Strategic Analysis To Leverage Opportunities Available

Published Date: 02 Nov 2017

Executive Summary

The coming of 2000 brought a huge change in the beverage industry in India starting with the pesticide news in year 03. Moreover, there was change in dynamics of the Indian consumer with increasing urbanization; he/she was becoming more and more health conscious. Hence, there was a massive drop in carbonated soft drinks� sale both by volume as well as value and the profitability of beverage companies was being hit. But, this gave way to another opportunity in still beverages which included juices, juice drinks, dairy products, water and energy drinks. Yet India�s liquid refreshment beverages� per capita consumption is around 8-9 ounce servings as compared to Pakistan�s 17 and Sri Lanka�s 21.

The definition of a beverage was �any liquid suitable for drinking�. Now the word suitable is replaced with �healthy�.

Therefore, a huge task lies for major cola companies to revive the carbonated soft drinks market but also cater to the changing needs and develop a foothold in still beverages by diversifying into new products. Since Indian market offers a huge consumer base in terms of potential for growth the global as well as local players will have to invest in their R & D team and market research team to know their consumer market and then cater to them accordingly.

As the consumer base is becoming more and more health conscious, companies will have to apply a new marketing strategy to position them selves and moreover try to have a first mover advantage. Moreover at one side they will try to increase their market share of existing products by organizing their distribution system and reaching out to untapped rural market, the other side they will have to take leverage of FDI in modern retail and try new strategies for marketing in modern retail and have more volume sales.

At last, beverage companies both global and domestic have to develop in house facilities and maintain focus on new market that is the health drinks and thus change their portfolio accordingly by adding energy drinks, juices both 100% as well as juice drinks. Each liquid refreshment beverage has been studied in depth with analysis given on current market scenario, the major challenges facing companies and strategies to be followed accordingly.

The LRB segment is one the most promising opportunity and companies should develop the right kind of strategy to increase their market share, revenue and thus profit from India operations.

Chapter 1: Introduction

This report provides a comprehensive study and analysis of the beverage industry in India. India due to certain factors, which we look in the coming sections, present a huge opportunity, it consumes around 10% of the total beverage consumption, after U.S and China. Most of the sub categories are untapped specially when we look at carbonated drinks, bottled water and packaged juices. Demographically, our country is in its nascent stage when we compare it to other countries. The start of the new century has shown that trends of beverage industry are changing. There has been a large decrease in carbonated soft drinks by volume as well as revenue. But, then again the new business opportunity lies in health drinks like still beverages and dairy ones. India�s Refreshment Beverage Consumption is only 11 ounce servings per year as compared to Pakistan�s 17, Sri Lanka�s 19. India�s complex structures both demographically and legally make it difficult to be understood and analyzed.

In the past 10 years we see the global players- Coke and PepsiCo moving to new products like Minute Maid (Still Beverage), Burn (Energy Drink) and PepsiCo to Tropicana and acquiring Gatorade. Not only global companies but we can see domestic companies like Dabur which has made Real its flagship product. As carbonated soft drink industry suffers, the above-mentioned companies are fighting hard to acquire a leading market share in health drinks. For this companies require proper consumer insights and need to understand the changing dynamics of the Indian Consumer. With increasing urbanization and increasing purchasing power the consumer has changed a lot when we compare him/her to last 20 years. Companies, which are able to capture consumer, needs and wants successfully, more over understand the distribution system of India will be able to be a market leader.

This report is an effort to analyze Indian consumer needs, so that a strategy can be logically designed which is implementable for every beverage product. It is an attempt to help the stakeholders in this segment namely beverage companies, bottlers, retailers and

Chapter 2: Research Methodology

Research Methodology

An extensive diagnosis of the Beverage industry was done to construct a plan of action for the beverage companies.

During the work of dissertation, the research was conducted using the following methods:

* Primary research, usinginterviewing the concerned consumers towards various beverage categories

* Consultation with Evalueserve consultant Vani Jain during my internship in Coca Cola for data collection of companies like Dabur, Parle.

* Interactions with retailers including supermarts, hypermarts, and kiranas for their opinions on the beverage industry

* Secondary resources including Mckinsey Quarterly, Marketing Whitebook, Ac Nielsen and companies� annual statements etc. The information gives a clearer perspective on consumption of drinks, health drinks consumption pattern and Indian economy and demographics etc

Research Questions

The following questions on changing trends serve as a useful guide to design a concrete plan for the beverage industry

* Could the declining CSD beverage segment be revived?

* What other segments to move into i.e. beverages pertinent to Indian dynamics? What kind of positioning the products should have?

* Was it that liquid refreshment beverages were a single competitive market or was the competition segmented and category specific?

* How can companies align themselves to new opportunities specially with growing MR stores?

* How can companies exploit the opportunities provided by the modern retail format in the country?

* How to change distribution and marketing system for rural areas?

The above-mentioned questions have been answered in the dissertation through extensive analysis of the data collected through the research

Chapter 3: Indian Perspective- Beverage Industry

The beverage industry here is divided into following two categories:

1. Carbonated Soft Drinks

2. Non Carbonated Beverages

Regular Colas, Lime Lemony Cloudy & Clear and Orange form the 3 major sub divisions of CSDs. The second category can be sub divided into the Juice Drinks, Healthy Whites, Bottled Water and Indian Beverages like nimbu pani, squash, fresh juice, sweet & salt lassi, sugar cane juice etc.

Two companies are major holders of the market share in the carbonated drinks segment that are Coca Cola and PepsiCo with Coca Cola holding the majority share. Small players hold around 2-4 % of the market share. The other category is sold majorly through health drinks and apart from Dabur is domestically played by unorganized sector. Current market scenario suggests that non carbonated drinks will grow at a 3-4 % more as compared to carbonated drinks growth rate since the carbonated drinks have taken a hit for quite some time due to pesticide panic and its obesity causing side effect.

Since this is a low involvement product either it is an impulse or habitual buying product. But, research shows that this product is bought on impulse and top of the mind recall is important rather that buying out of habit.

