Coca-Cola and Pepsi in Indian Market

 | May 27,2010 05:58 pm IST

Why read fiction? Why go to movies? Soft drinks industry has enough roller coaster plot-dips to make novelists drool” – Jesse Myers in Beverage Digest July 1985


The history, the romance, the struggle, the courage, the endurance, the confidence and the competition characterizes the presence of an industry which no one in their wildest imagination had dreamt would last so long. Beginning in 1886, when a tumultuous, inventive, clamorous and neurotic new America got a taste of a “nerve tonic” invented by an obsessive chemist in the pursuit of the perfect medicine, to late 1890’s when a worthy adversary was born, and to the present; change, aggression and controversy have been the order of the day.

That “nerve tonic” was Coca-Cola, the obsessive chemist John Pemberton and the worthy adversary Pepsi and the adversity has not decreased an iota even after 100 years. 

 


Indian Soft Drinks Market
1970’s and early 80’s—the entry and exit of Coke
India has proved to be perhaps the toughest battle ground for the Cola giants. Coca-Cola was the 1st international soft drinks brand to enter India in early 1970’s. Indian market was dominated by domestic brands, with Limca being the largest selling brand. Cola was the largest selling flavor with market share of 40%, Lemon drinks 31% and orange drinks only 19%. 

 


Up till 1977, Coca-cola was the leading soft drink brand in India. But due to norms set by the Foreign Exchange Regulation Act (FERA), Coca-Cola left India and did not return till 1993 after a 16 year absence from the Indian beverage market. FERA needed Coca-Cola to reveal its secret concentrate formula as well as reduce its equity stake which was not acceptable. 

 


Pure drinks, Delhi launched Campa-Cola, to take advantage of Coke’s exit and by the end of 70’s, was the only Cola drink in the Indian market. In 1980, Parle, another major Indian player launched ThumsUp, the drink which till date is most popular soft-drink in India. Pure Drinks strongly objected to ThumsUp being called a “soft” drink as it felt its taste is too strong. For over a decade, Parle led the Indian soft-drinks market, with its market share reaching a peak of 70% in1990. 

 


Late 80’s and early 90’s— Pepsi’s struggle to enter India
Pepsi saw the exit of Coke as a God send opportunity to capture then estimated 900 crore market of India. India was then a highly regulated market with International trade constituting only 6% of GDP in 1985. Foreign trade was subject to import tariffs, export tariffs and quantitative restrictions. Foreign direct investment (FDI) was restricted by barriers like upper limit equity participation, restrictions on technology transfer, export obligations and government approvals. Any foreign investment had a lot of political sensitivity to it. By the time PepsiCo began its negotiations, the upper cap for equity holding in Indian companies was 40%. PepsiCo realized it’ll have to be creative to enter the Indian markets. 

 


Attempt 1: In May 1985, PepsiCo joined hands with the RPG group to form Agro Product Export Limited. It planned to import Cola concentrate and sell soft-drinks under the Pepsi label and in return offered to export Juice Concentrate from Punjab. The government rejected the proposal due to its using a foreign name and importing the concentrate. 

 


Attempt 2: Pepsi decided to play the Punjab Card by promising to invest $15 million in Punjab, establish an Agro Research centre (costing Rs 1.55 crores), a potato and grain based processing unit (costing Rs 8 crores) and a fruit and vegetable processing unit (costing Rs 5 crores). Benefits and proposal included better market for rice, wheat and fruits in Punjab, creation of 25000 jobs in Punjab and 25000 more in other areas. In 1988, government agreed. PepsiCo entered as Lehar Pepsi and by 1991, it was clear that most of its promises were just on paper.

 


The company did improved the productivity in India, introduced farmers to new technology, established agriculture research centers in Jallowal and Channo (in Punjab) and Nelamangla in Karnataka and invested more capital than promised (by the year 2000, total investment was Rs 18 billion), but the picture on many other aspects was gloomy. The planned operations in Punjab were delayed and as a result, local farmers had to bear a combined loss of Rs. 2.5 Million. Pepsi paid only 0.75 Rs/Kg of Tomato compared to open market price of Rs 2/Kg. Employment was provided to only 783 people as compared to 50,000 promised (although company claimed it to be 26,000 due to direct and indirect operations). It began exporting tea, rice, shrimps, glass bottles, leather products as against fruits and vegetable products. There was an even a show-cause notice to Pepsi by the ministry of commerce. Luckily for PepsiCo, in 1991, the government of India liberated the economy on grounds of severe foreign exchange crisis and Pepsi was freed from all the commitments it had made during entry.

 

 

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Comments


William Briar on 05/29/10 at 12:57 pm

Interesting article! It traces life and times of pepsi and coca cola in India and it does seem that they are driving a huge market. Sugrated water with gas, and so much brand value!!


Abhish3k on 11/03/10 at 01:39 am

Awesome article


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