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Krishnakumar Thirumalai, president of Coca-Cola’s India and South-West Asia operations, is seen as a strategic well-
rounded leader and a catalyst for expanding the company’s portfolio and driving growth.
Sounak Mitra
There’s a new Coca-Cola in the making in India, 25 years after the world’s largest
beverage maker entered the market for the second time.
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Coca-Cola India Pvt. Ltd, the local unit of The Coca-Cola Company, is banking on
everything local—flavours, fruits and brands—in the hope of getting more Indians to
drink its packaged beverages. And the change is already visible.
In the past one year, the Atlanta-based maker of Coca Cola and Sprite has launched a
bouquet of products in traditional Indian flavours like jal jeera and fruits like santra
(orange), guava, anar (pomegranate), litchi, and specific mango varieties—Himsagar
and Langra that are grown only in West Bengal. It wants to take a hyper-local
approach to ensure its portfolio has at least one product for every Indian.
The change in strategy comes after the firm identified that growth has been held back
in the country because it did not have the “right product at the right price point”.
This is coupled with the challenge that while most Indians are yet to taste Coca-Cola’s
carbonated drinks, consumers are switching to healthier options such as fruit juice.
In fact, fruit juice is the only product segment where Coca-Cola has gained market
share in the past five years. According to data compiled by market research agency
Euromonitor International, Coca-Cola’s shares in the juice segment rose to 31.1%
(retail volume) in 2017 from 28.5% in 2012, while it lost share in its core carbonated
beverages from 60.8% in 2012 to 56.3% in 2017. In the water business, its share
dropped to 9.7% in 2017 from 12.6% in 2012.
While fruit juice becomes a natural choice for expansion, even though it is a low-
margin business (compared to its core carbonated drinks), Coca-Cola is not restricting
itself to this category. It has started mixing fruit juices in most of its aerated drinks to
create a new segment that attracts a lower tax.
There’s more—it has entered the frozen desserts segment with a product made of
fruits. Here, too, the firm has opted for local fruits.
Last but not the least, 25 years after it acquired home-grown aerated drink brand
Thums Up from Ramesh Chauhan of Mumbai-based Parle Group, Coca-Cola has
finally decided to take it global, starting with neighbouring countries such as
Bangladesh, Sri Lanka, Bhutan and Nepal.
The changes the firm is implementing are in line with Coca-Cola’s global agenda of
transforming itself into a “total beverage company” from being a carbonated drinks
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Krishnakumar, or KK as he’s fondly known, hardly looks like the quintessential chief
executive of an American multinational. Unlike his predecessors Venkatesh Kini and
Atul Singh, who were rarely seen without a suit and a tie, Krishnakumar has devised
his own dress code—half-sleeved white shirt, khaki trousers and round Gandhi-style
spectacles.
That’s precisely what Coca-Cola needs right now. Coca-Cola’s India unit has witnessed
slower growth in the past couple of years, along with a decline in volume for several
quarters starting the last quarter of calendar year 2016 (October-December 2016)—a
time when India went through invalidation of high-value bank notes that took out
almost 86% of currency in circulation by value. However, it’s reported an increase in
volume sales beginning the third quarter of the current fiscal year.
Yet, the company, with a market capitalization of $186billion, aims to make India,
which currently accounts for less than 1% of its global sales of $41.48 billion, the third-
largest market globally, moving up from sixth at present. Currently, it trails the US,
Mexico, China, Brazil and Japan.
To that end, Coca-Cola will have to multiply its revenue in India. “This dearth of a
sufficient number of products has prompted Coca-Cola to expand its portfolio across
categories, and in this regard, it is testing 20 new products made locally,” Boston-
headquartered Trefis, a market research firm, said in a note on 27 November 2017.
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The challenge
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It’s an ambitious target that James Quincey, global chief executive officer of Coca-
Cola, has set for his colleagues—to make India the third-largest market. The good
news for Krishnakumar is that India is home to 1.3 billion people and a majority of
them are yet to taste any beverage made by Coca-Cola.
According to Kapoor, who was a director at Parle Agro between 1989 and 1994—the
period when the group sold Thums Up to Coca-Cola, the best thing that Coca-Cola has
done is to buy Thums Up and keep the brand in its original form.
Meanwhile, competition in India has been on the rise. Besides rival PepsiCo Inc.,
which has been struggling to grow in India for the past five years, Coca-Cola
has been losing market share in the core carbonated beverages segment to regional
brands such as Bovonto in Tamil Nadu, and Jayanti Cola and Xalta in northern India.
These are brands that play the low-price card.
Luckily for Coca Cola, its juice portfolio—Maaza and Minute Maid—has been growing.
This has come in the face of stiff competition from PepsiCo’s Slice, Parle Agro’s Frooti
and Manpasand Beverages’ MangoSip. In addition, PepsiCo’s Tropicana, home-grown
Dabur India Ltd’s Real and Kolkata-based ITC Ltd’s BNatural are competing with
Minute Maid. Besides, start-ups like Hector Beverages Pvt. Ltd’s Paper Boat
traditional drinks, and lately yoga-guru-turned businessman Baba Ramdev’s Patanjali
Ayurved have also entered the segment.
