Nisha Qureshi, Afaqs
28 Oct 2024

Reliance Industries last year made a strategic move into the soft drink sector by acquiring the iconic carbonated beverage brand ‘Campa Cola,’ which gained prominence in the 80s and 90s.

The conglomerate intends to strengthen its brand by employing its classic pricing disruption strategy. Reliance is expanding its presence nationwide by focussing on affluent regions and utilising e-commerce and quick commerce platforms.

Recent reports suggest that Campa Cola is providing retailers with more favourable trade margins than its rivals Coca Cola and Pepsi, aiming to challenge the existing duopoly in India’s soft drink market.

In the Q2FY25 earnings call, Reliance Industries reported that its consumer brands, particularly Campa Cola and Independence, are experiencing robust growth, with general trade increasing by 250% year-on-year.

“We are taking several marketing initiatives to grow consumer brands and will leverage the festive period to drive demand,” the company’s representative said during the call, adding that the company was “very optimistic about the next few quarters”.

Experts now believe that the soft-drink beverage market will witness an increase in advertising initiatives by the competitors to mitigate the disruption.

Saurabh Munjal, co-founder and CEO of Archian Foods, the makers of Lahori Zeera, asserts that Reliance’s entry into this sector will only expand the market for soft-drink beverages.

“The consumption will increase, accompanied by a corresponding rise in marketing efforts,” he adds.

Devangshu Dutta, the founder of Third Eyesight, a management consulting firm engaged with the retail and consumer products ecosystem, asserts that both Coca-Cola and Pepsi will undoubtedly endeavour to safeguard their market share.

He says the emphasis will particularly be on domestic consumption, and we can anticipate an increased investment in share-of-mind campaigns to proactively counter Campa’s expansion.

Business strategist and independent director Lloyd Mathias believes that the current circumstances are conducive to market expansion and disruption. “Other players will likewise increase their visibility through marketing strategies and retail initiatives to counter this. So what we will see in the next year is that the categories of soft drinks will grow quite dramatically,” he adds.

The classic Reliance move

Experts suggest that Reliance’s approach to Campa Cola involves competitive pricing, reflecting a strategy akin to its disruptive tactics in the telecom sector with Jio and JioCinema. For instance, a two-litre bottle of Campa Cola’s lemon flavour is priced at Rs 53 on a quick commerce platform, whereas a leading competitor offers it for Rs 74.

Besides competitive pricing, Reliance also has the significant advantage of owning a large retail and media network to scale Campa Cola.

“Reliance has earlier disrupted markets with the aggressive pricing strategy and it has the resources to follow-through on its pricing strategy for Campa as well. It can build significant volumes across its own stores prior to having to compete for shelf space in the broader distribution channels,” says Dutta.

As per Mathias, in addition to possessing deep pockets, Reliance benefits from its extensive media and entertainment wing that will be leveraged for the promotion of Campa Cola.

“I think the combined strength of Reliance in terms of distribution, media, and retail, alongside its capacity to maintain pricing integrity, are quite formidable. I think they are going to make a significant impact in the market,” says Mathias.

Impact on smaller players

Experts also suggest that the introduction of Campa Cola at its current price point will primarily affect smaller local competitors who function within the same pricing bracket, particularly in tier-2 and tier-3 markets.

Mathias asserts that Campa Cola will initially expand the soft-drink beverage market, while also emphasising that given the price point of the soft drink, the immediate impact will be felt by smaller local players who operate at similar price points. Introduction of numerous Indian innovations within the soft-drink category could significantly impact relatively smaller competitors.

Similarly, Dutta observes that the market for carbonated beverages largely hinges on the intangible qualities associated with the brands. In India, however, brand preferences are not as hard coded as they are in the United States.

“Consumers do switch between brands, and price-sensitive customers can be swayed by visible pricing differences. This gives deep-pocketed Reliance an opportunity to carve out a significant market share.”

However, according to Munjial of Lahori Zeera, there appears to be no direct impact on his brand, given that Campa Cola has thus far only introduced the well-known flavours of carbonated beverages. “As far as Lahori Zeera is concerned, there is no impact because the target consumer, the flavours are all very different.”

“This development will merely add to the market and increase the number of people consuming carbonated beverages,” he says.

(Published in Afaqs)

Priyamvada C., Mint

16 September 2024

When the late George Fernandes, the industries minister in the short-lived Janata Party government of 1977, issued a diktat to multinational corporations Coca-Cola, IBM and AstraZeneca to dilute their stake in their wholly owned subsidiaries to 40% in favour of Indian shareholders, Coca-Cola and IBM chose to exit India. Later, during P V Narasimha Rao’s proliberalisation government in 1993, Coca-Cola returned. It bought out Ramesh Chauhan’s Delhi Bottling Company and Coolaid, the bottling companies of five carbonated drinks, in 1998.

