Friday August 12 2011
COCA-Cola is building a commanding share of the soft drinks market in China but is fighting a tough battle for supremacy with rival PepsiCo in India.
Coca-Cola’s second quarter volumes in India, a market with “immense potential” according to the company’s chief Muhtar Kent, grew 8%, its 20th consecutive quarter of growth there. However, PepsiCo saw 17% beverage growth in India in the same quarter.
“Pepsi is investing heavily in India and trying to chip away at Coke’s market share,” Philip Gorham of analysts Morningstar told FOODNEWS. David Silver of Wall Street Strategies agreed, telling FOODNEWS. “Pepsi has been investing in India heavily, just like Coke has been investing in China.”
“I don’t think trailing its rival is of much concern for either company. I have gotten the sense that Coca-Cola is larger [in India] so the spending is paying off for Pepsi, but from a smaller base.”
Coca-Cola said its slower growth in India was due to its 2020 vision which sets out that retail prices need to rise to meet growing commodity costs and raise value share as well as volume, India’s Economic Times reported, adding that Coke says its prices have gone up in India by 9-15% in the past 6-7 months.
Meanwhile, PepsiCo has increased its portfolio pricing by only 5-6%, and is making a concerted effort to target the value segment for people on low incomes. It is considering selling carbonated soft drinks for as low as INR5 (USD0.11) per bottle or carton(FOODNEWS 17 June).
“Coke holds more market share in India than Pepsi, so Pepsi is quite capable of being aggressive on pricing and distribution to take some share, so Coke needs to guard against that,” Gorham said. “However, brand loyalty is very regional in India, which tends to make shares (if not volumes) quite stable.”
In India, PepsiCo has raised capacity, expanded its sales force by 25% and distributed more coolers to increase its reach by 20%, supported with aggressive marketing. The company recently announced it is building a new soft drink plant in the Punjab to add to its 36 existing bottling sites in India.
Both companies have had to combat tax increases on soft drinks in India. The Economic Times cited the example of Delhi, which has increased VAT on soft drinks to 20% from 12.5%.
Morningstar deemed Coca-Cola’s volume growth in China of 21% in the second quarter as “staggering” following as it does double-digit growth in the same quarter of 2010. This was ahead of Pepsi’s China beverage volume growth of 13%.
Analysts believe Coke’s success in China is aided by its reach – it has over 40 facilities in the country – and the fact it has moved quickly to respond to local conditions, as with the launch of Minute Maid Pulpy.
“Coke is well ahead in China, and Pepsi is in the early stages of building out its infrastructure in western provinces, where Coke is already strong,” Gorham said. “So Pepsi is playing catch-up. Again, Coke’s numbers are lumpy, and you’ll see very big swings in their China volume numbers quarter-over-quarter if you go back a few quarters.”
This ‘lumpiness’ was most pronounced in Q4 2010, when Coke experienced a 3% decline in Chinese volumes (see graph). Coke said at the time: “It is not uncommon to see noticeable volume swings in China from quarter to quarter. This is especially true between the fourth and first quarter of every year, given the fluctuating end-of-year trading activity driven by the varied timing of the Chinese New Year.”
In the second quarter of this year, Coke drove carbonates growth of 23%, while Minute Maid Pulpy, growing at 36%, powered juice. Minute Maid pulpy, launched in China in 2005, is Coca-Cola’s first billion dollar brand to emerge out of China.
From 2006-10, sales of soft drinks in China, including soda, juice and bottled water, almost doubled to USD42 billion, according to Euromonitor International. At the end of 2010 Coca-Cola had a 17% market share, ahead of PepsiCo’s 6%. In between the two giants are domestic players, Tingyi Holding Corp with a 13% share, and Wahaha Group with 7%.
