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June 14, 2012
Sarah Jacob, The Economic Times
Suntory Beverage and Food Asia, which manages the M&A strategy and administration of group companies of the ¥1,802.8-billion (approx Rs 1.3 lakh crore) Suntory Holdings in Southeast Asia, has bought 51% stake in Narang Connect.
"The joint venture (Narang Connect is rechristened Suntory Narang) is focused on premium, healthy, coffee-based and carbonated beverages," Rahul Narang, founder and chairman of Narang Group, said.
This is the group’s second joint venture with a multinational, having partnered French giant Danone for Qua and B’lue water in 2010.
"In the next 3-5 years we will be a major player in India, right under Coca-Cola and PepsiCo, and the largest players in the premium beverage segment," Narang said.
He did not divulge the valuation of Narang Connect, which provides coffee solutions for the Horeca segment and markets Lindt chocolates, Illy Coffee and in-house brand Karma coffee in India.
Established in 1899, Tokyo-based Suntory is one of the oldest liquor firms in Japan. In India, it began marketing Hibiki blended whisky and Yamazaki single malt last year through a tieup with Radico Khaitan.
Suntory also makes brands such as Oolong tea, Boss coffee, recently-launched Espressoda and zero-calorie drink Pepsi Nex, which was created as part of its three-decade-old partnership with PepsiCo.
Narang said the venture will launch low sugar or vitamin-infused drinks priced around Rs 30-35 for a 330 ml bottle.
"We would look at creating localised products, which is where Suntory’s research and development and manufacturing expertise will come into play," he added.
Suntory Narang has begun locally manufacturing citrus-soda Orangina through third parties and will roll it out across markets by October. Brands CC Lemon and Boss coffee will be launched after that.
Independent manufacturing was not on the immediate horizon, but the company did not rule out extensions into food categories in the future. Narang has been named the executive chairman of the firm. Avik Sanyal has been internally promoted within Narang Group to the post of COO of the JV, which is targeting sales of 700 million Japanese yen, or about Rs 50 crore, in the first year of operation.
Narang Group has a distribution network covering around 1.5 lakh points of sale across India, Narang said. Having entered the beverage segment by distributing premium bottled water Evian and energy drink Red Bull in 2003, Narang struck a joint venture with Danone in July 2010.
Analysts say there is significant room for growth as the Indian packaged beverages market. "Although there is intense competition in the beverage segment in terms of retail and advertising, the Indian per capita consumption of branded drinks is still very low," Devangshu Dutta, chief executive at consumer goods and retail consultancy Third Eyesight, said.
The total value sales of packaged soft drinks (including on-trade and off-trade) was Rs 35,150 crore in 2011, up 21.4% from 2010, market research firm Euromonitor International said. It added that value sales will increase 19.5% a year to reach Rs 85,500 crore by 2016.
Narang has ruled out a conflict of interest between the two joint ventures. While Danone is focused on products in the still water segment, the Suntory JV will focus on the sparkling or carbonated drinks segment.
Instead, he said there are synergies between the two ventures. "This deal gives us scale and we can share support functions, logistics, warehousing and IT. This helps build the businesses for all and joint benefits of costs, including for Danone," Narang said.