Figure 1: Categories of Beverages (LRBs)

In 2011, India�s per capita income has been US$1514 and India has been witnessing an economic growth of 7-8% in the last decade. Per capita income has increased a lot but the prices have been kept constant around INR 8-10. Coca Cola move of introducing a 200 ml at INR 5- �Thanda matlab Coca Cola� paid them great returns in terms of market share and mind share specially in rural market. This showed that India is sensitive to prices and have to tactfully play around prices and avoid a price war. They had typically refrained from increasing prices as the price point of INR 8-10 for a serving was already around one-twentieth of the minimum wage stipulated by the Government in the country. The pricing effectively acted as a barrier for the majority of Indians to consume or savour the taste of a cola.

Market Value

Figure 2: Indian Beverage Market

The Indian soft drinks market grew by 13.4% in 2011 to reach a value of $4.1 billion. The compound annual growth rate of the market in the period 2007-2011 was 11.6%. [15] The soft drink Industry has witnessed a decreasing trend in the growth figures as highlighted by the table.

Year

Figure 3: India Soft Drinks Market Value: $ billion, 2007-2011. Forecast- 2012-16 [15]

In terms of Market Volume, The Indian soft drinks market grew by 22.5% in 2011 to reach a volume of 4.11 billion liters. [15] The compound annual growth rate of the market volume in the period 2007-2011 was 17.1%.[15]

Year

Table 1Figure 4: India Soft Drinks Market Volume: Liters billion, 2007-2011. Forecast 2012-16 [15]

3.1 Carbonated Drinks Category

Carbonated Soft Drinks have an inherently contradictory relationship. The relationship seems to be caught between dichotomies, dichotomies that signify and portray either good or bad. At one end of the likeability spectrum carbonated drinks signify issues like exciting, joyful, energizing etc and on the other end they signify things like risky, artificial and others. The most potent issue on the spectrum is the artificiality attached to the product. Cola defines the carbonated drinks category through all the drama, tension and excitement related to the product. Colas have a different trigger at each life stage posing a challenge to marketers to redefine its meaning for the consumer as he grows older.

Table 1Figure 5: CSD International Consumption Rates

The carbonated drinks market is getting encroached from other categories as juices, tea, coffee, dairy, energy drinks etc. With the spectrum detailing calm and energy on the x-axis with social and individual on the y-axis, it is other products that are providing new meaning to the consumer by promising wellness and moving away from some of the negatives attached to the carbonated drinks.

The carbonated drinks market saw a growth of 7.5% during the period 1999 to 2003. The per capita consumption rose from 6 servings per capita to 8 servings per capita. It has been the period after 2003 that has been a roller coaster ride for the cola giants. It was in this period wherein India was touching growth rates of over 8% for its GDP and surprisingly the carbonated drinks market was flat. Contrary to the experience of cola giants in India, the Chinese liquid refreshment beverage market for the period 2001 � 2007 was growing at an exorbitant pace of 16% wherein China�s economy growing at around 10%.

Figure 6: Beverage Industry Volume and Value Estimates

3.2 Competition

The competition in the sector is getting intense over a period of time. The traditional competitors i.e. Coke and PepsiCo are vying and playing market share battles in a stagnant market. Surprisingly India has been a market that has moved contrary to the general beliefs. It has been seen in countries across the board that increase in per capita income has led to the rise of consumption of carbonated beverages. The market is price sensitive with huge level of taxation.

Figure 7: Top Beverage Global Companies

The competition is coming from new and non-traditional carbonated drinks. The competition for drinks also comes from fruit drinks, lemon based drinks, ready to drink tea, etc. Some of the successful products in the arena are Maaza, Frooti, Limca and Sprite. Drinks like Appy Fizz have also captured the imagination of the consumer. The new and emerging players are likely to play on the turf in a different manner. The players could look at redefining the traditional business models and approaches for being successful in the FMCG market. The competition is not only approaching from traditional competitors but from players who redefine and understand consumer needs in a new way. This could move the competition to newer segments and redefine existing industry structure and boundaries.

PepsiCo to date has worked and captured the imagination of the Indian consumer exceedingly well. It was their strategy of innovation and being ahead of the curve that gave them the dominance they enjoy in the market. PepsiCo made it a point to enter the market with new products, change packaging, advertise and push the product in the market at regular intervals.

At the same time, its competitor Coca Cola was leveraging alternate channels and focusing on consumer connect strategy. Coke focused on creating red lounges, marketing initiatives and launch of innovative products as Minute Maid in the market. Coca Cola is investing in size with improved technology and adding manpower. Revenue management was improved through differential MRP and introduction of 400 ml PET bottle to win over the consumer psyche. Simultaneously Coke launched dispensers in McDonalds and can vending machines at various places. The marketing and operational focus was centred on more visibility at competitive pricing. It introduced Maaza and generated about 40% volume share in the mango drink segment. Coke looked at establishing supremacy through consumer differentiation, product introductions with differentiated formulation such as Minute Maid with pulp launched in February 2007 in South India.

Parle Agro, the other competitor in the beverages market with Appy and Frooti controlled around 30 per cent market share. Company had a significant focus on value engineering reflected in differentiated value added packaging. It introduced a sparkling juice drink Appy. The company consolidated with aggressive marketing and sales through grocery stores and institutions.

Dabur another competitor had a strong innovation, Research & Development focus. Dabur has concentrated on market segmentation and creating products that appeal to local taste with improved packaging and differentiated flavours. Dabur had an advantage of having their manufacturing in Nepal, Rajasthan and Siliguri wherein they had custom processing benefits through focus on low cost sourcing of raw material.

3.3 Porter�s Five Forces Analysis

Figure 8: Porters 5 Forces Analysis: Summary

The average mean of the drivers� score of the parameter is the score of the main parameter

Companies operating in this segment want to be vertically integrated specially with bottlers and want to deal directly with retailers however due to huge investment they have to outsource. This makes it very difficult for the companies, as they have to synergize with the bottlers whose main aim is not market share but profit. If we see buying power, the power in the hands of retailers is moderate and dependent on factors like retail concentration. Supplier power is not that great because these companies are huge business houses and inputs are commodities like sugar, pulp which are readily available. Barriers to entry are high because initial investment is huge and the current players are very large and have created brand equity for themselves.

