Where's the fizz: Coke profit dives as consumers go on health trip

Despite its latest launch Aquarius, Coke is behind rival PepsiCo in pushing healthy products

Subdued demand in peak summer months, besides an exceptional charge, has shown up in the numbers of Hindustan Coca-Cola Beverages (HCCB) – the largest bottling partner of Coca-Cola. Net profit of the bottler, which produces nearly 65 per cent of the total beverages for the American major in India, plunged 28 per cent in 2015-16. HCCB net was Rs 174 crore in 2015-16, down from Rs 241.3 crore a year ago, according to data available with the Registrar of Companies. 

Coca-Cola India, a subsidiary of the Atlanta-based beverage giant, too, recorded a dip in profit in the same period. The firm’s net profit went down six per cent to Rs 473.8 crore in 2015-16, against Rs 504.4 crore in the previous year. 

In the corresponding period, HCCB’s revenue from operations rose eight per cent to Rs 8,514 crore, from Rs 7,859 crore a year ago. Coca-Cola India’s net sales increased only marginally to Rs 1,757 crore, from Rs 1,755.4 crore.

A single-digit decline in volume of Coca-Cola beverages during April-June 2015 – a period that usually accounts for 40 per cent of the industry’s sale – had impacted the performance of HCCB, a local subsidiary of Coca-Cola Company’s international bottling arm — Bottling Investment Group. In the following quarter, Coke’s volume sales had recovered four per cent. 

An exceptional charge of Rs 77.2 crore, too, has to be factored in while looking at the drop in HCCB’s net profit. The company’s operating revenue however, surged, backed by price hikes. During early 2015-16, Coca-Cola raised the price of its 200 ml glass bottle, a pack that usually drives volume, by 20 per cent. Price hike for other packs ranged between six and 10 per cent.

HCCB reported strong volume and revenue growth for the financial year 2015-16 despite headwinds on weather and taxes, a company spokesperson told Business Standard. There was increase in taxes (excise duty and value-added tax in certain states), which impacted the operating margins, he said. “In order to streamline its supply chain infrastructure and drive sustainable operating cost efficiencies over the long term, HCCB initiated a productivity scheme to consolidate supply chain, where new state-of-the-art facilities are being built and existing production capacities are being optimised,” he said, explaining why the net profit was impacted.

Apart from HCCB, 13 other franchise bottlers supply to Coca-Cola for the Indian market.

Meanwhile, net profit of Coca-Cola India suffered, as other expenses such as advertisement, promotion and rent increased by 12 per cent to Rs 639 crore in 2015-16, from Rs 570 crore a year ago.
 

Since 2015, the sale of carbonated beverages has been under pressure due to consumers opting for healthier alternatives. Juices, energy drinks and new players in the market have all hit the Cola pie, experts say. In fact, the sale of fruit juices during the same period has grown by nearly 10 per cent.

Rival PepsiCo, too, has been focusing on non-carbonated beverages, primarily under its Tropicana brand. It has also come up with the first stevia-based carbonated drink under 7UP. To revamp its healthy products portfolio, the firm started test-marketing of 7UP Revive in 2015, which was launched pan-India in March 2016.

Coca-Cola has moved as well in the health-drink direction. It has been trying to expand its non-carbonated beverages portfolio. Among other steps, it recently launched Aquarius – a non-carbonated energy drink - from its global stable. During 2015-16, Coca-Cola came up with Fuze Tea – a fusion of tea with fruit flavours.

Coca-Cola’s performance in the country during 2015-16 is a contrast to that in the previous year when it posted the highest profit in the past five years. HCCB’s net profit had jumped 23 per cent in 2014-15.