MICROANALYSIS OF THE INDIAN SOFT-DRINK INDUSTRY

Made by: BHAVYA RAJ GANDHI

Acknowledgement

I would like to wholeheartedly thank my microeconomics professor Mrs Aditi Sawant for being the guiding light while conducting the analysis on the project. Her valuable insights and analysis skills helped me to conduct a comprehensive analysis of the soft drink industry.Statement of PurposeThe basic objective of the project is to analyze soft-drink industry based on various financial and microeconomic aspects. This is done through ratio analysis over a number of years comparing the performance of the company. .Following are the primary objectives of this assignment:

To know the present scenario of soft-drink industry in the Indian market.

To know about the consumers product awareness.

To know the opportunity in Indian market for betterment of sales and profits.

To analyze the services provided by the company to retailers and customers.

To analyze the duopolistic nature of the indian softdrink industry

To analyze the market pricing trends and how the competition in market affects price of the products.

INTRODUCTIONThe soft-drink industry comprises companies that manufacture nonalcoholic beverages and carbonated mineral waters or concentrates and syrups for the manufacture of carbonated beverages.Soft drinks are available in glass bottles, aluminum cans and PET bottles for home consumption. Non-alcoholic soft drink beverage market can be divided into fruit drinks and soft drinks. Soft drinks can be further divided into carbonated and non-carbonated drinks. Cola, lemon and oranges are carbonated drinks while mango drinks come under non carbonated category. Cola products account for over 60% of the total soft drink market and include popular brands such as Coca-Cola, Pepsi, and Thumps up etc. Non-cola segment constitutes for over 35% of the market.Until 1990s, domestic players like Parle Group (Thumps Up, Limca, Goldspot) dominated the soft drink market in India. However, with the advent of the MNC players like Pepsi (1991) and Coke (re-entered in 1993 after it was banned in 1977) in the early 1990s, the market control shifted towards them by the late 1990s.The per capita consumption of soft drinks in India is among the lowest in the world - 5 bottles per annum compared to the 800 bottles per annum in the USA. Delhi reports the highest per capita consumption in the country 50 bottles per annum. The consumption of PET bottles is more in the urban areas [75% of total PET bottle (plastic bottles) consumption] whereas the sales of 200ml bottles were higher in the rural areas. According to a survey, 91% of the soft drink consumption in India is in the lower, lower middle and upper middle class section.Last one century witnessed the entry of various soft drink companies but only few of them were able to survive. The major among them are COKE and PEPSI. These are the only two companies that has shared the whole market between them and left a very small share for the remaining ones. This made the word cola drink synonymous to the word soft drink.

The 50-bn-rupee soft drink industry is growing now at 6 to 7%annually. In India, Coke and Pepsi have a combined market share of around 95% directly or through franchisees. Campa Cola has a 1% share, and the rest is divided among local players. Industry watchers say, fake productsalso account for a good share of the balance. There are about 110 soft drink producingunits (60% being owned by Indian bottlers) in the country, employing about 125,000 people. There are two distinct segments of the market, cola and non-cola drinks. The cola segment claims a share of 62%, while the non-cola segment includes soda, clear lime, cloudy lime and drinks with orange and mango flavours.Soft and aerated drinkswere considered products for the middle class and the affluent. That segregation is no more valid. Soft and aerated drinks are consumed by all except thosewho cannot afford to buy any drink. An NCAER study says that 91% soft drink sales are made to the lower, middle and upper middle classes. The soft drink industry has been urging the government to categorise aerated waters (soft drinks) equitably with other consumer products of mass consumption and remove special excise duty.The industry estimates that the beveragemarket should grow at twice the rate of GDP growth. The Indian market should have, therefore, grown by atleast 12%. However, it has been growing at a rate of about6%. In contrast, the Chinese market grew by 16% a year, while the Russian market expanded at almost four times the rate of growth of the Indian market.