Buyer Power - Weak

Supplier Power- Moderate

New Entrants - Moderate

Threat of Substitutes � High

Rivalry - Moderate

Chapter 4: The Indian Consumer Market

India is expected to carry its growth at around 8.3% in 2010-2015[13]. The growth in economy is expected to create significant opportunities and pose new challenges. The growth is expected to bring in major transformations within the Indian market from changes in income distribution to change in consumption patterns and higher disposable incomes, the shift in consumption paradigms in the urban and rural areas. This would be accelerated by the spectre of change in retail trade and evolving consumer behaviour. What we could see in the future is increased food on the go and at the same time an increase in risk of lifestyle diseases.

Figure 9: Significant changes in the Indian market

India is expected to be the fifth largest consumer market by 2025 moving from the existing rank of 12 as of today. This change would be brought about by rising incomes of people. This would significantly alter the income pyramid and structure of the Indian consumer market (see Figure 10).

Figure 10: Changing Income Distribution in India

The most significant opportunity would be provided by the sheer size of the burgeoning middle class in this country. The reshaping of the income pyramid would reshape the individual�s share of wallet (see Figure 11), give rise to the amount spent on food consumption (see Figure 12).

Figure 11: Changing Household Consumption in India

It is expected that the money spent on food would nearly double in the next 20 years. The sheer multiplier of population would give rise to a gargantuan opportunity ending up being the fifth largest consumer market in the world. Most importantly the non alcoholic beverage market in the country is expected to see a growth of 9% in the next 20 years.

Figure 12: Changing Food consumption patterns in India

The market opportunity according to the McKinsey Global Institute is stated to move from 346 billion rupees in 2005 to 750 billion rupees in 2015 to a formidable market size of 1877 billion rupees by 2025.

Consumer Spending(US $billion)

Source : Technopak analysis � Marketing WhiteBook 2012-2013

Consumer Segmentation, 2010-2020

Source : National Statistics, Euromonitor International � Marketing WhiteBook 2012-13

Chapter 5: The Indian Consumer

The Indian consumer is evolving over time. The change and evolution is creating a future that is challenging, exciting and at times intimidating. The change would provide new opportunities, give rise to newer segments, alter the fundamentals that govern the consumer markets et al. The change would present challenges for firms to redefine themselves, evolve, strategize for the future, make tradeoffs, and create different fits within the activities of the firm.

Figure 13: Evolving Indian Consumer

The consumption of carbonated drinks is driven by ideas like the efficacy of the drink in refreshing, quenching thirst etc (see Figure 14).

Figure 14: Reasons why Indians consume beverages (McKinsey) [9][10]

Over a period of time the consumer was becoming more aware and particular about nutrition and health. The nutritional health focus is moving beyond lip service and becoming an important factor in consumption decisions. In typical Indian households, parents too act as gatekeepers and limit the consumption of cola.

It is though interesting to note that we are getting health inclined and not necessarily health behaved. There is an increased awareness on issues pertaining to health. Health consciousness is reflected by the boom in health boutiques like VLCC, Body Care et al. People are becoming more aware and anxious about lifestyle diseases. The most important factor driving health worries are heart attacks at young age.

The health belief landscape is primarily driven by what is good for an individual, what are the ingredients, nutritional delivery, calorie consciousness etc. Health is a multidimensional concept for people being driven by Psychological and Physiological factors. Psychological factors that dominate are appearance, performance, healthy behavior. Physiological factors are relaxed, mental agility, emotional stability.

Most of the drinks would fall into one of the quadrants of the health � enjoyability matrix. Typically all Carbonated drinks are considered enjoyable but unhealthy by consumers and there is a high correlation between health and claimed consumption behavior.

The changing attitude toward cola was likely to shape a new pattern in consumption of carbonated and non carbonated beverages.

The consumer today is driven by the wellness agenda with opinion makers from the field of yoga and ayurveda having a significant impact on acceptance of carbonated drinks. The consumer in India was evolving over a period of time, needing players to adjust. The future was likely to be more robust for players who were likely to ride on the trends and be privy to creating and defining the future.

Digging deeper into the consumption pattern in Indian homes it was certainly realized that tea, dairy and Indian beverages dominated (see Figure 15).

Figure 15: Beverages consumed by Indian consumers (McKinsey) [9][10]

This can be accentuated by the fact how people engaged with and thought about beverages (see Figure 16). Typically beverages are consumed across the day with consumption peaking up during mid-day (see Figure 17), consumption pattern vary (see Figure18), different occasions have different consumption profiles (see Figure19) and last but not the least the consumer also looks at beverages from the perspective of status it reflects (see Figure 20).

Figure 16: When do Indian consumers consume beverages

Figure 17: Eating Occasion and Beverage Consumption of Indian consumers (McKinsey) [9][10]

Figure 18: When do Indians consume beverages (McKinsey) [9][10]

Figure 19: Consumption locations of CSDs (McKinsey) [9][10]

Figure 20: Consumption locations of non-CSDs (McKinsey) [9][10]

Segmentation

For the basis of identifying target segments for LRB consumption in India, only the three most critical parameters will be used for segmenting the Indian market and are shown in Figure 21.

Figure 21: Critical Segmentation Parameters for LRB Market in India (McKinsey) [9]

While the other segmentation parameters also play an important role, they are quite similar for each combination of age, income, and health-consciousness levels. It has been observed that various age-group and income-group combinations share similar purchasing behavior especially for FMCG products. [3] In the past few years, health and fitness awareness has grown dramatically especially in the urban cities across India yet differs across age and income-groups. [1][3] Thus, �Health & Well-being� forms the third critical segmentation parameter. The other segmentation parameters will still be considered, when the marketing strategy for new products are formulated.

Target Segments

Once the critical segmentation parameters have been selected, the growth-potential for each segment has been mapped out in Figure 22. The future potential for each segment may be any one of low-growth, medium-growth, and high-growth. Each Age Group has been categorized according to each Income-Class parameter and �Health and Well-being� parameter.

The growth-potential for each segment was inferred, using current and future macro-economic indicators of India [14], secondary research [3][5], and from the data given in the case-study. [1] The high-growth or �green� segments would be the target segments upon which beverage companies should base its future strategy. The �orange� segments represent those segments which are currently not in a low-to-medium growth phase but have high growth potential in the next five-ten years.

