<p>Its volume growth in the second quarter has slowed down partly because of a hike in price and also due to a mild summer. This is why the beverage major’s India and South West Asia President and CEO- the soft spoken, Atul Singh is focusing his strategy on changing consumer consumption patterns to ensure it hedges its risks from the vagaries of weather and seasonality of the business.
Singh talks to Surajeet Das Gupta & Priyanka Singh in an hour long interview on his new challenges as well as his aggressive bid to build products to address the market at the bottom of the pyramid.
Your volume this quarter just grew by 8 % as against 22 % in prior year’s quarter whereas many other countries like China have grown by 21 per cent and Mexico by 10 per cent. When per capita consumption is still low in India, such a low volume growth must be a cause of worry for you?
If you look at our growth, we have had 20 consecutive quarters of growth. However we had taken pricing up for some of our products last quarter. For instance the 300 ml price went up by 20 percent from Rs 10 to 12. When we take pricing up in our industry, it takes some quarters for volumes to stabilise. Plus we had lot of rains this quarter versus the prior year. Last year monsoons were not that good. During second quarter which is the warmest quarter, lot of glass bottles consumption happens outside home. When it is raining, the outside glass bottle consumption doesn’t happen which impacts our sales.
This means that pricing correction has made a pretty substantial impact on your sales. How will you deal with this situation as pricing pressure will continue to happen in the country as raw material costs go up?
We do the analysis of our products. Certain packs get impacted more than the other packs. So within our portfolio we have several packs that have grown substantially. We have multiple packs which we can price differently in different channels.
But eventually your volume growth overall has slowed down?
If the weather hadn’t been the way it is, we would have not seen such slow growth. We have very high seasonality in India. So for this quarter particularly, seasonality has had a big impact. There are periods which are very hot and rain heavily versus periods which don’t rain so heavily. So the temperature and precipitation impact on the sales in very high in seasonal markets like India. But this is changing. Our growth rates in other quarters are higher because the consumer might be having it indoors even when it is raining outside. Small price increases don’t have that much of impact, larger increase impact sales.
So simply what you mean is that despite all the marketing efforts and investments the weather and monsoon determine your revenues. After all these three months constitute for 30-40% of your sales.
The sales in this quarter constitutes less than 30 % of our volumes . But 10 years ago, it was over 60 % but now it’s less than even half of that. Ideally we want each quarter to constitute 25 % to our revenue but it’s going to be a long time before it happens because consumption will take time. The way to do it is to drive in- home and in -premise consumption because that doesn’t get impacted by the season. Today we are focusing on various channels like movie-halls, malls, eat and drink channels to boost in home or in premise consumption which doesn’t get impacted by the weather be it rains, hot or cold. On an average, today about 40 % consumption happens in homes. So our focus now is to get this number up. Especially when 90 percent of all beverages(tea, milk, water etc) is consumed in home or in premises because you have meals at home, work in office and spend weekends in a joint or a movie hall. 15 yrs back, in- home consumption of soft drinks was only 10 percent.
The Indian FMCG sector is now looking seriously at the bottom of the pyramid and how to deliver products at a lower cost. How do you plan to address this market with products which are cheaper in price?
More than 700 million people still live in rural India. And a human being needs 2 litres of fluid per day. We see a lot of opportunity as the consumers there too have a right to choice and products we consume in cities. So the opportunity and the challenge is how we get that great taste in beverages to people who can afford to spend Rs 3-5 on it. We are piloting powder format under brand ‘Fanta Fun Taste’ in certain markets which can be mixed with water and consumed. There is a tremendous opportunity in this format. The other area is clean form of packaged water. People in rural areas are more exposed to water borne diseases because of the existent contaminated and unhygienic form of water available to them.
But how do you reduce costs and serve them?
Powder is one format. We have to continue to look for packaging formats which are cost effective by being lighter in weight and with improved technology. Light weight packaging can help us but there is a limit to it. You may see more variants and flavours coming up in future. in powdered form. In fact, we had had lemon and orange flavour powder drink under ‘Sunfill’ name. We have orange flavor currently which we have rationalized it to Fanta brand.
You have also tried to get into semi hybrid dairy product –‘Maaza Milky Delight’. But what is your roadmap in dairy products?
Dairy is a cold chain product and we don’t have cold chains here. Only few outlets can afford refrigerated containers in India. That’s the challenge. The challenge is how we bring juice and dairy from tetra packs in a new packaging format like a pet bottle The concern here is shelf life.
