John Ustas, CEO of Hindustan Coca-Cola Beverages, the bottling arm of cola major Coca- Cola India, has doubled his sales force from 1,000 a year ago to 2,000 now. This, he says, is in anticipation of the fast growth he foresees in the coming year. His counterpart in the concentrates business, Atul Singh, CEO of Coca-Cola India, claims that growth is already back in the business-Coke's volumes grew 4 per cent in India during the quarter ended September 30, 2006, ending a six-quarter declining streak, according to the Securities & Exchange Commission filing by the parent company-and asserts that "colas are the way forward for the company". Adds Ustas: "Our bottling operations have turned cash-positive after a long time."

Sure, the second round of the pesticides controversy in August revived fading public interest in the alleged harmful ingredients in carbonated soft drinks (CSD) but this doesn't rattle Singh and Ustas any more. Singh, in fact, sees huge growth opportunities in the cola segment. "We strongly feel that there is genuine demand for safe, rehydrating, refreshing and affordable drinks like colas in India," he says, adding that his confidence is based on the general economic and demographic scenario in the country that favours a sentiment for "indulgences".

Cola factor: One-size-fits-all strategy does not work

The numbers favour his argument-the penetration of CSD in India is only around 8-10 per cent compared to almost 100 per cent in the US and 70-80 per cent in Europe. "Even Pakistan has a per capita consumption of 24 bottles a year compared to 9-10 here," he adds. But under-penetration can only be a pointer to potential. And, the same argument had been put forth about rural India, but that proved to be a chimera. "The magnificent growth in volumes in the initial months of the Rs 5 strategy proves that there is unfulfilled demand in the rural markets. We withdrew because we introduced that price point for the entire market, which, obviously, was unsustainable," he says. For Coca-Cola, the biggest learning over the last year has been that the one-size-fits-all strategy does not work in India. "Each market will have to have a distinct product and pricing strategy. We call it brand, pack, price and channel strategy," says Singh.

Greater reach equals higher sales?

Ustas, meanwhile, is busy fixing the ground for him. "The biggest challenge in India is the lack of infrastructure-bad or no roads, irregular or no supply of electricity and the inability of retailers to invest in refrigerators, to name just three," he says. The company is investing about $250 million (Rs 1,125crore) to firm up its distribution channel in these areas. "We have around 850,000 retailers (which compares well with even some top FMCG companies). My objective is to reach out to the entire 15 million FMCG retailer base in India as soon as possible," he adds.

So far, we have around 8,50,000 retailers which is quite significant even when compared to some of the top FMCG companies. My objective is to reach out to the entire 15 million FMCG retailer base in India as soon as possible John Ustas CEO, Hindustan Coca-Cola Beverages

But what about reports that consumers are increasingly turning away from carbonated drinks towards healthier options? The market for juices is growing faster than colas. According to estimates, the former has grown 20-22 per cent over the last two years, against 3-4 per cent this year for colas (and no growth last year). This is in line with global trends. PepsiCo clocked $32 billion (Rs 1,44,000 crore) in global revenues last year against Coke's $23 billion (Rs 1,03,500 crore) thanks to its fast-growing non-carbonated business. And there's no reason why India should buck the global trend. Says Shruti Basavaraj, an analyst with The Motley Fool, an investment and financial services company based in Virginia, us, that closely tracks Coca-Cola and Pepsi: "Pepsi's guidance for 11 per cent growth is higher than Coca-Cola's goal of 6 per cent. This can be explained from the fact that Coca-Cola gets around 80 per cent of its sales from its CSD portfolio whereas Pepsi gets around 75 per cent of its revenues from snacks and non-carbonated drinks, which is growing faster than the CSD segment." According to reports, Coca-Cola, is diversifying its portfolio in the us. Mary Minnick, Head, Marketing, Strategy and Innovation in Atlanta, has launched 1,000 new variants of its various brands, including colas, energy and sports drinks (Powerade, Aquarius, Samurai, TaB Energy, Full Throttle), water (Dasani, Siel, BonAqua) and juices (Cappy, Minute Maid) in the last one year. She is obviously banking on Coca-Cola's strong brand equity to pull it off. Says Tom Blackett, Deputy Chairman, Interbrand, a renowned global brand consultancy firm: "Coca-Cola has remained the world's top brand in our surveys year after year (Pepsi trails at #22)." According to Blackett, Coke's brand extensions in new categories can be just as successful as the mother brand.