GROWTH OF SOFT-DRINK MARKET OVER THE YEARS IN INDIADemand: Past & Future

Yearmillion cases

1990-91105

1991-92115

1992-93125

1993-94135

1994-95150

1995-96165

1996-97180

1997-98194

1998-99209

1999-00225

2000-01243

2001-02262

2002-03279

2003-04291

2004-05310

2005-06330

2006-07359

2007-08373

2008-09388

2009-10403

2011-13479

METHODOLOGYThe data used to test the hypothesis is secondary data obtained from sources like: icicidirect.com nseindia.com moneycontrol http://mofpi.nic.in (ministry of food processing industries) http://in.finance.yahoo.com/q/bs?s=PEP&annual http://finance.yahoo.com/q/bs?s=KO+Balance+Sheet&annual

Market StructureProduct Variation

CompanyShare (%)

Cola Drinks:

Thumbs Up29

Coca Cola25

Pepsi18

Non-Cola Drinks:

Gold Spot2

Fanta9

Miranda8

Limca9

Overall Colas62

Lemon:

Cloud 97

Clear3

Orange17

Mango3

Differential competitor advantage analysis and Expected future strategies

This project concisely describes the various marketing strategies being adopted by the soft drink industry especially Coke and Pepsi.Soft drink industry throughout the world is dynamic and this is espoused by the fact that each and every industry is competing in order to gain as much market share as possible.The comparison between the two soft drink giants Coke and Pepsi is done by virtue of Differential competitor advantage analysis and Expected future strategies. Let us see as to how these giants are performing in this insidious globalization.

COMPETITOR CAPABILITIES MATRIX FOR SOFT DRINK INDUSTRYIn the table below, two soft drink industries are taken and critical analysis is done between them. To analyze competitor capabilities information is divided into five categories considering its ability to conceive, market and produce and players are rated accordingly. This comparison forms basis for differential competitor advantage analysis.

COKE PEPSI

FEATURES:

Bar weight10 FL OZ ( 300ml)10 FL OZ ( 300ml)

Calories121.25150

Carbohydrates (gm)33.7534.5

Flavors (numbers)22

Price/bottleRs 10Rs 10

PRODUCT CLAIMSAll foods and beverage can fit into healthy balanced diet when consumed in appropriate proportion.We offer beverages that resorts to the customers expectations and make it more enjoyable for them to lead healthier lives.

TARGET CONSUMERChildren, adults, younger generation and sports personality and celebritiesPeople from younger generation, sports personalities and celebrities

DISTRIBUTIONGrocery stores, retail stores, shops etc.Grocery stores, retail malls, shops etc.

BRAND POSITIONINGSweetened carbonated drinkSweetened carbonated drink.

DIFFERENTIAL COMPETITOR ANALYSISCOKEPEPSI

PARENT COMPANYCoca Cola CompanyPepsi Co

DEAL AMOUNTNot disclosedNot disclosed

TOTAL SALES450 million ( globally)324.58 million (globally)

PRODUCTSCOKA-COLA,DIET COKE,FANTA,MAAZA,LIMCA,THUMBS-UP,SPRITE, MINUTE-MAIDPEPSI, DIET PEPSI, MOUNTAIN DEW ,GATORADE ,7 UP

MANAGEMENTAtul Singh (CEO)Indra K Nooyi (CEO)

LATEST PRODUCTMINUTE MAID APPLENone

DISTRIBUTIONThrough retail malls, grocery shops , organized and unorganized retailsThrough retail malls, grocery shops, organized and unor

SPONSORSHIPVarious events such as cricket matches, movies, trade faires, college fests etc.Sports events, trade faires,college fests etc.

PRODUCTIONCompany produces syrup concentrate which it sells to bottlers through out the worldContains carbonated water,high fructose corn syrup,sugar, colorings, phosphoric acid, caffeine, citric acid and natural flavours

FOUNDEROriginated in 1886 in US by Dr.John S PembertonOriginated in North Carolilna by a young pharmacicist New Bern

EMPLOYMENT60004500

MARKET SHARE42.7%30.8%

BRAND AMBASSADORAamir Khan, Hritik RoshanShah Rukh Khan, Sachin Tendulkar, Mahendra Singh Dhoni

NUMBER OF BOTTLING PLANTS26( company owned), 14 (franchise owned)15( company owned), 28( franchise owned)

CURRENT AND FUTURE STRATEGIESCOKEPEPSI

OBJECTIVESTo refresh the world.To inspire moments of optimism and happiness.To create value and make a difference.To be the worlds premier consumer products company focused on convenient foods and beverages.