The medium-growth or �yellow� segments are still lucrative segments but are in a state of medium growth. These segments should have a secondary role in a company�s strategy and thus should not be ignored. The low-growth or �gray� segments are low-growth segments and may be ignored by companies till a change in trend is observed.

Age Group

Income Class

�

Figure 22: Identifying Target Segments

Chapter 6: Primary Research � Consumer Survey

Target Audience: <19 age-group belonging to each income group, 21-34 of Middle and Upper Classes

City: New Delhi, Noida, Gurgaon, India

Districts: Vasant Vihar, Vasant Kunj, Rohini, North Campus, South Campus, C.P

Sample Size: 339

Invalid Responses: 39

Valid Responses: 300

1. How many times do you consume CSD?

a) Often (greater than 4, 300 ml. bottles a week)

b) Occasional (2-4 300 ml. bottles a week)

c) Never (less than 2 300 ml. bottles a month)

Parameter

2. What motivates you to have CSD?

a) Quenches Thirst

b) Cheaper

c) Good in Taste

d) Meal Accompanied

e) Other

Parameter

3. When do you have CSD?

a) Morning (before 11:30 am)

b) Afternoon (11:30 am � 4:30 pm)

c) Evening (4:30 pm � 8:30 pm)

d) Night (8:30 pm � 12 am)

Parameter

4. Are you open for fruit-based CSD?

a) Yes

b) No

c) Don�t Know

Parameter

5. Which 3 fruit flavors that should be used in fruit-based carbonated drinks?

Flavor

Survey Results from interactions with retailers (Big Bazaar, Spencer�s, kirana stores):

* CSD � still largest selling segment

* Best selling still beverage � Tropicana or Real

* Juices sell more only in time of promotions/schemes

* Consumer increasingly demanding for �Sugar-less�, healthier drinks

* Few takers for Red Bull or Burn

Chapter 7: Data Analysis - Strategy for Beverage Categories

The Beverage segment will be analyzed and a suitable strategy will be suggested in future.

After current recent trends, the marketsand problems facing beverage companies will be highlighted. The information has been collected upwards and its analysis will be done in the current chapter(Chapter 3-5). The Market-by-Volume figures are in Million Oz cases and the Market-by-Value in INR millions.

7.1. Carbonated Soft Drinks (CSD)

7.1.1. Market Analysis and Trends

Year

Figure 23: CSD Market-by-Volume (2005-2010) [1]

7.1.2. Current Market Scenario

The case related to pesticides and impure materials in soft drinks in year 03-04, and at the same time the living style of population changing, moving towards health oriented drinks, as a result decrease in market share of carbonated soft drinks by volume sales as well as INR sales (Fig 23). In year 08-09, carbonated soft drinks showed �ve growth. However, in recent past it is showing positive growth but it is behind growth in health drinks segment, which have been growing at their expense. The main reason explaining it is the lifestyle change in their TG, that is target group- 22-35 middle & upper segment people. These people have shifted towards non-CSDs specially health drinks. Still, their demand is much prevalent in less than 22 age group of all income class and 22-35 in the Aspirer class. The following are the features if both the groups.

* 22-35 Aspirer class makes a large purchasing section but with less power to purchase

* Less than 22 makes for a small purchasing size but has high power to purchase

Hence, strategy to market the product and positioning it will be different for the target groups.

7.1.3. Suggested CSD Strategy

In spite of the problems, the declining carbonated soft drinks market can be revived. A 3 step process can be laid down to revive the growth of carbonated soft drinks market and is shown in Fig 24.

Figure 24: Suggested CSD Strategy in India

1. Repositioning carbonated soft drink as meal accompanied beverage

Target Group: Less than 22for each income-segment, 22-35 Mid, Upper Segment

In the past, carbonated soft drinks have positioned as drinks, which quench thirst, resonate with the youth, their energy and coolness. But, as the youth is becoming more health oriented, this method may not work any more as target group has shifted to health drinks. The other still beverages provided their needs as shown in Fig 25.

LRB

Hence, since carbonated soft drinks didn�t have any reason for the consumers in less than 35 years age of middle to upper class segment to consume it, CSD lost resonance with them.

Therefore, to re stabilize carbonated soft drinks market companies need to do a need gap analysis of the consumer- the timing and place of consumption of the TG.

From Fig 16, we see that that 1 to 2 pm and 9 to 10 pm are the major times to consume that is lunch and dinner respectively. In Fig 18, we find that people have beveragewith a meal 23% to 38% of the time between 12 p.m. and 4 p.m., and 39% to 48% of the time between 8 p.m. and 10 p.m. Therefore, it can be concluded that people have still beverages mostly accompanying meal.

One interesting observation that we can make is from Fig 20, is the consumption location. Around 77% of still beverages are consumed at home, whereas the same location contributes to only 37% of the locations where CSDs are consumed. Eat- out outlets form around 39%. Therefore, it can be concluded that carbonated soft drinks are consumed on the go or with outside meal.

Figure 26: How often do you consume CSD? (Chapter 5)

Figure 27: Primary reason for consumption of CSDs (Chapter 5)

Figure 28: When do you primarily consume CSD products? (Chapter 5)

From the survey, meant for less than or equal to 35 TG in Upper and Middle-income groups (Chapter 5), we see that carbonated soft drinks are meal-accompanying drinks. One consumer insight that can be concluded from above is that cola is preferred with meal than taken at any other occasion. The survey can be seen in Fig 26-28, backed with secondary research.[4]

2. Diversify Portfolio with Fruity and caffeine free concentrated carbonated drinks

Target Group: Less than 22 years belonging to every income segment, 22-35 years of Middle and Upper Classes segment.

In year 01, the two big giants introduced Mirinda brown apple and Fanta water melon and green apple thinking that this would fill the needs of the consumer changing pattern from CSDs to fruit drinks. [13]. But, these products didn�t succeed and were stopped. This was due to poor market research by the companies.

Some of the flavors in CSD are orange and lime ( Fanta, Sprite). In year 06, Parle�s Appy- which is an apple flavored CSD created a huge uproar because of its out of the box postioning.

