Coca-Cola India effects first production cut in a decade

Coca-Cola India, the country’s largest beverage maker, cut production during the quarter ended June this year, the first time in a decade. The move comes on the back of falling sales for a while now.

According to sources, for the quarter ended June this year, Coca-Cola India posted a “mid-single digit” decline in sales volume. While the company did not specify the extent of the decline, analysts say it stands at four-six per cent. In the corresponding quarter last year, Coca-Cola India said it recorded double-digit growth in sales.

The stress in the carbonated beverages segment has been visible to all, with the category seeing a 31.6 per cent drop in the Index of Industrial Production (IIP) during May and a 23.5 per cent fall in the IIP data for the category in April. Also, it was among the top five categories to show a significant production decline in April and May.

Typically, the June quarter is the best for a beverage company, accounting for about half its sales. “It would be very difficult for the sector to recover the loss in sales (in the June quarter) this year, as summer sales have been hit significantly,” said Pinakiranjan Mishra, partner and national leader (retail & consumer products), EY India.

A company official said now, some of the bottling plants of Coca-Cola India had to “replan production for the quarter”. “We are seeing that purchases of discretionary categories such as soft drinks, chocolates, premium biscuits and cosmetics are being postponed by rural consumers. Some of these discretionary categories are estimated to be recording de-growth in the first half of the year. Some bottling plants have, therefore, had to tone down their production schedules in the second quarter,” the official said.

For Coca-Cola India, the June quarter wasn’t the only period when it saw poor sales. Once a star in the Asia-Pacific region for the world’s largest beverage company, with consistent double-digit sales volume growth (15-20 per cent quarter-on-quarter), Coca-Cola India first began to see signs of stress when it reported only one per cent growth in sales in the quarter ended June 2013.

While it bounced back with six per cent growth in sales in the September quarter of 2013, that was lower than the 15 per cent growth it had reported in the corresponding period the previous year.

However, during that period, too, the company didn’t cut production.

Analysts say a number of factors are contributing to the sales decline seen by beverage majors such as Coca-Cola (PepsiCo India declined to comment for the story). Apart from a slowdown in spends, unseasonal rain has wreaked havoc on the sector, with the window for sales having shrunk considerably in the past two years. This year, Coca-Cola India also effected a price rise of 20 per cent in the crucial 200-ml returnable glass bottle segment, which accounts for 20-30 per cent of the company’s sales, leading to a fall in sales and, consequently, a cut in production.

Coca- Cola India's five-year sales growth

Period	Change in Vol. Sales (y-o-y)
Apr-Jun, 2015*	(4-6%)
Jan-Mar, 2015**	10+%
CY2014***	10+%
CY2013	4%
CY2012	16%
CY2011	12%

Notes:
April-June 2015 figures in brackets denote negative growth
Jan-March 2015 and CY14 numbers according to The Coca-Cola Company's annual reports say that it is simply double-digit growth. Which is why it is indicated as 10+%

Source: Coca-Cola's global annual reports