The adage that bad luck comes in threes has proven true for the two dominating soda giants. The first quarter this year brought the first bit of bad news. Coca-Cola reported a sales volume dip by low single-digit. The small number signalled the larger trend—the Indian customer losing interest in its sugary fizz.
In the second quarter, both of them felt the impact of the MNC cola boycott called by traders in Tamil Nadu. It’s not clear if PepsiCo and Coca-Cola became easy target for foreign meddling or if the traders were concerned about the high quantities of water consumption. It is, however, clear that retailers chose to stock local ‘black grape’ flavoured soda—Kalimark’s Bovonto. Kalimark is not the only one sneaking into state-level markets to replace the biggies. Each state has one, and they offer something that the biggies don’t—local flavour, lower price and higher margins for the retailer.
The final blow to ‘Big Soda growth’ came in the third quarter. The conclusion to a story that had begun in December 2015, when the Goods and Services Tax (GST) Council had recommended that sugary aerated drinks pay the same ‘sin’ tax as tobacco. At 28% and an additional cess of 12%, totalling 40%. Neither did the industry association’s request to reconsider help, nor did PepsiCo Chairman and CEO Indra Nooyi’s pitch—lower GST for low sugar aerated drink—to the Finance Minister Arun Jaitley. In July, the determined GST council implemented the sin tax.
A triple whammy from competitors, government and users has cornered the two giants who once seemed invincible. In the fourth quarter, the two companies that hold 96% of the carbonated Indian market decided to adapt to the new regime. They know they must if they want to grow. As carbonated beverages (as a segment) grew by a mere 3.9% between 2011 and 2016. This year, they have found inspiration. But where?
In successful beverage startups and local soda companies. These may be small but they have something that the biggies don’t—a new recipe for flavour and potential for growth.
The developed world began to lose interest in sweetened carbonated drinks two decades ago as obesity, lifestyle diseases and health consciousness rose. This year is unmistakably the one to mark the beginning of the same trend in India, and the cola giants have no option but to adapt to the health-conscious urban Indian and compete with every regional Indian player. The question is: Can behemoths like Coca-Cola and PepsiCo with market caps of $200-billion and $160-billion respectively, understand, package and sell flavourful health to Indians? And what about trust, given their controversy-ridden presence in India?