Paper boat surprises makers with buoyant sales4 min read . Updated: 05 Jul 2014, 12:33 AM IST
Hector Beverages has nearly doubled its sales in the past six months, after it introduced Paper boat in August
New Delhi: An online shop next week, four new flavours in the next three months and a new production facility in Mysore next year, is how Hector Beverages, which introduced its first Tzinga energy drink three years ago, plans to guzzle a significant chunk of India’s ₹ 1,800 crore beverage market on the back of Paper boat, its curiously unorthodox brand of ethnic Indian drinks.
The company, whose aamras, aam panna and jaljeera drinks sell like hot cakes in local airlines such as Indigo and Jet Airways (India) Ltd, has a few more traditional, zero-calorie drinks in the pipeline including sattu, a traditional drink from Bihar, tulsi tea, ginger tea and kaanji, a black carrot drink originally from northern India.
Hector Beverages, which expects to almost triple its revenue to ₹ 100 crore in the next two years, has nearly doubled its sales in the past six months, after it introduced Paper boat in August.
In fact, its founders, the former Hindustan Coca-Cola Beverages Pvt. Ltd employees Neeraj Kakkar, and Neeraj Biyani, who set up the company with James Nuttall, an ex-employee of Dow Chemicals, in 2009, are taken aback by the demand—Paper boat sells close to 1.2 million packs a month.
“Six months ago we were selling a million packs a month but today we do close to two million in a month," said Biyani, co-founder and chief operating officer of Hector Beverages. He was referring to the total number of products the company sold, including Paper boat and Tzinga.
“Consumers are looking for variety and healthier options…especially, the youth in the metros and tier 1 markets is always looking for something different," said Sandeep Barasia, a senior partner at Bain and Co.’s consumer products practice. “Functional beverages (that gives something extra than just quenching thirst) are the fastest-growing segment with over 30% growth rate."
While its first product Tzinga took time to click with the consumer, “Paper boat surprised us...as it grew faster than our expectations", said Kakkar, co-founder and chief executive officer of Hector beverages, which is backed by Sequoia Capital, Footprint Ventures and N.R. Narayana Murthy’s Catamaran Ventures.
Globally functional drinks enjoy a larger share. For instance, the energy drinks category in India is 0.8% of the carbonated drinks market whereas the world average is 16%, chief operating officer Biyani pointed out. “In India, functional beverages are so small that it gives us a huge opportunity to be present in this market," he added.
To meet growing demand, Hector will soon expand its production capacity. Currently, the company’s facility in Manesar in Haryana produces 80 bottles of beverages per minute.
“And even thought the plant is running 24x7, we have failed to meet the demand," said Kakkar.
The new factory in Mysore will have the capacity to produce 220 bottles per minute. Hector is also taking their products online. “Consumers are writing in asking us to start selling online," said Biyani. “Most fast-moving consumer goods companies do not go online as the structure does not work...but we would want to try the model," he added.
To please its young consumer, the company will unveil shoppaperboat.com next week and serve consumers in at least 10 cities to begin with.
Surprisingly, Paper boat’s “desi" flavours such as jamun kala khatta, aam panna, and jaljeera are finding their way into cocktails and mocktails at bars and restaurants as well. Bangalore-based restaurant Olive Beach, for instance, has introduced drinks such as golgappe mojito and jaljeera Ice Tea using Paper boat beverages.
Besides, the health-conscious Indian consumer is also lapping up the healthier ‘no preservatives and artificial flavours’ drinks from Paper boat.
India is a hot country and there should be a large market for such products, according to V.S. Kannan Sitaram, operating partner at Indian Equity Partners that invests in consumer companies. “They have been very innovative and created products that Indians love…they taste good and have great packaging too," Sitaram said.
However, he said, given that Paper boat is competing with non-branded products, it remains to be seen whether consumers will pay a premium for their products. “There are still many Indians, especially in the smaller cities, who still make these drinks at home," Sitaram said.
Agreed Bain’s Barasia: Companies need to operate at the right price point, have differentiated packaging, flavours and yet not lose focus on gross margins, he said.
The products currently come in 250ml sizes and cost ₹ 30 per pack. The company introduced a 1 litre pack, priced at ₹ 120, on Monday. Competitor Dabur sells a 1 litre pack of aam panna at about ₹ 80.
According to a Dabur India spokesperson, the firm does not comment on competition.
To be sure, the company’s biggest challenge is to convince the small kirana stores to start stocking Paper boat. “The kirana stores have one cooler and there is a lot of arm-twisting and competition for the showcase," said Biyani.
However, cracking modern trade has not been tough. The brand is already available across 20,000 retail outlets including coffee chains such as Barista Lavazza, airlines such as Indigo and Jet Airways and hotels such as Westin and Trident.
Procuring raw material is another challenge for the company. “The flavours and products are so unique that you don’t have a back-end chain to supply the raw material," said Biyani. “Aamras was easier as there are many vendors in the mango category. But products made of jamun or imli (tamarind) are difficult since there is hardly anyone in the country who is making a drink out of it."
According to a report by researcher Business Monitor International, the Indian market for non-alcoholic beverages, comprising carbonated drinks, juices, bottled water, ready-to-drink tea and coffee, and sports drinks, is expected to touch $5.18 billion by 2015.