Churning At The Top

Sanjeev Gupta Alex Von Behr Donald Short Coca-Cola has had an extremely unstable top management team since it set up shop in India in 1993. In a span of 13 years, the company has seen half-a-dozen CEOs flit in and out-Jaydev Raja, Rick Nicholsan, Don Short, Alex Von Behr, Sanjeev Gupta and incumbent Atul Singh. Its rival Pepsi, on the other hand, has had only two chiefs, Suman Sinha and the man who succeeded him in 2001, Rajeev Bakshi. (Pepsi had entered India in 1988 with a three-way joint venture-the other partners were Punjab Agro Industrial Corporation and Voltas India-which was headed by Ramesh Vangal). It was announced at the time of going to press that Sanjeev Chadha would take over from Bakshi, who is being transferred to Hong Kong. "It is this churn at the top management level that has really hurt Coca-Cola in India," says a former Coca-Cola executive. Interestingly, all this while its head office in Atlanta was also seeing a similar churn. Following the death of its legendary CEO Roberto C. Goizueta in 1997, the company has had three CEOs; Goizeuta had run the company for 17 years. Singh admits that such churning can take a toll on the growth of and the sentiment within the company. "We have realised that the Indian leadership team has to stay on longer to steer the company towards its long-term growth plans. I do plan to stay around till I put the company firmly back on the growth track," he says.

Expanding Portfolio

Singh says the small size of the Indian market has stopped the company from introducing many new products. Still, he has soft-launched premium water brand Schweppes (a brand that Coke now sells in markets outside the us), energy drink Powerade, fruit drink Cappy and some other premium products in some Indian markets. "The juice and health drinks market has yet to take off," he argues. While the size of the cola market is estimated to be around 400-450 million cases; the juice market is less than a third of this. In value terms, the CSD market is worth Rs 5,500-6,000 crore (Coke's share is estimated to be Rs 3,000-3,400 crore; Pepsi accounts for the rest); the branded juices market is valued at Rs 400-450 crore.

Coca Cola India gets over 85 per cent of its revenues from carbonated drinks; and the scene is not very different at Pepsi. Says PepsiCo's Executive Marketing Director, Punita Lal: "Carbonated drinks contribute 80 per cent to Pepsico India's total sales; juices, water and other non-carbonated drinks make up the rest." Pepsi's overall Indian revenue numbers seem less skewed because its snacks business, clubbed under Pepsi Foods, contributes another Rs 1,000 crore. But Coca-Cola India has no plans of entering the snacks market. "We are a beverages company and will remain that way," says Singh. Though, he declines to divulge future plans, there are indications that Coca-Cola will soon launch Minute Maid juices and some other energy and sports drinks in India next year. It is also planning to add new variants to its tea and coffee portfolios. Clearly, Coca-Cola is diversifying its portfolio in India in its search for growth.

But colas, which are facing massive consumer resistance all over the world-including in the US and Europe-will remain its bread, butter and (it is hoping) jam over the next five years, at least. And that's something quite reassuring for Singh because his CSD portfolio comes across as stronger than Pepsi's. Brand Pepsi is bigger than Coke in India, but Coke plus Thums Up are ahead of Pepsi. In the cloudy lemon segment, Pepsi has consistently failed to topple Coca-Cola's well-entrenched Limca. Similarly, in the mango and orange drinks categories, both Maaza and Fanta (owned by Coca-Cola) have larger market shares than Slice and Mirinda. PepsiCo, however, disputes these claims.

But then, it is a reality that despite its spectacular march over Coke in the us in overall business, Pepsi has never been able to sell more cola than Coke in any of the markets it is present in. And if Atul Singh, a Coke veteran with over a decade's experience in markets like the US, Europe and China, has decided to confine his battle mainly to carbonated drinks, it's because he is backing himself to win it.