Lot of your raw material like orange pulp is imported from Brazil. Despite India having a large fruits and vegetables production, you have not tapped the potential. Are you looking at ways to make the country into a sourcing centre for your global requirements in any ofthese products.
Yes we are. We have imported about ten thousand samplings from Brazil and are growing orange trees in collaboration with Jain irrigation in Maharasthra. The Cutrale group of Brazil which is the largest orange producers of the world is providing the technology. If it’s successful, the idea is to grow these trees in India with the help of irrigation experts. We will convert them into pulp and this can cater to our local needs. Later on they could supply to other countries in our system. Currently Coke globally gets its orange pulp supplies from Brazil , Florida in the Us and China. India could be the fourth. We want to support local farmers and local communities so that we can have India as a hub for oranges . Jain is our partner in pulping of -mangoes and other fruits. We have launched juices in apple, grapes, orange and mango flavor. While our mangoes are local like alphanso and Totapuri, all other fruits are imported. We are starting with orange and could go to sourcing the other fruits too.
Surely there is a clear compulsion for companies like you to go rural in order to expand the market in India. How will you do that?
There are roughly 5-7 million retail outlets across the country, we are in 1.3-1.5 million so our aim is to be in all of them. So for instance we are present in rural areas of Punjab and Andhra Pradesh but we have not penetrated in deep rural pockets where there is a vast market, where other FMCG companies have penetrated. That is the challenge. We need to add rural belt to our existing portfolio in addition to the existing urban markets. One cannot replace other. Both are equally important for growth.
But serving chilled in rural areas is a daunting task. How will you address that?
Yes serving chilled beverage is another issue in rural outlets. After all there is erratic or no electricity supply. That’s why we have invested so much on solar coolers to provide it free to our distributors. Since these coolers are presently not affordable, we are also thinking about providing ice boxes to these rural outlets. A smaller pack is another opportunity. We have sachets. We can come up with smaller sizes if ever we have to.
Soft drinks have been associated with health issues-they are considered not good for children. Your competitors are addressing the issue by changing formulation to make products healthier. How do you address this contentious issue in India ?
All our products are safe, none of them are unhealthy, we give consumer choice. There are products with zero calories, lighter in calories, products which are juice based, dairy based and water based, and also products with vitamins and minerals in it. So we give consumers a lot of choices. We are now also doing labeling on the bottle to give calorie count on all our packs. Now it is up to consumers what they want-whether they want to indulge, to rehydrate or to energize themselves, it’s a choice to be made by them. In a balanced diet, you can have all our beverages. We promote healthy balanced eating habits and balanced life.
What about diet drinks, are you pushing them enough. They constitute for only 2 per cent of your sales?
Diet segment is growing in India but it’s currently small. Only few people have switched to diet. They still look for taste. We offer consumer choices with regular and diet versions but people might still opt for the regular version. In some countries, diet forms larger part of the mix versus other countries which will still take time to adapt to healthier versions of drinks.
But one could say you have just one product in the Diet category and never really wanted to grow this market?
We brought in diet Coke and Sprite Lite too in Indian markets. But it is such a small segment. The Sprite Lite drinkers were very small. Similarly the popular range in packaged format is still of apples, oranges, grapes etc. The base of other juices like promeganate is not there..
Do you see a potential in expanding in tea and coffee?
We have Georgia which is doing well in certain channels like McDonald’s. We are providing drip coffee along with our regular coffees. We are right now test marketing it. We have Georgia version of tea too, although we don’t have tea in powder format which is not practical. Indians like hot tea which cannot be packed. We do have a tie up with Nestea.
So what is the kind of investment that you have made in India already.
We have invested close to US $ 1.35 billion in India (every year we spend about US $ 100 million in India). We keep investing in more lines, more people, coolers, bottler’s system investment, trucks equipments etc. Our bottlers invest extensively. About 65 percent investment is through company owned bottling plants in India.
Modern retailing is a sophisticated exercise, how do you ensure that there are right manager available to sell you products there. A. We have made a beginning by setting up the Coca Cola Indian School of Business Retail Academy (Coca Cola ISB Retail Academy) in collaboration with ISB. It will train mid level managers on world class business practices in the retail industry, It’s like a mini-retail MBA. We will have world class faculty from all over the world at ISB to train these students. With modern trade coming up and very little education and expertise in India to adapt to changing times, we need such intensive education units. Coca Cola will have access to the research and faculty.