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Pepsi to push premium brands

30-December-2005
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Pepsi to push premium brands

Growth driver cannot be led by penetration or per capita consumption, says Bakshi.

Beverages and snacks company PepsiCo India has decided to focus on urban markets and give an array of options, including premium products, to city dwellers to achieve volume and turnover growth.

The rural markets, it has concluded, do not hold much promise. Not too long ago, Pepsi was matching arch rival Coca-Cola in cutting prices to a level as low as Rs 5 for a 200 ml bottle to increase penetration and volumes.

“We followed Coke’s strategy and it was wrong. The Rs 5 strategy was 7-8 years out of date. The growth driver cannot be led by penetration or per capita consumption,” Pepsi India’s Chief Executive Rajiv Bakshi told Business Standard today. Pepsi, which has raised its prices by 18-19 per cent in 2005, says its turnover increased by 12-13 per cent this year.

In contrast, in 2003, the year of the price cuts, turnover growth “was not the best in the last six years”.

Encouraged by this year’s performance, the company will look to push products in the premium categories.

“Brackets priced higher make a lot of sense now. Gatorade (launched by Pepsi four months ago) at Rs 25, Red Bull (an energy drink, not Pepsi’s) at Rs 75 and juice at Rs 90 make sense now. Four years ago, even two years ago, they did not,” Bakshi said.

He feels that each of the high-priced categories can become a Rs 100-200 crore business. “Juice already is,” he said.

Bakshi’s belief is that in five years, agriculture will account for only 10 per cent of the GDP compared with about 23 per cent now. That translates into a bigger market in services and manufacturing, which will have 55 per cent and 35 per cent share, respectively.

Disagreeing with management guru CK Prahlad’s contention that there is money to be made “at the bottom of the pyramid”, Bakshi says that up to 70 per cent of FMCG companies’ growth drive will come from the top layer of the market.

Acknowledging the rising health consciousness among consumers, the company has internally divided its beverages into three categories: “fun for you” (carbonated soft drinks), “better for you” (diet cola and water) and “good for you” (juices).

In about three years, Bakshi expects the second and third categories to account for 35-40 per cent of Pepsi’s turnover in India, compared with 20 per cent now.

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