Challenges grow for Coca Cola despite double-digit growth in June quarter

Coca-Cola India managed to grow its sales and volume in double digits during the April to June quarter. While it is the second consecutive quarter of double-digit volume growth and fourth in terms of revenue expansion, higher taxation on sugary aerated drinks and the recent rise in sugar prices are adding to the firm’s margin pressure.

During the past one and a half years, taxation on aerated beverages has jumped to 40 per cent from 24-26 per cent. Moreover, prices of sugar have surged by over 25 per cent from May. Experts say it could rise further due to frantic buying by stockists and bulk consumers. Coca-Cola, however, stayed away from any price hikes in the aerated drinks portfolio that contributes nearly 60 per cent to its top line.

According to T Krishnakumar (KK), president Coca-Cola India and South West Asia business unit, the firm is constantly trying to balance any margin pressure. “In our kind of business, margins will be consistently under pressure due to our dependence on commodities. We have been moving to mitigate the increase in taxation that was going up steadily (before the goods and services tax regime). But sometimes the pressure on margins does not get mitigated. Then, we settle for lower margins and try and compensate it by sweating our assets. When we come under pressure, we use our brand-pack-price architecture,” he said.

In April-June period, all aerated brands from the firm’s stable posted double-digit growth, albeit on a low base. During the year-ago period, the firm’s volume had dipped 2 per cent. The firm’s performance, in terms of revenue and volume growth, was much brighter during the past one year, compared with its poor show during 2015 and 2016 when it was suffering from shrinking volumes. Fresh challenges could, however, pose a threat in the coming quarters.

KK is putting his bet on renewed focus on the rural market, increased in-home consumption of beverages and new launches. “After GST we know what a stable rate of taxation is, unlike earlier. In an emerging market like India, margin pressure will always be there due to inflation. While we may not be able to increase price of some products, there are others where price hikes are feasible,” he said.

To strengthen the upper-end portfolio aimed at affluent consumers, the company is revamping its value-added dairy brand Vio. While the brand was launched in 2015, it phased out all three variants over the past three years. The company is gearing up for a relaunch in the September quarter, with a Coco-based milk drink that has been incubated in India. Another fusion drink is on cards, too, that will be launched under the Minute Maid brand. The firm has also launched Vitingo and Aquarius Glococharge — priced at Rs 5 and Rs 10, respectively — to target rural consumers.