Coke N Pepsi

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CASE 13 Coke and Pepsi Learn to Compete in India
THE BEVERAGE BATTLEFIELD
In 2007, the President and CEO of Coca-Cola asserted that Coke has had a rather rough run in India; but now it seems to be getting its positioning right. Similarly, PepsiCo’s Asia chief asserted that India is the beverage battlefield for this decade and beyond. Even though the government had opened its doors wide to foreign companies, the experience of the world’s two giant soft drinks companies in India during the 1990s and the beginning of the new millennium was not a happy one. Both companies experienced a range of unexpected problems and difficult situations that led them to recognize that competing in India requires special knowledge, skills, and local expertise. In many ways, Coke and Pepsi managers had to learn the hard way that “what works here” does not always “work there.” “The environment in India is challenging, but we’re learning how to crack it,” says an industry leader.

THE INDIAN SOFT DRINKS
INDUSTRY
In India, over 45 percent of the soft drinks industry in 1993 consisted of small manufacturers. Their combined business was worth $3.2 million dollars. Leading producers included Parle Agro
(hereafter “Parle”), Pure Drinks, Modern Foods, and McDowells. They offered carbonated orange and lemon-lime beverage drinks. Coca-Cola Corporation (hereafter “Coca-Cola”) was only a distant memory to most Indians at that time. The company had been present in the Indian market from 1958 until its withdrawal in 1977 following a dispute with the government over its trade secrets. After decades in the market, Coca-Cola chose to leave India rather than cut its equity stake to 40 percent and hand over its secret formula for the syrup.

Following Coca-Cola’s departure, Parle became the market
leader and established thriving export franchise businesses in Dubai, Kuwait, Saudi Arabia, and Oman in the Gulf, along with Sri Lanka. It set up production in Nepal and Bangladesh and
served distant markets in Tanzania, Britain, the Netherlands, and the United States. Parle invested heavily in image advertising at home, establishing the dominance of its flagship brand, Thums Up.

Thums Up is a brand associated with a “job well done” and personal success. These are persuasive messages for its target market of young people aged 15 to 24 years. Parle has been careful in the past not to call Thums Up a cola drink so it has avoided direct comparison with Coke and Pepsi, the world’s brand leaders. The soft drinks market in India is composed of six product segments: cola, “cloudy lemon,” orange, “soda” (carbonated water), mango, and “clear lemon,” in order of importance. Cloudy lemon and clear lemon together make up the lemon-lime segment. Prior to the arrival of foreign producers in India, the fight for local dominance was between Parle’s Thums Up and Pure Drinks’ Campa Cola. In 1988, the industry had experienced a dramatic shakeout following a government warning that BVO, an essential ingredient in locally produced soft drinks, was carcinogenic. Producers either

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had to resort to using a costly imported substitute, estergum, or they had to finance their own R&D in order to find a substitute ingredient. Many failed and quickly withdrew from the industry. Competing with the segment of carbonated soft drinks is another beverage segment composed of noncarbonated fruit drinks. These are a growth industry because Indian consumers perceive fruit drinks to be natural, healthy, and tasty. The leading brand has traditionally been Parle’s Frooti, a mango-flavored drink, which was also exported to franchisees in the United States, Britain, Portugal, Spain, and Mauritius.

OPENING INDIAN MARKET
In 1991, India experienced an economic crisis of exceptional severity, triggered by the rise in imported oil prices following the first Gulf War (after Iraq’s invasion of Kuwait). Foreign exchange reserves fell as nonresident...
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