Figure 29: Would you be interested in purchasing fruit-based CSD (Chapter 5)

From the survey targeted at less than or equal to 35 years age belonging to Upper and Middle income group(Chapter 5), consumers want fruity CSDs. Hence, from the survey, CSDs should be in mango, orange, lime, apple or peach flavor

Flavor

One more way is when companies make their CSDs more concentrated with vitamins etc, at the same time reducing sugar and caffeine. This can win back the loyalty of its target group 22-35 Middle and Upper income people. In 2011, Coke initiated Fanta Apple across India, however it was a failure in Northern parts, but it was successful in southern India. Also, major sales of health drinks are from Tropicana�s and Real�s Apple or Orange that shows that people have a liking tendency towards these flavors.

3. Increase in distribution system to increase reach to rural and tier 2 and 3 cities. Target Segments: 22-35 Aspirer group

Due to a broad base for volume sales this segment is highly looked for, but this should be dealt very cautiously. As this segment is diversified towards suburban areas and unapproachable rural places. Therefore, the companies should spread its distribution system to these areas. It will be explained later in Chap 7.

7.2. Bottled Water

7.2.1. Market Analysis and Trends

Year

Figure 31: Bottled Water Market-by-Volume (2005-2012) [1]

Year

Figure 32: Bottled Water Market-by-Value (2005-2012) [1]

7.2.2. Current Market Scenario

Bottled Water caters to the basic need of mankind and is perhaps the most valuable product given its availability is dealt properly. From Fig 32, bottled water is as a rapid growing brand in still beverages which took a peak in year 09 of around 22%. [5] and [6] tell that water as a product has CAGR of 25-40 % since year 04. But, a further more interesting statistic is that per capita consumption is < 5 litres as compared to global of 24 litres in year 09 [5]. Therefore, there is a huge potential in this product and companies should take this seriously.

Figure 33: Bottled Water Market

There are 3 categories when we talk about bottled water. These categories are on the basis of cost-

a) Premium natural mineral water

b) Natural mineral water

c) Packaged drinking water

The packaged drinking water forms the largest part where major players are present like Bisleri, Kinley (Coca-Cola), Aquafina (PepsiCo), Mohan Meakins, SKN Breweries etc. There are around 200 brands out of which 80% are local players. Even FMCG players like HUL, Nestle are eyeing this category.

Figure 34: Packaged Drinking Water Market

7.2.3. Suggested Strategy

Contrary to perception, price is not the topmost criteria to differentiate in above-mentioned major brands. For brands to work, the strategy is explained in the figure below that is Fig 35.

Figure 35: Suggested Strategy in India

7.3. Juices

7.3.1. Market Analysis and Trends

Year

Figure 36: Juice based Market-by-Volume (2005-2012) [1]

Year

Figure 37: Juice based Market-by-Value (2005-2012) [1]

7.3.2. Current Market Scenario

After China, the 2nd largest fruits and vegetables� producer is India. The varying climate affecting Agriculture helps in making a large range of fruits and vegetables available in huge quantities throughout the year.

In the year 2010-11, India 74.877 million metric tonnes production of fruits and 146.554 million metric tonnes production of vegetables. [16]�

The potential of the sector has, however, not been fully tapped. About 89% of the processing units are in the small and medium sectors.Street comer vendors are still popular. Fruit juices in the unorganized segment are considered cheaper and fresher by the consumers, even though they are often unhygienic. However, this segment is growing at a rapid pace and is expected to be Rs 500 crores. [2]

Figure 38: Reasons for growth in demand in the Fruit based beverage sector

The data highlights that the Juice market is growing at an increasing pace given the increasing health consciousness among consumers. The share of juices in LRB is increasing at a fast rate. In terms of value, it is a highly profitable business with huge margins. Also, the increasing levels of disposable income, makes this industry more affordable for the middle class giving it a boom. New Players are entering this segment with new variations, both, in terms of the product and price. Therefore, it is strongly suggested that companies penetrate deeply into this segment, by increasing both the total market and its market share.

Competitor Analysis

�

N Joiulp Based Drink

Figure 39: Flavors available for each Juice Company

Company

1.5 L: Rs 60

Figure 40: Competitor Analysis for the Fruit Juice segment

7.3.3. Suggested Strategy

The Strategy proposed for companies to gain a stronger foothold in the fruit beverage segment, is given in Figure 41.

Figure 41: Proposed strategy for Juices

Figure 42: The Proposed Strategy for Vegetable Juices

The entire Juice market should be divided into segments and each segment should have a special category of juices enriched with the required level of nutrients. The advertisement for these segments should focus on the complete family emotion wherein each member of the family has been catered to keeping in mind the requirements. The proposed segmentation strategy is given in Figure 43.

Proposed Segment

Figure 43: Proposed Segmentation Strategy

Market Expansion

The Total Fruit Beverage Industry is expected to be Rs 500 Crores[1], this market still leaves tremendous scope for expansion. The growing middle class needs to be educated regarding the benefits of fruit juicesthrough Informative Advertising.

Also, the total size of the market can be increased by inducing the current consumers to consume more and attracting new consumers by new small packs which make it more affordable to make juices a part of their daily diet. The proposed 100 ml packs can induce consumers to make juice an everyday product rather than a premium product.

The growing competition will lead to more advanced distribution networks and companies should focus heavily on tie-ups with all leading retailers through special discounts to retailers.

7.4. Dairy-based Beverages

7.4.1. Market Analysis and Trends

Year

Figure 44: Dairy-based beverages Market-by-Volume (2005-2012) [1]

7.4.2. Current Market Scenario

India ranks first in the world in terms of milk production. At present, the dairy sector has an estimated consumer demand for milk and milk products at EUR 26 billion, growing at about 8 percent per annum. About 35 percent of milk produced in India is processed. The organized sector (large scale dairy plants) processes about 13 million tons annually, while the unorganized sector processes about 22 million tons per annum.