CURRENT STRATEGIESProduct innovation and huge spending on advertisement, cross training of mangers.More risk taking ability, rapid action with respect to changing market condition, finding new oppurtunities for new market.

FUTURE STRATEGIESExtensive spending on market research in order to determine the tastes and preferrances of the customers, CSR, product innovation, adoption of green revolution, product line extensions. Product line extensions,CSR, Brand extensions, product innovations, sound R&D department to develop products as per the tastes and preferrances of the customers.

Entry Barriers in Soft Drink MarketBefore coming on to the core topic of price strategy, we will discuss the factors that made the soft drink market a duopoly market.The several factors that make it very difficult for the competition to enter the soft drink market include:

The factors that made the duopoly soft drink market and that make it very difficult for the competition to enter the soft drink market include:Network Bottling:Both Coke and PepsiCo have franchisee agreements with their existing bottlers who have rights in a certain geographic area in perpetuity. These agreements prohibit bottlers from taking on new competing brands for similar products. Also, with the recent consolidation among the bottlers and the backward integration with both Coke and Pepsi buying significant percent of bottling companies, it is very difficult for a firm entering to find bottlers willing to distribute their product.The other approach to try and build their bottling plants would be very capital-intensive effort with new efficient plant capital requirements in 2009 being more than $500 million.Advertising Spend:The advertising and marketing spend in the industry is very high by Coke, Pepsi and their bottlers. This makes it extremely difficult for an entrant to compete with the incumbents and gain any visibility.Brand Image / Loyalty:Coke and Pepsi have a long history of heavy advertising and this has earned them huge amount of brand equity and loyal customers all over the world. This makes it virtually impossible for a new entrant to match this scale in this market place.Retailer Shelf Space (Retail Distribution):Retailers enjoy significant margins of 15-20% on these soft drinks for the shelf space they offer. These margins are quite significant for their bottom-line. This makes it tough for the new entrants to convince retailers to carry/substitute their new products for Coke and Pepsi.Fear of Retaliation:To enter into a market with entrenched rival behemoths like Pepsi and Coke is not easy as it could lead to price wars which would affect the new comer.SWOT Analysis:

Strength:PepsiCoke

PepsiCo brands enjoy a high-profile global presenceCoke brands enjoy a high-profile global presence

Pepsi owns the worlds 2nd Best-Selling Soft Drinks brandFour of the top five leading brand

Constant product innovationBroad-based bottling strategy

Aggressive marketing strategies using famous celebrities47% of global volume sales in carbonates

Weakness:PepsiCoke

Carbonates market is in declineCarbonates market is in decline

Pepsi is the strongest in North AmericaOver-complexity of relationship with bottlers in North America

They only the target young crowdExecution ability

Opportunities:Pepsi Coke

Increased consumer concerns with regard to drinking waterSoft drinks volumes in the Asia-Pacific region forecast to increase by over 45%

Growth in the functional drinks industryBrands like Minute Maid Light and Minute Maid Premium Heart Wise are positioned well with the Health-concerned market

Growth in RTD Tea , Asian Beverages and Healthier BeveragesUse distribution strengths in Eastern Europe and Latin America

Threats:PepsiCoke

Obesity and health concernsGrowing "health-conscience" society

Coca-Cola increases marketing and innovation spending to $400M globallyPepsiCos Gatorade, Tropicana and Aquafina are stronger brands

Relying only on North America.Boycott in the Middle East.

Protest against coke in India.