Sales of carbonated drinks have been slipping in most parts of the world. In the past 15
years, the contribution of carbonated drinks to Coca-Cola’s global revenue has
dropped to 70% from 90%, and this is expected to fall further to 50% by 2025.
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Trefis, in its analysis, noted that between 2010 and 2015, carbonated drinks in India
grew at around 13% annually, compared to nearly 28% for juices. “This strong growth
is expected to continue, at a CAGR of 17% between 2016 and 2021. Given the high
growth predictions, Coca-Cola’s future in the market depends largely on tapping the
potential of this segment,” it added.
Given the context, it’s easy to see why Quincey wants the 132-year-old firm to evolve as
a “total beverage company”.
On 23 February 2017, even before taking over as CEO, Quincey had set the tone for
reshaping the company to look at what consumers want rather than pushing the
products the company already has.
Traditionally, local entities of multinationals have replicated the actions of the global
headquarters. Even at Coca-Cola, although the global mandate is to create a
consumer-centric portfolio, Krishnakumar will have to figure out the psyche and
changing consumption behaviour of Indian consumers who are rapidly switching to
healthier options like fruit-based beverages, and then create the products strategy
accordingly.
His predecessors primarily pushed the products from the global portfolio in this
market.
“Localization is a need for every firm, especially because Indians have a regional
palate. In India, what you need is a good mix of global, local and localized global
products to have a sustainable future. And you need to change as Indian consumers’
preferences change,” said Debashish Mukherjee, partner (Asia-Pacific), A.T. Kearney.
For Coca-Cola in India, fruit is the flavour of the season. But that’s nothing new. The
company has been selling fruit-based drinks under Minute Maid since 2007 using
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fruits sourced from the Indian market. What’s new, however, is that besides existing
flavours like orange, apple and mixed fruit—which are also sold in many countries—
the company now using guava, anar, litchi, and is planning to launch santra and
different kinds of Indian mangoes.
“To revive its double-digit growth in the region, the company is focusing on locally-
made products, such as Nagpur orange juice for the state of Maharashtra,” said Trefis.
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It has also launched extensions of its mango drink Maaza with different varieties of
mangoes.
However, the use of new fruits and flavours may not be sufficient.
Although the firm has been sourcing its fruits from different regions including
Argentina and Africa, this is the first time that Coca-Cola is planning to control the
entire sourcing supply chain of fruits globally. And it was Krishnakumar’s idea which
is expected to improve the profitability in fruit juice.
“Fruit juice is a low margin business, and the sourcing supply chain is costly. Also,
there’s lack of infrastructure. While the government has announced a few things, that’s
not enough. By controlling sourcing supply chain end-to-end, it could enhance
profitability but at a larger scale,” said an analyst with a Mumbai-based management
consulting firm, asking not to be named.
Here on, instead of products from Coca-Cola’s global brand portfolio, the company
will focus on developing products in India for the local market that are more suited to
palates of a particular region, or income class, or even parts of an Indian state,
especially in terms of flavours.
But these need to make commercial sense. “We can even launch a product that has the
potential to attract half a million consumers. That makes it viable. And, there’s always
a way to re-engineer things to make it viable,” said Krishnakumar.
In addition, the local unit of the American beverage maker has decided to revive some
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of its acquired brands with ethnic flavoured beverages. Coca-Cola will launch jal jeera
under RimZim, originally a masala soda brand acquired from Ramesh Chauhan, along
with other cola brands such as Thums Up, Maaza and Limca, among others.
In the last few years, several firms have launched a bunch of products in ethnic
flavours. While companies like home-grown Dabur are relatively new to join the party
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with products like Hajmola Yoodley, it was Hector Beverages’ Paper Boat which
popularized the ethnic flavoured drinks in unique packaging.
“There are waves that go through our country. You just need to ride the wave. We
don’t have solutions for everything. But, we’ll find them,” says Krishnakumar. The
company is also extending its water brand Kinley to a range of aerated drinks with
flavours such as lemon, orange and jeera. In the past couple of years, it has launched
products such as Vio (a milk-based drink) and Zico (packaged coconut water) that got
limited success.
According to Gupta, Indian consumers are looking for variety and flavours with an
Indian touch, which preferably should have some health benefits (or at least should
not have ill-effects on the health).
“Many Indian and international players are trying hard to fulfil this requirement of
theirs. If Coca-Cola is able to outshine competitors in fulfilling this requirement of the
Indian consumers, it can look forward to a sustainable growth in the future,” he adds.
“What we have done in the last 10 years, we’ll have to do in next three years,” he said,
adding that the company needs to take rapid strides as consumers are evolving “very
fast”. This, he believes, will take India one notch up in Coca-Cola’s global scheme of
things within next 2-3 years—the first milestone he has set for himself.
Under Krishnakumar, the Indian chapter of the firm has been on a product launch
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spree — in 2017 the company launched around 17 new products, most of them local.
