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Coke and Pepsi - Case Study in the Indian Business Environment
- 2. CONTENTS 1 Acknowledgement and Preface 2 Introduction 3 CoCa-Cola and Pepsi Co. 4 Entry and Exit of Coca Cola in India 5 Campa Cola and Thumps Up come in existence 6 Entry of Pepsi 7 Re entry of Coca-Cola 8 Pepsi and Coke – Pesticide Controversy 9 Result 10 Leading brands in Indian Market 11 Bibliography
- 3. INTRODUCTION In the modern urban culture consumption of soft drinks particularly among younger generation has become very popular. Soft drinks in various flavors and tastes are widely patronized by urban population at various occasions like dinner parties, marriages, social get together; birthday celebration etc. Children of all ages are especially attracted by the mere mention of the word soft drinks. The so-called competition for this product in the market is different from other products. Mass media, particularly television, has contributed to a large extent to the ever growing demand for soft drinks. The attractive jingles and sports make the large audience remember the brand at all times. In today’s highly competitive market place, two players have dominated the industry; The New York based Pepsi Company Inc. and the Atlanta based Coca- Cola. Throughout the globe, these major players have been battling it out for a bigger chunk of the ever –growing soft drink market. This battle has been witnessed in India too, between these two giants.
- 4. COCA – COLA It was invented in May, 1886 by Dr. John .S. Pemberton in Atlanta, Georgia, United States of America. Coca Cola offers a portfolio of world class quality sparkling and still beverages, starting from Coca Cola to over 400 soft drinks, juices, teas, water and energy drinks. The most successful brands are – Coca Cola, Diet Coke, Sprite and Fanta. With operations over 200 countries it has a workforce of 55,000 employees and serves over 1.7 billion servings each day. PEPSI Pepsi was first developed by Caleb Bradham, a pharmacist and industrialist from New Bern, North Carolina, in 1898. As the cola progressed in popularity, he created the Pepsi-Cola Company in 1902 and registered a patent for his recipe in 1903. The Pepsi-Cola Company was first incorporated in the state of Delaware in 1919. Currently, PepsiCo is one the largest companies in the U.S. It figures amongst the largest 15 companies worldwide according to the number of employees hired. It has a U.S. Fortune rank of 50. Pepsi is bottled in nearly 190 countries. PepsiCo is a world leader in snacks, foods and beverages with revenues of more than $43 billion. It consists of many companies amongst which the prominent once are Pepsi-Cola, Frito-Lay and Pepsi Food International. The group is presently into two of the most profitable and growing industries namely, beverages and snack foods. It has scores of big brands available in nearly 150 countries across the globe.
- 5. ENTRY AND EXIT IN INDIA – COCACOLA Coca Cola entered India in 1967. In 1977, the Janata government led by Moraji Desai came to power and launched the Sixth Five-Year Plan, which aimed to boost the agricultural production and rural industries. Seeking to promote economic self-reliance and indigenous industries, the government wanted multi-national corporations to go into partnership with Indian corporations. At that time Coca-Cola was India's leading soft drink when the new government ordered the company to dilute at least 60% of its stake in its Indian unit as required by the Foreign Exchange Regulation Act (FERA) of 1973 and also turn over its secret formula for Coca-Cola. The policy proved controversial, diminishing foreign investment and led to the exit of high-profile corporations such as Coca-Cola and IBM from India.
- 6. CAMPA COLA AND THUMPS UP COMES IN EXISTENCE After Coca Cola left the Indian market due to problems with Indian Government, the Indian Government decided to start a local brand to meet the demand for soft drinks in the country. Pure drinks group was started by Padma Sri late Sardar Mohan Singh in 1942, and in 1950 they started bottling Coca- Cola across India. In 1978, when Coca Cola left India, they started bottling their own brand ‘Campa Cola’. Thums Up was introduced in 1977 to offset the expulsion of The Coca-Cola Company from India. The Parle brothers, Ramesh Chauhan and Prakash Chauhan, along with Bhanu Vakil, launched Thums Up as their flagship drink, adding to their portfolio of older brands Limca (lime flavour) and Gold Spot (orange flavour). Thums Up enjoyed a near monopoly with a much stronger market share, often overshadowing domestic rivals like Campa Cola, Double Seven, Dukes and United Breweries Group's McDowell's Crush. According to statistics Parle’s Thums Up market share kept increasing since 1983 (43%) to 1990 (70%), while its chief rivals share had been declining.
