Coca-Cola is facing a slew of challenges in India.
A debate over water usage, accusations over pesticide content and sweeteners, as well as more general concerns in India over the unhealthiness of fizzy drinks are plaguing the brand.
“Coca-Cola has had a chequered history in India,” says N Chandramouli, a brand expert and chief executive of Trust Research Advisory, a data insights company in India. “It’s never been a stranger to controversy.”
In the past month, Atlanta-based Coca-Cola and its rival PepsiCo have been boycotted by retailers in the southern Indian state of Tamil Nadu, while traders in Kerala have followed suit and decided to favour local beverages such as lime soda and coconut water, amid accusations that the multinational companies are exploiting scarce water resources in the drought-hit states.
In India, there is an ongoing battle between farmers and industry for water. There have also been claims that their products contain pesticides that are harmful to the consumer.
Meanwhile, the food and drug administration in Maharashtra a week ago asked McDonald's to stop selling Coke Zero across its outlets in the state because of concerns over artificial sweeteners and a lack of warning displayed on the product, the Times of India reported.
In the past, the brand has had several turbulent experiences in India. Coca-Cola withdrew from the country in 1977 after a new government insisted that the company partner with a local firm.
The cola maker did not return until 1993, post-liberalisation, as India began opening up the economy to foreign investment.
Mr Chandramouli explains that Coca-Cola “represents the American philosophy in some way” and therefore globally it can become a target as a symbol of the United States when people want to protest against American culture or imperialism. Anti-American sentiment was sparked in Tamil Nadu in January when the People for Ethical Treatment of Animals (Peta) fought for a ban of a popular bullfighting event called jallikattu in Tamil Nadu, which triggered mass protests.
Coca-Cola faces tough competition from PepsiCo as well as local brands, although such local companies are largely limited to their home states rather than having a large nationwide presence.
“Earlier for Coke and Pepsi there was no challenge in India because there were no manufacturers that had a strong distribution and manufacturing capacity,” says Abhishek Singh, the director at Manpasand Beverages, who explains that the company is rapidly growing its facilities and undercutting its prices to compete with the multinational brands.
Mr Singh says that distributors and retailers want to earn higher margins on soft drinks but because Coca-Cola and Pepsi have had the monopoly on the market, they have been squeezed. Coca-Cola and Pepsi account for more than 95 per cent of the multibillion dollar soda market in India.
“OK, there are water issues and other issues in Kerala and Tamil Nadu, but the main issues are margins – retailers can earn higher margins on local brands. In China, there are many homegrown brands which are fighting against Coke and Pepsi and they are very successful, but there was no one in India who could think of having a network or plants of their own. This is a very capital- intensive industry. If you want to distribute pan-India, you require factories everywhere.”
In fact, Coca-Cola when it re-entered India, snapped up a popular Indian brand of cola called Thums Up. Mr Chandramouli says that Coca-Cola’s plan was likely to have been to “kill off” Thums Up and convert its consumers to Coca-Cola drinkers, but the popularity of Thums Up in India is such that it is widely available and consumed in the country even today.
He thinks that it is a mistake that Coca-Cola executives have failed to speak out during the crisis in Tamil Nadu and Kerala.
“It looks like they think it is something that will blow over but it may not,” he says.
PepsiCo’s chairwoman Indra Nooyi’s visit to India happened to coincide with the uproar in the south.
She met Narendra Modi, the Indian prime minister, and said that the multinational would help India in its plans to support the country’s farmers.
“PepsiCo is well positioned to help the government deliver on the national development goals he has outlined for farmers and supporting their livelihoods,” Ms Nooyi said in a statement.
Ms Nooyi is a native of Chennai in Tamil Nadu, although the local connection does not appear to have cut her company any slack.
The big picture for Coca-Cola and Pepsi is that the soft drinks market in India is growing at a double-digit rate.
Coca-Cola is investing heavily to grow its presence in emerging markets, with analysts saying that the brand is aiming to get poorer countires hooked on to carbonated beverages, as populations in developed countries grow increasingly concerned about the effect of unhealthy fizzy drinks.
India’s soft drink industry has experienced 11 per cent compounded annual growth over the past two years, according to Nielsen, a global market research firm.
Its figures show that Indians drink 5.9 billion litres of soft drinks a year, in a country which has a population of more than 1.2 billion. This means that India’s per capita consumption of soft drinks is one-twentieth of what is found in the US and one-eighth of that in Thailand, according to the firm.
“While consumption is on the rise, soft drink manufacturers have some distance to go before they fully capitalise on the opportunity,” Nielsen says.
“The challenge for this industry therefore, is to restore its pace of volume growth by increasing the per capita consumption of soft drinks in India, catch up with international consumption levels of soft drinks and perform at par with other fast-moving consumer goods categories in India like salty snacks, chocolates and biscuits.”
Coca-Cola, and other fizzy drink brands, are likely to have to face a different set of obstacles going forward, analysts say.
“They also have challenges arising out of the proposal to impose higher taxes on aerated drinks in the upcoming GST [goods and services tax],” says Srividya Kannan, the founder and director of Avaali Solutions, a consultancy based in Bangalore.
“There are increasing concerns on the health effects of fast foods and soda drinks. If the policy proposals under the prime minister’s office are strictly evaluated in the context of public health and nutrition, several companies in this sector would have to incorporate new processes not only to display the nutritional content on their product packaging, but also make compelling plans to enlarge their portfolio with healthier options.”
Mr Chandramouli says that Indians are becoming increasingly health-conscious and explains that Coca-Cola has yet to adapt and it would need to develop a strategy for the long term.
But, he says that while Coca-Cola “has faced a punch or two and it’s reeling”, it will ultimately bounce back.
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