It launched the extensions of fruit juice brand Minute Maid including frozen fruit
desserts (Perfect Fruit), extensions of mango drink Maaza— first time since its launch
in 1998—and a few international products such as premium packaged drinking water
brand Glacéau Smartwater.
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“Decision making has become faster. That’s because they have got some of the best
performers from Coca-Cola globally,” said Neeraj Kakkar, co-founder of Hector
Beverages, the maker of Paperboat, who worked with Hindustan Coca-Cola Beverages
before starting his venture that has disrupted the packaged beverage industry.
Next in the pipeline are extensions of best-selling beverage brand Sprite and the third-
largest aerated drink Limca. These will be fruit juice variants in sync with Indian
consumers’ fast-evolving beverage preferences towards healthier options. They will
also add a “little” to profitability as they attract lower taxes, says a New Delhi-based
analyst, asking not to be named.
Fizzy fruit drinks in India got a push after Prime Minister Narendra Modi, in
September 2014, urged companies like Coca-Cola and PepsiCo to mix natural fruit
juices (at least 5%) in aerated beverages to help boost fruit sales for Indian farmers.
Not just Coca-Cola, rival Pepsi too has fizzy fruit versions of Nimbooz and Slice while
Mumbai-Based Parle Agro Pvt. Ltd launched fizzy version of its popular mango drink
Frooti in March 2017.
While part of Krishnakumar’s daily prayers may be to help him take Coca-Cola India
to a high-growth, better-margin and healthier volume path, he will also have to
reinvent the beverage maker’s offerings to make them better suited to the Indian
palate.
“What keeps me up is how I can manage to stay relevant to consumers tomorrow. And
the challenge gets multiplied in India as there are so many different cultures and
sections of society,” said Krishnakumar, adding that his journey is going to be to get
Coca-Cola “aligned more” with what Indian consumers’ need and not to “restrict” itself
to any particular category.
Coca-Cola owned bottling unit Hindustan Coca-Cola Beverages Pvt. Ltd has been
undergoing restructuring too.
“The company is apportioning more resources to its frontline and field—both financial
and human. This includes the setting up of the premium division to service customer
requirements around niche and premium beverages—Smartwater, frozen fruit
desserts, mixers and tonic water etc, and amalgamating the existing Alternate
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The bottling arm, with 21 plants that account for about 67% of Coca-Cola’s business in
India, is also targeting to reach $2.5 billion in revenue by 2020. For the year ended 31
March 2017, revenue stood at Rs9,472 crore, the report said.
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“It was very clear from our research, conversations and market data that today, we are
not structured in a way that allows us to fully leverage our scale and market
capabilities,” Christina Ruggiero, chief executive of Hindustan Coca-Cola Beverages,
the bottling arm, said in the statement. Ruggiero joined Hindustan Coca-Cola in May
last year after Krishnakumar moved to Coca-Cola India.
“The reorganization will however make a few existing jobs redundant, the incumbents
of which will be encouraged to apply for the new jobs that have been created”. It will
operate under seven zones, instead of five at present, and focus more on sales and
supply chain. To do that, the company will move to a leaner corporate office and
allocate resources to strengthen sales and supply chain, added the Mint report.
Signs of revival
For the quarter ended 31 December 2017, Coca-Cola India, which has been witnessing
slower growth during the past few years, posted revenue growth in “strong double
digits” backed by volume growth at “strong single digit”, Krishnakumar said on 22
February. This, however, may not reflect the real state of the company’s business as
the growth number is in comparison with the October-December 2016 quarter when
India went through demonetization and the company’s sales declined.
But, the company claimed to have grown at a double digit rate in the July-September
2017 quarter as well. Its volume growth was at 6% during that quarter, Quincey had
said in an investor call in October 2017.
According to its corporate filings with the Registrar of Companies (RoC), between
2012-13 and the fiscal year ended 31 March 2016, the profits of Coca-Cola India Pvt.
Ltd, the concentrates arm, increased to Rs474 crore from Rs320 crore, and revenue
from Rs1,438 crore to Rs1,757 crore. During the year ended 31 March 2017, it reported
revenue at Rs2,189.29 crore, according to RoC data. Financials of its bottling entities
are reported separately.
Sales in India and south west Asia, which includes markets like India, Bangladesh, Sri
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Lanka, Nepal, Bhutan and the Maldives, “dropped by a low single digit” during
January-March 2017, while it reported an 11% growth in the corresponding year-ago
period. During the full year 2015-16, its profit in India fell by about 6% while sales
were flat.
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However, Coca-Cola still does not reach most parts of the country. Of the estimated 9
million retail outlets in the country, Coca-Cola products are sold at only 2.6 million
stores. Its bottling arm Hindustan Coca-Cola, however, is aiming to add 1 million new
outlets by 2020. Still, the large chunk is left untouched, especially in the non-urban
markets where supply chain for cold beverages is still a challenge due to scarcity of
power and other infrastructure.
To solve the problems, the company will need fresh investments. And, Quincey is yet
to allot anything extra to its planned investment of $5 billion by 2020 in India,
announced in June 2012. But Krishnakumar isn’t worried. His motto is: “Don’t look at
the problem, look for solutions.”
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