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2004 not a great year for cola majors

01-January-2005
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2004 not a great year for cola majors

The year gone by would not be one that the carbonated soft drink (CSD) industry will forget in a hurry.

It has impacted the cola majors in more ways than one. Even as the pesticide controversy continued to persist in hurting product sales of both Coca-Cola India and PepsiCo well into 2004, the companies had to abandon their much-touted "affordability" strategy due to a severe margin squeeze and raise prices in the second half of the year.

Despite the companies promoting the 200 ml, Rs 5 pack size aggressively during the early part of the year it became clear as the peak summer season approached that this pricing was only helping to draw in new trial consumers. All the while it was simultaneously wrecking havoc on margins for all stakeholders — retailers, bottlers and the companies themselves.

The first price increase by a rupee came in August, followed by another hike a month later in select markets, thereby taking the 300 ml pack size price to Rs 8. And while both companies insist that the price increase has lead to "good" value growth and lower-than-expected volume growth decline, the real impact of the price increase would become apparent only in the summer of 2005, according to analysts.

Then came another dampener at the fag end of the year — a Supreme Court order asking the two companies to ensure that every soft drink bottle carries a label warning consumers of the possibility of the product containing pesticide residues.

Besides, the companies also had to contend with Non-Governmental Organisations (NGOs) mounting strident protests against them, alleging depletion of ground water during the soft drink production process and toxic contents in the products.

The year also saw the companies redirecting their resources at the non-CSD business, having realised early in the year that pesticide issue would hurt their operations in India.

For Coca-Cola this meant extending the Georgia Gold hot beverage brand to more towns and cities and ultimately entering the cold beverages business by mid-2004. Meanwhile, PepsiCo has been experimenting with a host of new flavours in the snack division besides launching different packs and varieties of packaged fruit juices under brand name Tropicana.

However, some parts of the non-CSD business too are not really going the way the two companies would have liked. For example, the bottled water business of both appears to be witnessing slower-than-expected growth. However, the bulk water (25 litre jars) segment is picking up and both companies seem to be betting on it.

As per figures by market research agency AdEx (division of TAM Media), Coca-Cola India reduced its advertising spend between January and August 2004 by 20 per cent as compared with the same period in the previous year. And while Pepsi's spends were also down by about 8 per cent till July, it recovered thereafter and the company's total advertising budget has seen an increase of over 12 per cent between January and August 2004.

In terms of new launches, Coke unleashed Coke Vanilla, whereas Pepsi brought its global sports drink Gatorade to the country during the last quarter. Analysts feel that 2005 is likely to be an year of consolidation for the two cola majors. And this is not only in terms of putting a strategy in place to increase consumption despite two rounds of price hikes but also in terms of new product labelling and getting the Government to agree to their demand of exempting the sector from the eight per cent Special Excise Duty.

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