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Tzinga wants to be the giant killer in energy drinks

This FMCG start-up is taking on the likes of Red Bull and Coca-Cola in a brand new, fast growing segment. Can it go the distance

Rajiv Rao  |  New Delhi 

In the entrepreneurial landscape, strewn with software services start-ups evangelising the cloud or internet retailers anxious to become the Indian Amazon, stands out as either a quaintly old-fashioned idea or to the risk-averse, inspired madness.

This is partly because its founders decided to launch a beverage practically out of thin air, with their own savings and without any backing from a beverage biggie. By doing so, they have waded into a space that instantly pits them against the leviathan of energy drinks,

Not surprisingly, it’s the role of an underdog the company has decided to embrace — Tzinga’s parent company is called Hector Beverages, after Hector of Troy from Greek mythology, who walked out to battle Achilles, considered a superior fighter. “Where we believe is going to be a departure in our case is that we know of Achilles’ heel. We know the fundamental shortcomings of existing beverage players — their inertia, smugness and their commitment to status quo,” the website says, with endearing cockiness.

You can actually picture Dietrich Mateschitz, the Austrian co-founder of Red Bull, choking with laughter while reading this. Red Bull, after all, is a company that invented this space — one in which beverages, by and large, have as much caffeine in them as a cup of coffee. Last year, it posted $5.2 billion in sales and about $800 million in profits, growing 11 per cent during one of the worst slowdowns in global history. In India, it is the undisputed champ, accounting for about 80 per cent of sales in a Rs 350-500-crore energy drink market that is growing at about 25 per cent annually, according to industry experts.

Mateschitz’s epiphany occurred when, as a marketing manager responsible for selling Germany’s Blendax toothpaste (a P&G-acquired brand) in the mid-80s, his travels took him to Thailand. Apparently, Mateschitz was so stricken with jet lag that he relied on a local tonic called Krating Daeng (loosely translated as red gaurs) to help him—as well as fleets of Thai truck drivers — stay up. Mateschitz was impressed enough with the drink to convince the drink’s originator, Thai businessman Chaleo Yoovidhya, to get into a joint venture. Both invested $500,000 for 49 per cent stakes each. Additional ingredients were added to the drink and was born.

A chance encounter

did not have such impulsive roots. After all, founders Neeraj Kakkar and were part of Wharton’s MBA programme, which ostensibly didn’t recommend forking out large sums of money on instinct alone.

Kakkar and Nuttall bumped into each other on the first day of classes, while dropping off their two-year-old children at the same playgroup. Kakkar, 38, is a long-time Coke hand. “All I wanted to do was become chairman of Coke worldwide,” he says with a sheepish grin. Nuttall, 35, is a packaging expert from Dow. The two hit it off instantly. “Usually, I try to keep my packaging nerdiness to myself but Neeraj couldn’t get enough of it. That day, we joked we should make a company out of it,” says Nuttall. The two then hardly met over the next six months.

When they eventually buckled down to exploring opportunities, they zeroed in on a hot area—lucrative functional beverages such as sports drinks, ready-to-drink teas, energy drinks and enhanced water. Soon, it was clear the real action would probably take place in the nascent energy drinks market in India.

Nuttall, it turns out, became the group’s secret weapon — he is primarily responsible for Tzinga’s competitive advantage in India due to his expertise in flexible packaging which utilises less material and has a lower environmental impact.

Though unearthing a hidden opportunity through due diligence and research can be a heady affair, the adrenaline actually starts flowing when one has something significant to lose. For Kakkar and Nuttall, who received full-time offers from McKinsey and Bain, respectively, the opportunity cost confronting them was approximately $200,000 each. “We put our backs against the wall. There was no way out,” says Nuttall.

That sum grew substantially when they yanked whatever savings and pension plans they had to bootstrap the business. Nuttall sweet-talked his wife into allowing him to use the family credit card to fly to Monaco to meet a vendor well-known for flavour development. (It took 500 attempts to arrive at their first winning formula). By then, Kakkar convinced ex-Coke colleagues Suhas Misra and Neeraj Biyani to join the gamble. The team’s depth of experience won over private equity firm Footprint Ventures, which pumped Rs 15 crore into the firm in seed funding. Narayan Murthy’s Catamaran Ventures invested another Rs 15 crore. “Here was a team that was fairly complete and well prepared, something you very rarely see in the (fast-moving consumer goods) space,” says co-founder of Footprint, Josh Bornstein.