With Coca-Cola India now said to be evaluating options to list its wholly owned bottling subsidiary – Hindustan Coca-Cola Beverages (HCCB), Mint explains the rationale behind companies considering such moves.

What caused the change in strategy?

Experts said there is a trend of consumer giants spinning off their units to optimise their balance sheets, go asset-light and focus on their core brands and business models. Coca-Cola India’s ambitions to list HCCB come almost a decade after rival PepsiCo’s bottler, Varun Beverages, listed on the local stock exchanges, yielding significant value for the Jaipuria family.

Unlike PepsiCo, Coca-Cola owns its bottling franchise, just as other MNCs including consumer goods major Whirlpool, ball-bearing specialist Timken, and tobacco giant BAT, who are keen to take advantage of the valuations that Indian investors give to well-run MNCs. Varun Beverages commands a market valuation of ₹2.09 trillion. Hindustan Unilever and Colgate-Palmolive (India) are examples of multinational companies that have listed in India.

Coca-Cola’s move is seen as a strategic attempt to yield significant benefits, including financial gains, risk mitigation and other exit opportunities. The Economic Times was the first to report on HCCB’s listing plans in May.

How does the parent company benefit?

Through such moves, the parent company can reduce exposure to risks associated with bottling companies, which include fluctuations pertaining to raw material, regulatory changes and local market conditions, said Alpana Srivastava, a partner at Desai & Diwanji. While spinning off bottling subsidiaries is more prevalent in the beverage industry, she said other fast-moving consumer goods and retail companies may explore similar strategies to optimise their balance sheets in the current environment.

Earlier this year, HCCB announced the transfer of its bottling operations in three territories in north India to streamline supply chains in the region. However, the bottler declined to comment on its IPO plans.

As part of the transition, the Rajasthan market will be owned and operated by Kandhari Global Beverages, which operates in parts of Delhi, Himachal Pradesh, Haryana, Punjab, Chandigarh, Jammu & Kashmir, and Ladakh.

The Bihar market will be owned and operated by SLMG Beverages Pvt Ltd, which runs bottling operations in Uttarakhand, parts of Uttar Pradesh, Madhya Pradesh, and Bihar. The Northeast market and select areas of West Bengal will be owned and operated by Moon Beverages Pvt Ltd, which operates in parts of Delhi and Uttar Pradesh.

What other factors motivate such spin-offs?

Besides providing liquidity for the bottler, listing may offer tax benefits such as reduced capital gains tax or more favourable transfer pricing rules and optimise the overall tax burden for both the parent company and the subsidiary, Srivastava explained. It may allow both entities to be valued more accurately based on their individual capacities in growth, risk profiles and capital intensity.

This comes in the backdrop of companies looking to make the most of a bullish stock market to unlock more value for shareholders by listing their manufacturing subsidiaries. It enables the companies to raise more capital, which can be used to strengthen their market presence and reduce debt, said Devangshu Dutta, founder of Third Eyesight, a management consulting firm. He said the core value generator for companies such as Coca-Cola and Pepsi are brands and marketing rather than manufacturing.

In April, private equity firm Lighthouse Funds invested ₹700 crore in Parsons Nutritionals, a contract manufacturer specialising in packaged foods, beverages, and personal care products, underlining investor appetite in this sector. Other co-investors include the International Finance Corporation, a member of the World Bank Group, Evolvence India, HDFC AMC’s Fund of Funds, and various family offices.

However, there may be legal considerations, too. While exclusive contracts exist, the bottler may have partnerships with other companies in its distribution portfolio, which may have to be reviewed and renegotiated. There may be regulatory compliance and other anticompetitive considerations when it involves such big entities.

Other instances of such moves

While there are fewer examples of bottling companies listed in India, this practice is more common globally. Coca-Cola has listed most of its bottling subsidiaries in other global markets such as North America and Europe.

While there is no shareholding between PepsiCo and Varun Beverages, there is an exclusive arrangement for Varun Beverages to bottle, use trademarks, distribute, market, and sell PepsiCo products across India. The beverage giant benefits from royalty and licence fees. Over the past year, Varun Beverages’ revenue rose 22% to ₹16,400 crore while its profit increased to ₹2,056 crore from ₹1,497 crore in FY22. As of Friday’s close, the bottler’s shares had gained almost 30% to ₹645.20 since the beginning of this year.

