operational break-even in its bottling business). A yearning for growth opportunities outside CSD has also forced CCI resurrect Maaza, an acquisition from Parle. Today, with a 36 per cent share, Maaza is the country's largest fruit-based drink brand.

Testing Unknown Waters

Perhaps the biggest ace up Coca-Cola India's sleeve in its non-CSD initiative is tea and coffee. The company doesn't like to talk much about this, except to say that tea and coffee are very much part of Coca-Cola Inc.'s 50:50 joint venture with Nestlé SA, Beverage Partners Worldwide (BPW).

This is to leverage Coke's distribution strengths and Nestlé's brand and category expertise to market pushing cold tea and coffee. ''Yes, we have identified tea/coffee as big opportunities in India. We're speaking to BPW, but everything is in the drawing-board stage,'' says Behr. Don't be taken in by that nebulous quote. CCI has already established a separate beverage unit to steer all its new non-CSD beverage endeavours, among them hot and cold tea and coffee.

"It makes sense to fill existing need-gaps in the market with brands that don't need much advertising support." Sanjiv Gupta, Senior Vice President, Coca-Coal India

And even while it works on growing its new non-soda commercial beverages business (a cola term for non-carbonated drinks like Shock, Coca-Cola's newly-launched energy drink) to a quarter of its total business over the next five years, CCI is using learnings from its non-CSD endeavours to unlock the potential of brand Coca-Cola.

Primary among these is affordability. That's the only way to grow volumes as the company's year-long experiment in coastal Andhra Pradesh has shown. Here, CCI introduced the 200-ml bottle at Rs 7 (as against Rs 10 for 300 ml, nationally) and grew volumes by nearly 30 per cent.

Expect CCI, then, go the full nine yards with the national launch of the 200-ml bottle scheduled to happen before the summer of 2002. The company has shared its complete business model and the profit-and-loss account from its Andhra Pradesh experience with its fobos and ''they're raring to go'' says Amit Jain, Vice President (Franchise Operations). That's in sharp contrast to the company's 1999 attempt to launch 200 ml bottles, but without reworking the business model-predictably, the effort failed.

The 200-ml standard will also help CCI penetrate an additional two lakh outlets nationally, to take the tally to a full million. ''We'll crowd mainline communication in 2002, on the 200-ml version,'' says Gupta. This initiative at setting an industry standard, Coke hopes, will help it take its comeback bid of sorts to fruition. May be it will, and may be luck will finally smile on a company whose India-experience has been a living embodiment of Murphy's law.

Other Story Links...
ECONOMY	TELECOM	BT PHARMA	INTERVIEW	INVESTING