- 7. ENTRY OF PEPSI Pepsico saw the opportunity to enter the Indian market after Coca- Cola departed. In their first attempt in 1985, Pepsico tried to join hands with one of India’s leading business house, the R P Goenka group, to begin operations in the country. They put forward a deal to promote the development and export of Indian agro- based products, and in turn get permission from central government to import cola concentrate and to sell a Pepsico brand. This request was rejected on the grounds that the import of concentrate could not be agreed to and the use of foreign names were not allowed. In their second attempt in 1988, Pepsico put forward a very impressive offer. They promised to create employment opportunities for about 50,000, make 75% of the total investments in food and agro processing, bring advanced technology and 50% of total produce to be exported. PepsiCo gained entry to India in 1988 by creating a joint venture with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. This joint venture marketed and sold Lehar Pepsi until 1991, when the use of foreign brands was allowed; PepsiCo bought out its partners and ended the joint venture in 1994.
- 8. RE ENRTY OF COCA COLA The Coca-Cola Company re-entered India through its wholly owned subsidiary, Coca-Cola India Private Limited and re-launched Coca-Cola in 1993 after the opening up of the Indian economy to foreign investments in 1991. However, Coke's reentry was based upon several commitments and stipulations which the company agreed to implement in due course. One such major commitment was that Hindustan Coca-Cola Holdings would divest 49 per cent of its shareholding in favor of resident shareholders by June, 2002. As the company had returned to India after a gap of 16 years, many local brands had emerged till then. It acquired ownership in the Parle Group which gave the company instant ownership to the popular brands likes Thumps Up, Goldspot, Limca and Mazza. The deal not only gave manufacturing, bottling, and distribution assets to Coke but also a strong consumer preference. Jayadev Raja was made the first Chief Executing Officer of Coca Cola India. Access to 53 of Parle’s plants and a well set bottling network, gave Coca Cola Company an excellent base for rapid introduction of the company’s international brands.
- 9. PEPSI AND COKE-PESTICIDE CONTROVERSY-2003 - 2006 The 2 international brands Pepsi and Coca Cola faced a new challenge when the local governments placed a ban on their products following a report by an environmental group claiming the sodas contained high levels of pesticide. On August 5, 2003, The Centre for Science and the Environment (CSE) issued a news release which stated that “The soft drinks brands sold contain a deadly cocktail of pesticides residue.” The CSE, a New Delhi based research and advocacy group that aims for sustainable growth, based its accusations on tests conducted by the Pollution Monitoring Laboratory in April, 2003. During the tests, pesticide residue was 24 times above limits set by the Bureau of Indian Standards in 57 samples tested. In one bottle of Coca-Cola bought in Calcutta, the level of the carcinogenic pesticide Lindane exceeded the bureau’s standards by 140 times. The pesticides – Lindane, DDT, Malathion and chlorpyrifos are responsible for cancer, damage to the nervous system and reproductive system, birth defects, and severe disruption of immune system. Coca Cola India president and CEO Sanjiv Gupta argued against the allegations of CSE and questioned their testing method. This dispute had stoked a fresh media maelstrom and had fanned protests across several regions.
- 10. The state of Gujarat and Madhya Pradesh, had banned the sale of the soft drinks in schools and government offices. Similar bans were announced by state governments in the northern states of Rajasthan and Punjab a week before Lawmakers from the opposition Bharatiya Janata Party called for a nationwide ban. Protesters in Mumbai and Kolkata defaced Pepsi and Coke ads and burned placards depicting soda bottles. Public had gone furious and protest for Coke and Pepsi to leave India had begun. Soon, sales dropped by 30 – 40%. Both Coke and Pepsi published newspaper advertisements to spread message that pesticide levels in their products are below permissible levels and less than those detected in other foods, such as tea, fruits and dairy products.