Various Cola Brands Products Available:Coca ColaPepsi

Limca (1971)Teem (1960)

Sprite (1999)Mountain Dew(1964)

Low calorie cola Tab (1963)Diet Pepsi (1964)

Diet Coke (1982)Lemon Lime Slice (1984)

Caffeine free coke (1983)Caffeine Free Pepsi Cola (1987)

Coca-Cola classic (1985)Sierra Mist (2000)

New Coke (1985)Mountain Dew Code Red (2001)

Cherry Coke (1985)Pepsi one (2005)

Thums Up (1977)7 up (1984)

Kinley (2001)Aquafina (2001)

Fanta (1993)Mirinda (1993)

Maaza (1993)Slice (1993)

Minute Maid Pulpy Orange (2008)Mountain Dew MDX (2005)

STASTICAL ANALYSIS OF PEPSI AND COCA-COLAMETHODS USED:

Liquidity Ratios- These ratios focus on the availability of cash to manage the day to day operations of the company. Current ratio =Total current assets/Total current liabilitiesThe current ratio of a company gives us a quick way to look at its current assets and current liabilities. March 12(1.39) March 11(1.29)March10(1.31)March (09)1.76

The current ratio has been stable over the years showing the creditworthiness of the firm

Quick Ratio -An indicator of a company's short-term liquidity.The quick ratiomeasuresa company'sability to meetits short-term obligations withits most liquid assets. The higher the quick ratio,thebetter the position of thecompany.

The quick ratiois calculated as:

Quick Ratio = (Current Assets -Inventories) / Current LiabilitiesMarch 12(0.58)March 11(0.47)March10(0.52)March 09(1.12)

The quick ratio is stable which shows the companys stability in paying off its short time liabilities

BALANCESHEETS

COKE-COLA

Annual Data 2009-2011All numbers in thousands

Period EndingDec 30, 2011Dec 30, 2010Dec 30, 2009

Assets

Current Assets

Cash And Cash Equivalents12,803,0008,517,0007,021,000

Short Term Investments1,232,0002,820,0002,192,000

Net Receivables4,920,0004,430,0003,758,000

Inventory3,092,0002,650,0002,354,000

Other Current Assets3,450,0003,162,0002,226,000

Total Current Assets25,497,00021,579,00017,551,000

Long Term Investments8,374,0007,585,0006,755,000

Property Plant and Equipment14,939,00014,727,0009,561,000

Goodwill12,219,00011,665,0004,224,000

Intangible Assets15,450,00015,244,0008,604,000

Accumulated Amortization- - -

Other Assets3,495,0002,121,0001,976,000

Deferred Long Term Asset Charges- - -

Total Assets79,974,00072,921,00048,671,000

Liabilities

Current Liabilities

Accounts Payable9,371,0009,132,0006,921,000

Short/Current Long Term Debt14,912,0009,376,0006,800,000

Other Current Liabilities- - -

Total Current Liabilities24,283,00018,508,00013,721,000

Long Term Debt13,656,00014,041,0005,059,000

Other Liabilities5,420,0004,794,0002,965,000

Deferred Long Term Liability Charges4,694,0004,261,0001,580,000

Minority Interest286,000314,000547,000

Negative Goodwill- - -

Total Liabilities48,339,00041,918,00023,872,000

Stockholders' Equity

Misc Stocks Options Warrants- - -

Redeemable Preferred Stock- - -

Preferred Stock- - -

Common Stock880,000880,000880,000

Retained Earnings53,550,00049,278,00041,537,000

Treasury Stock(31,304,000)(27,762,000)(25,398,000)

Capital Surplus11,212,00010,057,0008,537,000

Other Stockholder Equity(2,703,000)(1,450,000)(757,000)

Total Stockholder Equity31,635,00031,003,00024,799,000

Net Tangible Assets3,966,0004,094,00011,971,000

Liquidity ratio:

Current ratio:Year201120102009

Total assets254970001850800013721000

Total liabilities242830004191800023872000

Current ratio1.0490.4410.5744

Quick ratio:Year201120102009

Current assets254970001850800013721000

Inventories30920002820000219200

Liabilities242830002192000023872000

Quick ratio0.920.710.569

PEPSICO INDIA

View:Annual Data 2009-2011 All numbers in thousands

Period Ending31-Dec-201125-Dec-201026-Dec-2009

Assets

Current Assets

Cash And Cash Equivalents4,067,0005,943,0003,943,000

Short Term Investments358,000426,000192,000

Net Receivables6,912,0006,323,0004,624,000

Inventory3,827,0003,372,0002,618,000

Other Current Assets2,277,0001,505,0001,194,000

Total Current Assets17,441,00017,569,00012,571,000

Long Term Investments1,477,0001,368,0004,484,000

Property Plant and Equipment19,698,00019,058,00012,671,000

Goodwill16,800,00014,661,0006,534,000

Intangible Assets16,445,00013,808,0002,623,000

Accumulated Amortization- - -

Other Assets1,021,0001,689,000965,000

Deferred Long Term Asset Charges- - -

Total Assets72,882,00068,153,00039,848,000

Liabilities

Current Liabilities

Accounts Payable11,949,00010,994,0008,292,000

Short/Current Long Term Debt6,205,0004,898,000464,000

Other Current Liabilities- - -

Total Current Liabilities18,154,00015,892,0008,756,000

Long Term Debt20,568,00019,999,0007,400,000

Other Liabilities8,266,0006,729,0005,591,000

Deferred Long Term Liability Charges4,995,0004,057,000659,000

Minority Interest311,000312,000638,000

Negative Goodwill- - -

Total Liabilities52,294,00046,989,00023,044,000

Stockholders' Equity

Misc Stocks Options Warrants(116,000)(109,000)(104,000)

Redeemable Preferred Stock- - -

Preferred Stock- - -

Common Stock31,00031,00030,000

Retained Earnings40,316,00037,090,00033,805,000

Treasury Stock(17,875,000)(16,745,000)(13,383,000)

Capital Surplus4,461,0004,527,000250,000

Other Stockholder Equity(6,229,000)(3,630,000)(3,794,000)

Total Stockholder Equity20,704,00021,273,00016,908,000

Net Tangible Assets(12,541,000)(7,196,000)7,751,000

Liquidity ratio:

Current ratio:Year201120102009

Total assets728820006815300039848000

Total liabilities481540003589200047560000

Current ratio1.8491.9410.9344

Quick ratio:Year201120102009

Current assets728820006815300039848000

Inventories38270003372000219200

Liabilities481540003589200047560000

Quick ratio1.4341.210.8654

CONCLUSION BASED ON DATA ANALYSIS:

DATA COLLECTED THROUGH ORIGINAL SURVEY

1. How many members are their in your family.

A=1B=2C=3D=4E=5 OR MORE

08223040

2. How many members of your family drink soft-drink.

A=1B=2C=3D=4E=5 OR MORE

510153040

3. Among the following drinks,which one you prefer the most.

PEPSICOKE-COLACAMPA-COLAOTHER

524512

4. When do you consume soft drink ?

ABCD

PORTRAYAL BY MEDIATASTEREFRESHMENTADDICTION

2918467

5. What do you think, in the soft drink industry which company uses advertising most efficiently to maximize their sales.

AVERAGE OF % PEOPLE FAVORING PEPSI/COKE-COLA 2009, 2010,2011PEPSICOKE-COLA

4852

CONSUMER QUESTIONAIRE USED:

SAMPLE CONSUMER QUESTIONNAIRE

(1) How many members are there in your family?(a) One (b) Two (c) Three (d) Four (e) more than four(2) How many members of your family drink soft-drinks?(a) One (b) Two (c) Three (d) Four (e) more than four(3)Among the following drinks, which one you prefer the most?(a) Pepsi (b) Coca-cola (c) Fruit juice (d) lemon juice (e) Others(4) Which one among the following you prefer to buy for your family?Plz. Rank as per your Choice.(a) 200 Ml. Glass Bottle ( )(b) 300 Ml. Glass Bottle ( )(c) 500 Ml. PET Bottle ( )(d) 1.5 Lts. PET Bottle ( )(e) 2 Lts. PET Bottle ( )(5) When do you consume soft drink? Please rank the following.(a)At the time of watching TV ( )(b) With the meal ( )(c) When you go out for movies ( )(d) Whenever you feel like consuming it ( )(6)Will you buy soft drinks, if available at your door Step?(A)no(b)yes(c)if no then why (7) Among the following promotion schemes, which five you prefer themost?(a) Coupons (b) premium (gifts) (c) Price off (d) Prizes(e) Samples (f) Cash refunds (g) Co-Branding (h) free liquid(i) any other

(8) Among the following, which one is the best door to door deliverychannel of PET please rank?(a) Vegetable vendor(b) Hawkers(c) The milk man(d) Others (please specify)(9) what you think, soft drink industry is making use of visual merchandising to increase their sales?(a) excellent (b) very good(c) good(d) fair(10) are you aware of all product of pepsico?(a) yes (b) no (c)if no then why(11)give your comment

Personal DetailsName :Age :

Pricing Pepsi V/S Coke-Cola

Coke PriceCoke was a company ruling the markets before Pepsi entered. Earlier the price of coke was cost based i.e. it was decided on the cost which was spent on making the product plus the profit and other expenses. But after the emergence of other companies especially the likes of Pepsi, Coca-cola started with a pricing strategy based on the basis of competition .Nowadays more expenses are spent on advertising by soft -drink companies rather than on manufacturing .Coke has brought in a revolution especially in Indian markets with the Rs.5 pricing strategy which was very famous. It was the first company to introduce the small bottle of Coke for just Re.5 .This campaign was very successful especially with the price conscious Indian consumers. Even today most prices of Coke are decided on the basis of the competition in the market.

Pepsi PricePepsi again decides its price on the basis of competition .The best think about the company Pepsi is that it is very flexible and it can come down with the price very quickly. The company is renowned to bring the price down even up to half if needed. But this risk taking attitude has also earned Pepsi losses. Though lowering the price would attract the customers but it would not help them cover up the cost incurred in production hence causing them losses. This was the situation earlier but now Pepsi is a full-fledged and growing company. It has covered all its losses and is now growing at a rapid rate.

DATA INTERPRATATION & CONCLUSIONAfter comprehensive analysis of the pricing strategy of Coke and Pepsi, we found that there is not much variation in there price. Being most of the soft drink market is covered by these two major brands, its a duopoly market. The price data of last few years of various brands of these two giants shows that instead of moving into the price war by reducing the price, they try to launch the parallel product to compete with the others product. In several pockets of the country, the bruising cola wars between Coca-Cola India and Pepsi has seen a rollback in prices of colas and other flavored drinks. According to industry analysts, the current prices of these soft drinks in select markets are the same as what it was way back in 1997. Thus giving the customers the best value.

RECOMMENDATION -

BIBLIOGRAPHYhttp://www.tataglobalbeverages.com/docs/documents/tatatea-sustainability-report-2008-09.pdf?sfvrsn=0http://www.just-drinks.com/news/leap-in-q2-profits-saves-tata-global-beverages-h1_id108612.aspxhttp://www.business-standard.com/article/management/kit-non-alcoholic-beverage-market-in-india-111101700049_1.htmlhttp://en.wikipedia.org/wiki/Tata_Global_Beverageshttp://www.moneycontrol.com/news/stocksviews/tata-global-beverage-should-goto-rs-153-159-manghnani_828146.htmlhttp://www.moneycontrol.com/news/business/tata-starbucks-open-1st-storeexpansion-may-be-tough_771276.htmlhttp://en.wikipedia.org/wiki/Tata_Starbuckshttp://www.investopedia.com/terms/q/quickratio.asp#axzz2LWOCZLFwhttp://www.investopedia.com/terms/l/leverageratio.asp#axzz2LWOCZLFwhttp://www.investopedia.com/terms/d/debtequityratio.asp#axzz2LWOCZLFw