Any potential listing opportunity for HCCB may allow a staggered exit for Coca-Cola India from managing local operations, monetising its stake and participating in future licence fees and/or royalty arrangements, said Dhruv Chatterjee, a partner at Saraf and Partners. He added that there are indications in the retail and fast-moving consumer goods category of similar divestments. Coca-Cola India did not respond to Mint’s request for comment.

Ravikumar Distilleries is an example of a listed manufacturing company that has tie-ups with liquor companies Radico Khaitan, Shashi Distilleries and John Distilleries, in addition to manufacturing and marketing its own liquor products. Bengal Beverages is an unlisted bottler that manufactures and distributes non-alcoholic beverage brands under licence from Coca-Cola across categories such as sparkling soft drinks, juice and water.

What kind of contracts exist between the bottler and the parent company?

Many bottling plants are usually set up by companies as a joint venture with a local partner. The bottler procures the concentrate from the companies. About 14-15% of the concentrate cost goes to the bottler, which translates into revenue for the brand, according to a person familiar with such discussions who spoke on condition of anonymity. The company spends a part of this revenue on marketing activities that target mass audiences through television, radio and newspapers.

Depending on the terms of the contract, the bottler may be expected to spend a portion of its revenue on marketing through outdoor settings such as billboards, flyers, social media and events. The arrangement between a bottler and a company may be either a pure bottling arrangement (or contract manufacturing) or a bottling and distribution arrangement, where the bottler is also responsible for marketing, branding, and last-mile distribution.

How has the carbonated beverage market fared?

Market research provider Statista estimated that the carbonated drink market in India clocks about $2.4 billion in revenue and is expected to grow by 6.98% annually over the next four years. The volume consumed at home and other outdoor locations is likely about 4.2 billion litres this year.

In 2022, Parle Agro’s brand Appy Fizz and Coca Cola dominated with a 31% market share each, followed by Fanta, Pepsi, 7UP and Sprite, among others. Other brands such as Reliance-backed Campa Cola are expected to challenge the dominance of these companies.

Before Reliance acquired Campa for ₹22 crore in 2022, the soft drink had been launched by Pure Drinks Group in the 1970s. The group was behind the launch and distribution of Coca-Cola in 1949, before the US company was shunted out of the country in 1977.

Pure Drinks and Campa Beverages subsequently launched Campa Cola to fill the gap left by foreign soft drink companies in the country. However, Coca-Cola and PepsiCo re-entered the Indian market in the 1990s, throttling local competition.

(Published in Mint)

Nivedita Jayaram Pawar, Moneycontrol

March 25, 2023

Campa Cola, that much-loved soft drink from the ’70s and ’80s, is set to return to supermarket shelves this summer. Mukesh Ambani’s newly floated FMCG flagship Reliance Consumer Products (RCP) bought the brand from its makers Pure Drinks in August last year, reportedly for Rs 22 crore. The cola will be re-launched in a new contemporised avatar this summer. Campa Cola, Campa Lemon and Campa Orange will be rolled out in phases starting with Andhra Pradesh and Telangana and then across the country. The company is on a drive to acquire and promote homegrown Indian brands with a deep-rooted connect with Indian consumers. RCP has also acquired a 50 percent stake in the 100-year-old legacy brand Sosyo from Hajoori Beverages Pvt. Ltd this January. Lotus Chocolate from the Pai family, Sri Lanka’s leading biscuit brand Maliban and its own JoyLand confectionery, and Independence and Good Life food brands are other important pieces of its portfolio.

The back story

Coca-Cola entered India in the 1950s but made a hasty retreat two decades later when the Indian government introduced a regulation that would have required it to reveal its formula. Interestingly, it was the Pure Drinks Group that first introduced Coca-Cola in India in 1949, and was its sole licensed manufacturer and distributor. The Group which also owns the Le Méridien hotel in Delhi, decided to launch its own cola in the market after the unexpected and overnight exit of Coca-Cola from India. Since the company already had the expertise and the infrastructure — 12 bottling plants, plus manpower in excess of 10,000 — this seemed the natural thing to do. Pepsi had not yet arrived and the only other competition was the state-owned Double Seven and Thums Up owned by Ramesh Chauhan’s Parle Bisleri.

Campa which promised “The Great Indian Taste” was launched using locally developed concentrate in three flavours — cola, orange and lemon. Though apple and jeera flavours were added later, cola made up almost 80 percent of the product mix. In the 15 years that followed Campa went on to rule the Indian soft drinks market. It even used the same Coca-Cola font. During its heyday, it was manufactured in over 50 factories across the country, including four in Delhi. However, Campa started to lose its fizz by the mid-’90s, when Coca-Cola returned and homegrown Thums Up started gaining ground. It gradually disappeared from stalls and shelves across the country. Production of the drink at the Delhi factory stopped in 1999. The heroic comeback of the ‘Made in India’ brand after more than three decades is making many Indians nostalgic. And the fact that it’s backed by a home grown conglomerate is only adding to the excitement.

