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Coke India chief fears slowdown

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Coke India chief fears slowdown

The company’s chairman Neville Isdell may have tall expectations from the India operations, but Coca-Cola India believes that it may not be able to keep pace with its current compounded annual growth rate (CAGR) of 19% (1994-2004).

Fearing a slowdown in the future, Coca-Cola India president and CEO Sanjiv Gupta told FE: “19% is a fairly high target. We can’t continue to grow at the same rate... there will be some slowdown.”

The company, Mr Gupta said, is currently in a consolidation mode with a huge focus on cost management. Reflecting this, it has decided not to put up any new lines for soft drinks in 2005. “We don’t need any new lines for soft drinks this year,” he added.

Without revealing any numbers, Mr Gupta said that despite recording double digit growth, 2004 was no better a year for carbonated soft drinks (CSD) than the previous year. “Percentage growth in CSDs slowed down in 2004 as compared to 2003,” he added. In that, colas fared badly while flavours gained, Mr Gupta added.

According to him, while the pesticides issue spoiled the 2003 party, 2004 was marred by the price rise in raw materials like sugar, steel and petroleum products.

“Our cost push will continue. This year we expect to mitigate costs by half through efficient procurement; logistics operations and consolidation,” he said.

Mr Gupta, however, maintained that over the last two years Coke had doubled the size of the business, tripled its profits and increased marketshare in India.

However, despite the impressive performance, the India division may not get a sizeable share of the recently announced $400 million global marketing booty.

According to Coca Cola Asia communications director David Cox, while no final decision has been taken as yet, it appears that most of the $400 million budget will probably go to the growth-starved US and European markets. Neverthe-less, according to him, the India business model has proved to be a successful model and nothing has changed. “It’s a strategy we found a key to profitable growth,” Mr Cox added.

Juicier plans ahead

Disenchanted by slow growth in colas, Coca-Cola India has decided to bet big on ‘juices and flavoured drinks’ in 2005. The soft drink major also plans to bring the zing back into its cloudy lemon brand Limca on which it had less focus last year, besides pursuing growth by segmenting the market and reducing the seasonality factor.

“Having doubled our market through sheer availability, we now have to segment the market; reduce seasonality; drive colas back and continue driving flavours and juice,” Coca-Cola India president and CEO Sanjiv Gupta told FE while detailing out its 2005 strategy.

“We will invest in Limca in a big way, and will also continue to drive our flavour drinks Sprite and Fanta,” Mr Gupta added.

Additionally, the soft drink major plans to invest at least $50 million in setting up new lines for its ‘juice’ business which will be driven by its acquired fruit drink Maaza.

“We are confident of doubling sales of Maaza next year,” Mr Gupta said.

The brand, which had last year taken a lead over Parle’s Frooti drink, took a beating this year when its marketshare fell from 37% to 35%. While Mr Gupta confirmed this, he reasoned: “We lost marketshare because we were not present in PET or home packs.”

The company now plans to drive back growth in the brand by launching PET packs next year and may also extend the brand to other juice categories. “We may play Maaza across the juice category,” Mr Gupta indicated.

Currently, Maaza is present in the less than 20% juice content category.

The company is also planning to shift focus from a strategy that is based on affordability and availability to the market and reducing the seasonality factor. According to the company, while the carbonated soft drinks (CSD) outlet penetration has risen from 25% to 59% in metros, market segments identified by the company as ‘power towns’ and ‘rural’ still remain untapped.

“57% of CSD volumes still come in the crucial months March-June,” Mr Gupta added. To reduce seasonality of colas, the company plans to pursue a two-pronged strategy: one, drive home consumption, and second, build greater association with the food and hospitality industries.

While flagship brand Coca Cola will be used to drive home consumption, Thums Up will be pitched to penetrate the rural market.


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