Key Sector Constraints in value chain

Figure 45 : Constraints in Value Chain

The above data and FICCI foods360 we see that this is one of the growing segments in liquid refreshment beverages. It estimates that it has grown by 6.8 % over the last decade. High value processed products to be growing at a rate of 15-25% [17]. Not only this, but if value chain framework is applied properly specially with respect to distribution and marketing than it is said to increase by 400 %. Hence, there lies an opportunity to tap this segment, if certain issues are taken care of. This is majorly dominated by the dairy brand- Amul.Currently, the dairy industry is dominated by the co-operative sector, as it owns nearly 60% of the installed diary processing capacity. The major player in the diary chilled-beverage market is The National Dairy Development Board (NDDB) with its major brand: Amul.

Figure 46 - Some major players:

Company

Amul launched its portfolio of diary chilled-beverages under the Kool platform, which has been highly successful in attracting the target segment � urban teenagers. Please refer to Figure 47 for a detailed description of Amul�s Chilled Beverage portfolio.

Parameter

Amul

1. Kafe (Coffee),

INR 18-20 - 200ml Glass Bottle

INR 25-30 - 250ml Can

INR 30-36 - 1 Litre Tetra Pack

7.4.3. Suggested Strategy

A brief look at Amul�s 3-tier model - This structure consists of a Dairy Cooperative Society at the village level affiliated to a Milk Union at the District level that in turn is further federated into a Milk Federation at the State level.[19]

* Milk Collection is done at the Village Dairy Society,

* Milk Procurement & Processing at the District Milk Union

* Milk & Milk Products Marketing at the State Milk Federation.

This is its core competency and maintains economy of scale in production. It has 3.1 million producer families. It has the largest cold chain network and milk handling capacity in Asia. [19]

Its distribution network is slightly complex due to the product portfolio it caters. As it has 4 different categories- ambient products (like milk powder, ghee), chilled products (butter, cheese, shrikhand), frozen products (ice-cream and paneer) and fresh items (fresh milk, curd, yoghurt) and each category requires specialized storage, transportation and replenishment frequency, therefore it must hire specialized small businesses or entrepreneurs to develop the channel for different products. Its distribution must not be centralized but highly fragmented like that of Coca Cola. It can take leverage of small local producers of milk because their reach is much more penetrative.

7.5. Sports Beverages

7.5.1. Market Analysis

The Indian energy drinks market is currently estimated at ~USD 154.5 million and is expected to grow at a CAGR of 28-30%. This growth was mainly driven by an extraordinary performance by Red Bull, which has been the most dominant player in the caffeinated energy drink segment, and Gatorade, which is the leader in the sports drink segment. In order to offset the increasing raw material price, fluctuation in foreign exchange rates and rise in electricity costs, the current unit prices have increased for energy drinks.Energy drinks account for 14-15% of the non-alcoholic beverage segment. [20]

7.5.2. Current Scenario � Consumer Perspective

There seems to be a growing acceptance for the consumption of energy drinks in India, due to affordability and visibility.Furthermore, increased urbanization, rising disposable incomes and growing health consciousness among the Indian youth has fuelled the demand for non-carbonated drinks market such as energy drinksare likely to encourage impulse purchases and increase the frequency of consumption.[20]

Brands have not been able to take advantage of India�s growing health-conscious segment primarily due to the challenges as illustrated in Figure 48.

Figure 48: Challenges facing Sports Beverages in India

7.5.3 Suggested Strategy

From the challenges, there is a need to promote energy drinks, works needs by promoting sports at the ground level. Moreover, the following strategy needs to be covered:

Figure 49: Suggested Strategy for Sports Beverages in India

7.7 Indian Health Beverages

The growing urbanization and health concerns have played an important role in growth of liquid refreshment drinks market in India. The market size of Indian Food industry currently holds at 200 billion dollars and is estimated to become 300 billion dollars by 2015 [20]. On an average the Indian health and wellness industry is growing by 25-30% from 2008 [21]. From Fig. 22, Health-Conscious is a measure which can be applied to all the ages with special mention to �Globals� and � Middle class� groups (income) as they show topline growth numbers. Also, from Fig 10, as the purchasing power is increasing, people in �Aspirer� group will move to �Middle Class� group. Fig11 shows a greater proportion of income is being spent on health-care. Thus, the �Health-Conscious� segment has tremendous prospects in the future. It is strongly suggested that companies enter into the Indian Health Beverage segment that consists of localized Indian drinks which are fresh and have some nutritional value. The proposed beverages to be introduced in the Indian beverages segment are shown in Fig 50.

Herbal Drinks

Refreshers

Figure 50: Proposed category of drinks in the Indian drinks segment

7.7.1. Herbal Drinks

The herbal drinks segment is a completely untapped segment which has tremendous potential in the future keeping in mind the growing health consciousness among the consumers. This will open up a completely new market which is currently being served only by local manufacturers and there is no organized player. The idea is to make drinks which have specific nutritional n medicinal value and yet are refreshing and tasty. The idea behind Strepsils was to make cough tablets in the form of candies, similarly, the Herbal range will not only aim at curing certain ailments but aim at making these drinks a part of the daily diet of consumers to remain healthy and avoid diseases. The proposed entry strategy for Herbal drinks is given in Figure 51.

Figure 51: Proposed entry strategy for Herbal drinks

The main competition in this category comes from local producers who have strong regional footholds. However, there is no strong national player in this segment. There is no brand that the consumers associate themselves with, hence, entry of any brand will ensure the first mover advantage and induce a strong brand loyalty.

7.7.2. Refreshers

This segment is proposed to be the next big segment in the non carbonated beverage sector in India. Consumers strongly associate themselves with the local Indian beverages which are currently served by the local vendors without any hygiene standards. Amul is the only player which is currently operating in this segment with spicy buttermilk, lassi and some localized drinks. However, a large number of players are entering this segment as this provides a whole new opportunity to tap the growing markets in its nascent stage.

7.7.3. Nimbu Paani

Nimbu Paani is considered to be one of the most refreshing local beverages in India. It is consumed throughout India and provides the perfect blend of �sweet taste� and �good for health� aspects. Currently, this is a huge market with tremendous growth potential. Pepsi has entered this segment with a new brand called Nimbooz by 7UP. Moreover, Coke has entered recently with launch of � Nimbu Fresh� under Minute Maid brand.