Will nationalism and nostalgia alone suffice to throttle the strong base, aggressive marketing campaign and sprawling distribution network created by Coca Cola and Pepsi? Experts feel that nostalgia will definitely drive people to try the cola especially since its challenging international giants in the segment. But it will take a lot more than that believes Devangshu Dutta, founder of retail consulting firm Third Eyesight. “Though the brand has some latent awareness, it’s with a different segment — people in the late 40s and upwards. But the consumption pattern is driven by a younger profile. So Reliance will have to build the awareness and the stickiness for the product with the segment. And that’s a hard piece of work which is why I believe they have brought in the tried and tested tactic that they use — price wars. They have launched it at a price which has forced the incumbent two international brands to lower their prices.” Campa is priced at Rs 10 for a 200 ml bottle and Rs 20 for a 500 ml bottle.

Positioning will also play an important role in this, he adds. “Reliance will have to figure out how to position the brand correctly and make that positioning distinct from the existing players. Coca-Cola has always been about happiness, whereas Pepsi is all about the younger generation and Thums Up is about daring. Campa Cola will have to find its own distinct positioning. Without that they will just be a generic cola drink. Of course being the largest retailer in the country helps and their vast retail network will definitely be an advantage. But that can’t be the end of it.” According to sources, the company is expected to advertise Campa Cola heavily during the Indian Premier League (IPL).

According to brand strategy expert Harish Bijoor, Campa has the potential of emerging a viable competitor to the two big MNC colas Coke and Pepsi. “The brand has the power of being a local one, in an environment where the local is celebrated over the global. I do believe Campa can enjoy the power of desi-revival to give it wings,” he says but cautions that nostalgia won’t suffice. “The brand and its taste is long forgotten. It is important to stoke these dead embers. It is important to position the brand distinctly with USPs that scream the ‘desi taste’! Desi tone, desi tenor and desi decibel will help.”

The branded non alcoholic beverage market in India is pegged at Rs 450 billion with Coca Cola, PepsiCo, Parle, Dabur and ITC being the key players along with several regional brands. The strong wave towards healthier options will pose some problems for the iconic brand feels Angshuman Bhattacharya, national leader — consumer product and retail sector, EY India. “The carbonated soft drink (CSD) market is witnessing headwinds (4 percent growth) as consumers are moving towards healthier beverages (12-15 percent growth). In this context, CSD is a tough and highly competitive category, hinging on bottling and distribution strengths. Campa Cola is a brand which is familiar to Indians, but will need large investments to scale. However with the largest retail house backing the brand, it could well be a success story given the larger modern trade and general trade platform available to scale it up.”

The return of the cola

Though Campa was synonymous with cola in the 1990s, today’s urban 20-somethings have only heard of the drink through nostalgic ramblings of their parents and older cousins. Incidentally Campa Cola gave actor Salman Khan his first TV commercial, much before he became a mega star. The 1982 advertisement showed Khan guzzling on the cola while on a yacht along with Tiger Shroff’s mom Ayesha Shroff and other models, while a catchy jingle played in the background. This was a time when Bollywood actors used TV commercials to break into the industry. “The creative was pretty much left to me. I had suggested, for some strange reason, that we do it underwater. A lot of people had done beach scenes, a lot of people had done parties scenes, music, beach parties, stuff like that. It was something different and I also liked to travel while shooting ads,” says advertisement film-maker Kailash Surendranath who shot the ad in the Andamans.

“Campa Cola used to be a birthday party treat or a drink we had at get togethers. We would also pack crates of it for long drives and picnics. There was not much choice those days as Coke had just exited the country and Pepsi hadn’t entered. But above all it was a great tasting drink — not too fizzy like Thums Up or overtly sweet like Gold Spot. It was just right,” remembers Swati Roy, an advertising professional.

Aarti Khandelwal a housewife in Delhi remembers visiting the Campa factory in Connaught Place as a student. “We were packed in a school bus and led to this factory where we were dazzled with how colas were made. I remember we were even treated to a bottle each after the visit,” she says. “Ek cola dena actually meant ek Campa Cola dena,” recalls Shirish Date, who loved the soft drink and is eagerly looking forward to picking it up. “I will buy it just for the old times’ sake. It’s a part of my childhood. I just hope they don’t mess with the taste too much. The tag line then was ‘the great Indian taste’ and I hope they stick to that,” he says.

(Published in Moneycontrol)