18 Mar 2016 19:08 IST

Is the fizz in the soft drink market evaporating?

Indian brands seem to be doing better than their global counterparts in the segement

I stopped drinking carbonated soft drinks (CSD) about eight years ago. It coincided with the decision to go low on alcohol. But sometime last year, there was a slip in my resolve. I took a swig of Bovonto, a popular CSD brand in Tamil Nadu. My friends had recoiled in horror when I admitted to not having tasted the drink, which has a mix of grape and cola flavour. So to become socially acceptable again, and to satisfy my curiosity, I gave in to Bovonto.

Interestingly, the CSD market in the country is showing a similar trend. While multinational biggies such as Coca Cola and Pepsi are struggling with slowing demand, regional brands like Bovonto seem to be going strong.

Earlier this week, a leading business daily reported that 65 employees at Coca Cola’s bottling unit Hindustan Coca Cola Beverages have opted for the voluntary retirement scheme. The US giant has shut a few of its bottling units as demand for the iconic drink stagnates in India. The company plans to eventually sell the units.

At the same time, Bovonto’s maker Kalimark has embarked on an ambitious expansion plan, including an investment of ₹150 crore, almost equal to its annual turnover of ₹160 crore. Growing at a healthy rate of 25 per cent every year, the company has launched a range of soft drinks as it aims at an annual turnover of ₹1,000 crore in a few years. Bovonto brings in 95 per cent of Kalimark’s revenues.

Different estimates

According to research firm Euromonitor, the overall beverage market in the country will continue to grow as consumers search for a respite from long summers. “However, categories such as carbonates will negatively affect overall growth and, in turn, affect the soft drinks forecast because of its sheer size, both in value and volume terms,” it says in a 2015 report on the industry.

Industry estimates of the overall soft drink market vary, with some of the studies putting the size at ₹65,000 crore. The size of the CSD segment, again depending on the study one quotes, ranges from ₹14,000 crore to ₹25,000 crore.

Though Pepsi and Coca Cola (with market leader Thumbs Up from its stable) make up for over three-fourths of this market, their growth seems to have peaked. On the other hand, their regional peers are growing in high double-digits.

Local flavour

While in Gujarat, Sosyo has cornered over a quarter of the market, in Uttar Pradesh, regional brands such as Jayanti have a share of over 20 per cent. Similarly, in Delhi, the AAP cola (similarity to the ruling party in the Capital State is not coincidental) is doing well.

These regional brands are at least 20 per cent cheaper than their bigger American rivals. And, unlike Pepsi and Coca Cola, the Sosyos and Bovontos depend on word-of-mouth marketing, rather than on expensive celebrity endorsements.

For the big two from the US, the slowdown in their growth in India will be a matter of concern. On an average, an Indian consumes three litres of soft drink in a year, much lower than the US average of 90 litres, and even less than what our neighbours in Pakistan drink, 16 litres. Even as consumption in other global markets peak, the companies depend on emerging markets like lndia to increase volumes.

There’s still hope

But there is a silver lining. Akin to the global trend, the seemingly healthier drinks such as fruit juices are doing well in India. The ₹1,100-crore market is growing at 35-40 per cent per year. While Coca Cola wants to make its Maaza a $1-billion brand by 2023, Pepsi introduced a new hydration drink named Revive, which promises to fill its buyer with vitamins at every sip.

Another big driver of growth will be bottled waters. The category, which is dominated by Bisleri, Pepsi and Coca Cola, had sales of 12 billion litres in 2015, compared to 3 billion litres of CSD. And it continues to grow at over 20 per cent every year.

I will be glad to contribute to the growth of this category.