New Delhi: With rapid urbanization, Coca-Cola India sees a big opportunity for its products in small towns. With a clutch of new product launches, Venkatesh Kini, president of India and South West Asia for the soft drinks maker, spoke about the company’s expansion in the non-carbonated drinks category, goods and services tax (GST) and the problems it faced in Tamil Nadu. Edited excerpts from an interview:
Which summer products have you launched?
We just launched Aquarius which is one of my favourite products in the portfolio. I do a lot of running. It’s great for replenishing. It’s actually a brand that originated in Spain and Japan and now sold in other parts of the world. We have also expanded Minute Maid in multiple flavours and introduced the coconut water Zico.
This is the first year when you have launched multiple products in the non-carbonated products segment. Is the consumer turning away from carbonated beverages?
To be honest, the pace of launch of beverages has increased. And a lot of that has to do with the fact that the speed at which the government approvals come now is much faster. Earlier it was a very complex system. But the new government has done a great job revamping the FSSAI (Food Safety and Standards Authority of India) and the way it works. It’s a much more progressive dispensation. Earlier it used to take two years to get an approval for a product launch. Now it takes a few months.
But are consumers going for non-carbonated drinks?
The reality is globally we have announced our intent to become a total beverage company. It’s also recognising that consumers have multiple needs through the day—from juice to soft drinks to coffee. We have actually got the widest range of beverages worldwide. In India, we first had to build both the front-end capability and the backend manufacturing capabilities. We have put up five new factories in the last five years and multiple new lines in existing factories and most of them to produce juices and still beverages. With the infrastructure ready now, we are able to accelerate the pace of launches.
So one is where the consumer is going, second is where our infrastructure capability is and the third is the regulatory environment that’s enabling and supporting that.
Do you expect revenue from non-carbonated drinks to exceed that from carbonated drinks?
If that’s where consumer goes, we will be perfectly happy with it. If consumers vote with their wallets for products like Aquarius, then that is what we will sell and expand. And if they vote for juices, then we will sell that. So we are going to follow the consumers as opposed to saying that we want to sell one product or the other.
Today we are not making a choice for consumers. There is place for all of these products but personally speaking, there’s nothing to beat a chilled refreshing Coke, Thums Up or Sprite on a hot day but that doesn’t mean there is no role for everything else . If there is a big role for carbonated drinks then there is an equally big role, if not bigger, for a variety of non-carbonated drinks. Today, about 35-40% of our business is from non-carbonated portfolio.
So you are building a non-fizzy drinks portfolio.
What percentage of our business do you think comes from brand Coca-Cola today? Less than 10%. We have a diverse portfolio in India. Sprite is our largest brand. It is lime and lemon, no artificial flavours.
But it’s still sugar.
We have a Sprite zero also if sugar is a concern. Though I want to point out that the amount of sugar in our beverages is not as high as you may think. A can of 180ml ThumsUp has less than 80 calories. You get more calories than that from most packaged foods. Our all beverages put together make for about 1% of total sugar consumption in India. So sugar from our beverages is not really a major concern in consumer’s mind.
Are you happy with the 15% cap on soft drinks in GST?
GST is the best thing that could happen to the country in terms of reforms. As far the beverage industry is concerned, what we are looking forward to from the government is a taxation policy and GST which makes it a level-playing field based on the content of the product. So the higher the sugar content, the higher the tax rate and the lower the sugar content, lower the tax rate. This is what we would hope and expect from the government. So, the cess of 15% on top of 28% will be applied to certain products. And products with lower sugar or zero sugar should be at a lower rate.
Which market are you betting on urban or rural?
Rural has always been growing faster for many years. The last two years, in 2014 and 2015, we saw a dip in rural demand because of poor monsoon. Last year, the monsoon was good but demonetization effect outweighed the monsoon effect. We are optimistic that rural demand will pick up now.
The big growth that we see is in small towns or the mid-tier markets, which are neither rural nor metro. Those towns are showing tremendous growth potential. As urbanization in India continues to accelerate, the biggest beneficiaries will be tier-II towns. As metros are becoming more expensive to live in and crowded, and as states invest more in their development, there’s a lot of other urban centres that are beginning to pick up in terms of growth. There’s a steady stream of people moving into urban areas and that is consistent with the global trend. World over, urbanization is a trend and even in India, it is a natural trend. Also, the quality of life for new urbanites is improving a lot in the tier-II towns.
What is the progress in Tamil Nadu where foreign soft drinks brands have been boycotted by traders?
The concerns in the minds of traders in Tamil Nadu regarding their state and the issues they face are genuine. Unfortunately they associated those concerns with our industry. We engaged with them and tried to understand why they have concerns with our industry. I think it’s not enough just to be a good corporate citizen. You need to get far more involved with the local issues faced by local communities. We have invested significant amount in water projects across the country and even in Tamil Nadu we buy 50,000 tonnes of mangoes from Tamilian farmers. There’s a lot of things that we do. We have not done a good job of communicating that with the stakeholders. And when we engaged and started communicating that look this is what we are and this is the role we play, the dialogue started and it is actually a positive dialogue.
I won’t say that the issue is completely resolved but there is a much better appreciation of the role we play in the local economy. Ninety-five per cent of what we produce in India is made in India.
How big is the India market for you?
India is the sixth largest market for Coca-Cola globally in volume terms. Ten years ago, it was No. 19. Our aim is to make India one of the biggest markets over the next decade. Our declared vision is for it to be among the top 5 by 2020. We think we’ll beat that and want to be more aggressive going forward. India has the potential to be the growth engine of the global economy and all industries will benefit from that.