- 12. RESULT Repeated tests were conducted and on August 21, 2003, the then Minister of Health and Family Welfare, Sushma Swaraj announced that the samples did not contain unsafe levels of pesticides. The Joint Parliamentary Committee (JPC) investigating pesticide contamination in soft drinks and beverages tabled its final report in Parliament in 2004, corroborating the findings of the Centre for Science & Environment (CSE) that leading Coca-Cola and Pepsi brands contained hazardous pesticides. The efforts of the Government of India have led to the establishment of stricter norms that are on par with the best in the world. 2 years later, Coca Cola hiked prices in India by 10-15 percent. The reason given was price increases to cover rising raw material and distribution costs and the lingering effects of the pesticide allegations which drove decline in sales.
- 13. LEADING BRAND IN INDIAN SOFT DRINKS MARKET GOLD SPOT: This orange colored carbonated soft drink was introduced in the early 1950s, and acquired by the Coca-Cola company in 1993. Its tangy taste has been popular with Indian teenagers. LIMCA: This thirst-quenching beverage features a fresh and light lemon-lime taste. The Limca brand was introduced in 1971 and acquired by the Coca-Cola company in 1993. MAAZA: Maaza, launched in 1984 and acquired by the coca-cola company in 1993, is a non carbonated mango soft drink with a rich, juice & natural mango taste. THUMPS UP: In 1993, the Coca-Cola company acquired this brand, which was originally introduced in 1977. Its strong and fizzy taste makes it unique carbonated Indian cola. As of February 2012, Thums Up is the leader in the cola segment in India, commanding approximately 42% market share and an overall 15% market share in the Indian aerated waters market. APPY FIZZ – It is a product by Parle Agro, introduced in India in 2005. Appy Fizz consists of carbonated apple juice, and is used as the basis for cocktails and is a popular drink. After the success of Appy which was clean apple juice, Parle launched its sequel product as Grappo Fizz, which is a carbonated grape juice. RASNA - Rasna is a soft drink concentrate brand owned by Pioma Industries which is based in Ahmedabad, India. It was launched in mid-seventies but started gaining popularity in the eighties when the market was dominated by carbonated soft drinks like Thums up, Gold Spot and Limca. As of 2009, Rasna had a 93% market share in the soft drink concentrate market in India.
- 15. According to 2012 reports, Sprite has a market share of 14 per cent while Thums Up has a 15 per cent share. Following the two Coca Cola brands, Sprite and Thums Up, is Pepsi, which has a 11.2 per cent market share. Sprite is also the largest selling sparkling (carbonated) soft drink brand in China as well, according to news reports. Brand Coke itself follows Pepsi with a 7.5 per cent share. Several other brands such as Fanta and Mirinda with a similar share of the market as Coke jostle for the fourth place in terms of share. Sprite, launched its new summer campaign with a tagline of ‘chalo apni chaal’ in summer 2012. It continued with its campaign which targets the Indian youth.
- 16. CONCLUSION There are still a lot of issues that Coke and Pepsi need to resolve when it comes to their image abroad and in India. They both still represent the west, but they need to become better adapted to the different environments they decide to become part of. They need to not just be able to market their product efficiently; they need to show some responsibility when things start to go sour for them. The Indian people continue to steadily buy and consume soft drinks. However, Indians in general are consuming a wider variety of beverages and Coke and Pepsi should be willing to expand the options. They already have some fruit sodas, and some bottled water markets, but potential for introducing fruit cocktails and other beverages do exist in the market. Coke and Pepsi still continue to align themselves with brands, celebrities, sports, and lifestyles that the Indians find appealing. Both the companies need to continuously check on their products to make sure they are safe, and continue to be environmentally and morally sound with their plants, operations, distribution, and products in general.
- 18. THE END