Figure 52: Proposed strategy for Nimbu Paani

The main competitors in this segment will be the local street vendors which sell the drink for only Rs 1-3. However, the hygiene standards are very low and this leaves space for a huge hygiene conscious market that should be the focus of all promotion activities for the drink.

7.7.4. Coconut Water

Coconut water is currently considered as the healthiest beverage in the world and is majorly present in tropics. There exists a huge market; however, very few manufacturers of the coconut water concentrate. Currently, Coconut Development Board is producing and selling coconut water in a canned form.Demand for packaged coconut water is slowly but surely gaining momentum," Dr Vijaya Kumar, Deputy Director, Coconut Development Board There exists huge potential in this segment and it is strongly recommended for major companies to enter this segment. �Soft-drinks major Coca-Cola India is planning to set up a tender coconut water production and marketing facility at its existing factory premises in Palakkad district of Kerala.� � Times Of India

7.7.5. Lassi

Lassi is the closest substitute to milk and is one of the healthiest Indian beverages- Rich in calcium, lower fat and lactose than milk and contain B vitamins. It is experiencing a growing market with Amul being the only organized player. Many competitors including Coca Cola are planning to enter this segment as the local drinks provide an opportunity to increase overall market share and they also have better margins. The variants considered are � � Traditional mild sweet lassi, sweet lassi, mango lassi and bhang lassi�.

We also recommend the introduction of other beverages including Aam Ka Panna, Bel Ka sharbat and Jal Jeera. These should be introduced in the northern region as a test run before launching them in the entire country.

7.7.6. Marketing Strategy for other Health Beverages

Coconut Water

Lassi

Jaljeera

Bel ka sherbet

1 Litre : Rs 65

Aam Ka Panna

1 Litre : Rs 50

Figure 53: Proposed Strategy for Refreshers in the Indian beverage segment

Chapter 8: Distribution Strategy for Beverage Companies

Expand Distribution network and penetrate sub-urban and rural areas

Due to the impulsive buying nature, low brand loyalty, and high price sensitivity of typical Indian consumers, it is critical for companies to ensure that its products are available within close proximity to all major target segments. To achieve this lofty objective, companies would have to build and spread its distribution network across all types of retail outlets and regions in the country.

In the near future, the growth of the Indian food and beverages market will be driven by two major factors:

* Ability to leverage Modern Retail

* Expansion into Rural India

8.1 Ability to leverage Modern Retail

However with the advent of Modern Retail and recent FDI allowance in it � a new strategy has to be developed to cater to much larger stores � hypermarkets, supermarkets, and cash-and-carry stores. Unlike traditional retailers, these retailers are large accounts i.e. the demand for FMCG products would be higher, thereby efficient inventory management would be critical to the retailer�s success. Also a modern retailer would have greater power and control over product ordering, product placement, and product promotions. Thus, large modern retailers would have greater leverage and power over the FMCG companies, and can force these companies to cut down on their profit margins, and offer more incentives etc.

In such a scenario, the recommended strategy towards Modern Retail is shown in Figure 51.

Figure 54: Strategy for Modern Retail

While companies would almost certainly see a decline in margins, it would still be able to benefit immensely from Modern Retail as illustrated in Figure 54.

Figure 55: Benefits from Modern Retail

7.2 Expansion into Rural India

With the urban market becoming increasingly saturated, the 741-million strong nearly un-penetrated rural Indian market will become the new growth driver for FMCG companies in the next five-ten years. The vast potential of the Indian rural market can be inferred from Figure 56-58.

Parameter

Figure 56: The large rural Indian market

Parameter

Product

Figure 58: Purchase of Consumer Expendables in rural India,Marketing Whitebook 2012-13 [11]

Companies generally use the hub-and-spoke model for its rural distribution set-up. A large distributor in a district acts as a hub would cater to an area consisting of large number of villages. A retail outlet in one of these villages would be set-up as a spoke for a number of close-by villages. The spokes would be paid in commissions by the hub, and directly deliver company products to the end rural consumer. In some cases, the spoke covers rural hinterlands through mechanized vehicles, cycle rickshaw, animal-cart and tractors etc. This distribution strategy has been fairly successful but has been implemented over very limited number of villages.

Thus, the primary challenge facing any company would be to determine which villages or regions to target from the hundreds of thousands of villages in the un-penetrated rural market. In fact, Selectivity holds the key to effective rural distribution, and if performed successfully would give a company a distinct first-mover and competitive advantage over its rivals.

Figure 59: Rural Marketing Strategy

It is recommended that companies select villages on the basis of population distribution, and potentiality. In the initial phase, a company may first try to cover all villages with 2000+ population. In doing so, 250 million or nearly 45% of the rural market will be covered. The potentiality of the rural market may be measured using relative consumption potential indicators such as:

Relative Consumption Potential Indicator

Figure 60: Relative Consumption Potential Indicator

Also, Companies would need to identify feeder towns and mandis where rural consumers from several adjoining districts visit and purchase FMCG goods on a regular basis. Other than these, a company can also make use of unconventional but effective rural distribution channels such as haats, melas, Postal department etc

Haats play a vital role in the rural economy, illustrated by Figure 61.

Parameter

Figure 61: Rural Haats

In several towns and villages, melas or cultural gatherings are held periodically to commemorate special occasions or events. In 2000, 25,000 melas were held with an average of 766,000 people visiting a mela, generating average sales of Rs 2.5 million per day. Thus, these melas can be used by the company to reach a large number of rural customers at a lower cost. The company can position its products in accordance with the theme of the event.

In the recent past, several large retailer including ITC, DSCL Haryali stores, Tata Kisan Kendra, M&M SubhLabh store etc have set-up stores in small towns in close proximity to many villages. Similar to modern retail, the company is recommended to build strong and long-lasting relationships with these larger retailers.

In the rural markets, beverage companies would also need to explore unconventional media opportunities to promote its products to the rural consumer. Since 80% of communication in rural India is interpersonal, beverage companies would need to hire salesmen and agents to interact and demonstrate the benefits of every product. Means of demonstration may include puppetry, folk theatre, wall painting etc. Further, companies may focus on opinion leaders, panchayats, and reference groups, as these people can promote and influence people to purchase the company�s products.