Building momentum
Within merely two years of opening a factory and launching the product, is a ubiquitous presence in the fridges of kirana stores in urban India, churning out about a million of its utilitarian pouches a month from its Gurgaon factory. It supplies about 45,000 outlets in 45 cities across 22 states. Kakkar says Tzinga is a clear leader in markets such as Bangalore, Hyderabad, Goa and the Northeast, but lags in Pune and Mumbai. Thanks to Nuttall’s expertise and obsession with flexible packaging, Tzinga has a clear edge in pricing: Rs 25 for a funky, 200-ml pouch, against Rs 85-100 charged by the competition.

Yet, this is the beginning of a long road. “You may be a great brand but a lot of marketplace success depends on distribution reach,” says Ankur Bisen, president, retail and consumer products at Technopak Advisors. “Also, returns don’t happen that quickly. You need deep pockets, sustained effort and focus to become successful,” he adds. “This is not like e-commerce, where with Magento open source software or the likes of it, you can get your website and, therefore, your basic business proposition, up and running,” says Footprint’s Bornstein.

To alleviate the challenges of sales and distribution, Tzinga’s sales agents have been given tablets with inbuilt GPS systems that optimise their kirana store routes for the day. They can also send real-time sales reports and take photos of the stores to ensure their products, as well as marketing paraphernalia, are being displayed appropriately.

Energy pitfalls
Still, distribution might not turn out to be the company’s most serious concern. Recently, a few energy drink in the US were caught in a maelstrom of controversy. 5-hour ENERGY, a caffeine-saturated ‘shot’ that comes in a bottle a little bigger than your thumb and one that made monk-turned-entrepreneur Manoj Bhargava vault onto the Forbes list of billionaires, has been linked to the deaths of people with heart problems due to caffeine toxicity, though nothing has been conclusively proven. Ditto for Red Bull competitor Monster Energy. Both have staunchly denied these allegations.

Being embroiled in such a controversy is the last thing a fledgling company such as Tzinga needs. Meanwhile, the knives are already out for energy drinks in India. A recent survey by the Associated Chambers of Commerce and Industry of India states 71 per cent of adolescents in urban centres of India consume energy drinks, often leading to seizures, diabetic hazards, cardiac abnormalities and behavioural disorders. With its brand primarily catering to a hip, young image, as depicted on its website, Tzinga needs to ensure it doesn’t find itself in the line of fire if its products are used inappropriately.

Then, there is the spectre of a brand with deep pockets capsizing a newbie. The Indian landscape for energy drinks is fast getting crowded. Six months ago, Coca-Cola had launched its energy drink Burn. Other energy brands trying to jostle for space are PepsiCo’s Sobe, Power Horse and Goldwin Healthcare’s Cloud 9. Cunningly entwining energy drinks subconsciously with sex are JMJ Group’s XXX, as well as the recently-launched KS E, from the stables of Raymond’s Kamasutra brand. However, the real monster in the cupboard is, well, Monster. The Rahul Narang group has been in negotiations to bring the US brand to India. After its 2002 launch in the US, decades after Red Bull, the brand has already grabbed 29 per cent market share. There’s no saying what could happen if it decides to take a plunge into the Indian market with serious intent.

For now, though, Tzinga is the flavour to beat, not just for its undeniable value proposition in a Rs 25 energy drink, but also for its daring, infectious earnestness and down-to-earth values.

EXPERT TAKE: Josh Bornstein

An business is not the easiest venture to start. It can be very difficult for a start-up to hire the right talent and manage operations across the country. In India, distribution is the most important factor in eventual success. India is not like the US, where a company can land a deal with 7/11 or Walmart and reach a wide audience. Here, the retail landscape is very fragmented and there is intense competition for shelf placement.

When we look at in the space, we look at the complexity of the business, annuity, revenue streams and an ability to build brands. When I say annuity, what I’m referring to is if our customer is drinking our product every day or every other day and not once in a month or a few times a year.

The real challenge from the economics of the business is essentially, ‘How do I price a product with mass appeal, yet reach the point of sale at the lowest cost so you can make money?’ The guys at Tzinga have done a wonderful job of developing a product that has potential to meet all of these criteria.

Josh Bornstein, co-founder, Footprint Ventures

First Published: Mon, February 25 2013. 00:48 IST