Soft drink makers feeling the heat as growth slows

Firms in the beverages sector, which grew slower than consumer packaged goods and food baskets in past two years, are looking for new ways to boost consumption

Sapna Agarwal
Updated3 Oct 2016
To increase per capita consumption, manufacturers need to focus on innovations such as new launches, drive execution and make the category season-neutral, said a report by research firm Nielsen. Photo: Pradeep Gaur/Mint
To increase per capita consumption, manufacturers need to focus on innovations such as new launches, drive execution and make the category season-neutral, said a report by research firm Nielsen. Photo: Pradeep Gaur/Mint

Mumbai: Soft drink makers fell on hard times in the past two years as consumers denied themselves even small indulgences, given the tough economic environment and two consecutive years of drought. Consequently, the companies cut back on new launches, denting growth that’s already among the lowest in the consumer packaged goods industry.

The Rs5.29 trillion soft drinks market recorded volume growth of 4% from June 2014 to June 2016, lower than the volume growth of the consumer packaged goods and food baskets at 5% and 7%, respectively, each per annum, according to a report on the soft drinks industry by research firm Nielsen.

To be sure, soft drinks consumption was also crimped by other factors like health concerns and pressure from government policies. Penetrating rural India, too, has been a challenge for the sector given that beverages need to be served chilled, which requires upfront investments in infrastructure like coolers. Rural consumption levels are two-third that of consumption in urban areas, said the same Nielsen report.

Indians drink about 5.9 billion litres of soft drinks per annum. Soft drinks include carbonated beverages like Coke and Pepsi as well as non-carbonated soft drinks like juices and packaged water. Per capita consumption is just 1/20th of that of the US, 1/10th of Kuwait, 1/8th of Thailand and the Philippines, and one-third that of Malaysia.

To increase the per capita consumption, manufacturers require to focus on innovations (new launches), drive execution and make the category season-neutral, said the Nielsen report.

A Nielsen Global New Product Innovation Survey in 2014 found that 63% of consumers say they like it when manufacturers introduce new products, and 57% say they purchased a new product during their last shopping trip.

Despite that, another study by Nielsen on innovation trends in India revealed that the consumer packaged goods sector cut back on new launches in tough economic situations. Soft drink launches fell by 17%—from 1,425 in 2013 to 1,188 in 2014. This further fell by 11% to 1,059 new launches in 2015.

The decline in new launches was seen in both carbonated as well as non-carbonated beverages. The number of carbonated soft drink launches fell from 818 in 2013 to 658 in 2015. New launches of non-carbonated soft drinks reduced by almost a third—from 607 in 2013 to 401 to 2015.

“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 FMCG (fast-moving consumer goods) categories in India, like salty snacks, chocolates and biscuits,” said the report.

Companies appear to paying heed. In the past two years, Coca-Cola India Pvt. Ltd launched smaller sized packs. The company also launched a small PET (polyethylene terephthalate) bottle of 300 ml for Rs20.

For the past 20 years, Coca-Cola India has built the refreshments category for summers with consistent advertising like ‘Thanda matlab Coca-Cola’ (cold means Coca-Cola). During summers, the firm sees a large spike in its sales. It is now looking at making its soft drinks relevant to consumers throughout the year and has begun by focusing on advertising campaigns that plug Coke as the refreshment of choice to be served when guests come home, said Ajay Bathija, director–colas, Coca-Cola India.

He explained that it has taken two decades of consistent advertising to build the summer refreshments’ category, and in the past three years, it has been trying to promote it as a daily beverage, especially during the festive season.

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