Within traditional media, 36% of rural India own a TV while 42% own a radio. Thus these mediums may also be effectively utilized.

Companies can also target local entrepreneurs and self-help groups to provide a sustainable and highly effective distribution channel. This strategy has been included as part of the company�s CSR initiative. Other CSR initiatives may include participation in village welfare programs.

These recommendations will help companies to penetrate the increasingly lucrative rural market and thus create new target segments for its LRB products.

Chapter 9: Conclusion

While the Indian beverage market remains one of the most complex and challenging, there remain several lucrative opportunities across all beverage segments. While consumers are moving towards healthier drinks, CSD still retains the largest market share by volume and category. Using comprehensive secondary and primary research, the following strategies have been recommended for each beverage category:

CSD Strategy

* Reposition CSD as the beverage that goes best with food

* Introduce Fruit-based and fortified carbonated drinks

* Expand Distribution network and penetrate sub-urban and rural areas

Bottled Water Strategy

* Identify new target segments: Traveling Salesmen, Business Travelers, Truck Drivers etc

* Introduce Smaller Product-Sizes: 200ml- 250 ml. bottles, 200ml- 250 ml. cups, 300 ml. bottles

* Introduce New Products: Fruit flavors, Sparkling

* CSR Initiatives: Water Conservation awareness programs, Positive Water Balance, Water purification in rural India

* Alternative Distribution Channels: Office complexes, premier hospital chains, schools, colleges, Universities, health-centres, pubs, clubs

Juice Strategy

* Introduce new Flavours in the Fruit Juice range : Kiwi, Cranberry, Vegetable Juices

* Segment the market according to age demographics and introduce targetted health products for each segment - Achiever, Mother, Kids

* Greater focus on Point of Purchase marketing

* Tie ups with leading hospitals and doctors to promote the Healthy beverage

* Tie ups with the upcoming Retail stores, with greater Focus on the upcoming Tier 2 & 3 cities

Strategy for Dairy Milk Products

* Initiate negotiations with National Dairy Development Board and other leading state cooperatives. Finalize Diary procurement, processing, and distribution deal.

* Launch Dairy brand - Chocolate, Strawberry, and Vanilla in India and target schools, colleges, office complexes, cafes, and hospitals

* Launch Indian flavors - lassi, elachi, badam, kesar pista and start targeting sub-urban and rural areas

Sports Drinks Strategy

* Positioning: �Performance-Enhancing� beverage

* Target Segment: <35 Upper and Middle Class, Tier I cities, fitness and sports enthusiasts

* Launch major marketing campaign using sports celebrities, focusing on product awareness and benefits

* Live demonstrations of product in malls, schools, colleges

* Sponsor sports events � Cricket events, Davis Cup, PGA etc

* Launch packaged powder form � cheaper than RTD

* Introduce vending machines in gyms etc, 100 ml. cups for greater volume sales

* Strengthen tie-ups with gyms, fitness centers etc

* Sponsor inter-school sports competitions in cricket, football, basketball etc

* Promote sports in the country by investing in local sports facilities

* Sponsor poorer athletes representing India in the upcoming 2008 Olympics and 2010 Commonwealth Games

Health Drinks

Launch the following flavors, using a different positioning and target audience

* Aloe Vera Juice

* Traditional drinks with specific herbs for treating cough, cold � Ginger Ale

* Amla Juice

* Nimbu Paani

* Coconut Water

* Lassi

* Aam ka Panna

* Bel Sharbat

* Jal Jeera

Further, it is critical for companies to understand modern retail and the rural consumer, as these are playing an increasingly important role in the beverage industry.

Leverage Modern Retail

* Build strong and customized relationships with every major modern retailer.

* The sub-distributor should link up with the real-time inventory management system of the modern retailer, to get an estimate and meet the demand for different products.

* Offer various kinds of incentives to the modern retailer � free samples of new products, branded goods for display (Clock, fridges, etc)

* Offer discounts in return for joining in marketing promotions for a product

* Set up Food Corners � where only Company products are placed

Expand into rural India

* Select villages on the basis of population distribution and potentiality

* Identify feeder towns and mandis

* Use unconventional rural distribution channels - haats, melas, Postal department etc

* Build Relationships with large rural retailers

* Explore unconventional media opportunities

* Target local entrepreneurs, SHGs

* Extend alliance with big FMCGs to form a joint rural distribution strategy

9.1 Limitations of Study

Due to paucity of time and resources, this dissertation suffers from the following limitations:

* This dissertation does not study the beverage industry in foreign markets, which may helped in gaining new insights on how various strategies have fared among consumers

* Every company may follow a predefined strategy for each of its brand, which may not be in coherence with the suggested strategies

* The beverage industry is rapidly evolving, thus this report may be outdated within two-three years

* Some of the strategies suggested are generic in nature, and may not be as comprehensive

* The opinions of rural consumers on various beverage categories, have not been recorded

Further studies may be made, using this report as a basis to rectify the above mentioned limitations.

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[2] Chatterjee, Rituparna, �Will sports drinks survive in India?�, Rediff.com,

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[3] �FMCG majors widen health food portfolio�, MoneyControl.com

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Date: January 2, 2010

[4] Effie Awards, �Pepsi. Food. Good. It�s the Cola�, 2010, New York American Marketing Association

[5] Bhushan Chandran, �Bottled Loot: The structure and economics of the Indian bottled water industry.� Frontline, Volume 23 - Issue 07 :: Apr. 08 - 21, 2010

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[12] �Soft Drinks in India: Still Favorite among cautious consumers�, Canadean, 2009

[13]Top 10 CSD in 2006, Beverage Digest, Volume 50, No. 5, March 8, 2010

[14] India, Wikipedia.com

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[15] India Soft Drinks, DataMonitor, October 2009.

[16] http://pib.nic.in/newsite/erelease.aspx?relid=83115

[17] http://www.ficcifood360.in/pdfs/day2-2012/dairy/Pre-lunch/2.Mr.Sunjay,PWC.pdf

[18] http://www.in.kpmg.com/pdf/Processed%20Food%20%20Final.pdf

[19] http://en.wikipedia.org/wiki/Amul