If you listen to any major fund manager on the news these days, one of the dominant themes they will repeat is betting on the market leader. While that theme might certainly be playing out in parts of the market, there is a segment where David is fighting back.
In today's post, we look at the market share dynamic for the beverage firms in India and analyze the reasons for the differences in growth.
What is the Market share for Coca Cola and Pepsi in India?
According to the latest industry report, while Coca-Cola's market share has grown to 49.9%, PepsiCo is lagging with a 19.6% share, with regional brands now reasonably higher at 23.9% share, with other players capturing 6.5% share. While the market share of Coca Cola and the regional brands went up 0.5% and 1.2% respectively, Pepsi noted a 2.2% drop in market share.
This is a strong exception to the norm, where larger players have consistently taken away share from the smaller peers, allowing them to consistently grow at rates significantly higher than the industry average. This has been supported in part by the regulatory changes that have come into play that affect the competitiveness as well as a preference of the customer to go with more trusted brands.
How are local companies beating Big Cola?
Indian local beverage companies are using a number of steps with channel partners and customers to win them over. With customers, they solve the major pain points of price and availability and go the extra mile with hyper localization. With channel partners, they use either higher margins or bulk long term contracts to win long term. Some of these are legitimately strong competitive edges that larger players might find hard to beat.
Let's look at this both from the customer and the channel partner side. On a hot summer day, somewhere in rural India, you long for a drink. In a market where most bottles are priced similarly, the most prominent decision-making criteria for you would be distance. While both industry leaders have focussed aggressively on building a distribution network via their respective Indian units, the regional players have been nimble enough to grow aggressively in markets left out. The next important factor is a very important moat, but unlikely to be considered one. Hyper-localized product. The benefit of being small and closer to the customer is that you are more in sync with what the customer wants and can quickly adjust to their needs. While both Coke and Pepsi have tried to adopt this into how they target niche Indian markets with jaljeera and other varients, their efforts have mostly been lagging domestic players. There is reason to believe that this is one area where the domestic players will continue to retain an advantage. On the price front, things begin to get a bit dicey. While they do maintain a price point that is extremely competitive, it sometimes comes at the expense of quality. Channel checks about the quality of some, not all, of the regional players report people stating that these taste like diluted versions of the actual drink!
In places where they have to compete with big Cola head-on, these firms strengthen attractiveness to the seller by either offering them a higher margin (smaller shops) or increasing the speed at which the product is sold of their shelves (retail chains) with 1+1 or other offers. Attractive partnerships with stable consistent partners, like the Indian railways, for example, have also helped players in the past.
With increasing health consciousness likely to dampen urban beverage spend in the medium term, the battle for rural and small-town India becomes even more important. It will certainly be interesting to watch this battle play out, and the measures and countermeasures each uses to win.
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About the Author: The post is written by Ganesh Nagarsekar. Ganesh is a graduate from IIM Calcutta and has worked with J.P. Morgan and Goldman Sachs, before founding GSN Invest.
These large players have huge bargaining, there has been dupoly in this space for a while now. I don't think any local player in the market can match the quality at similar price point as they are too small to do so. I feel the day these two big players see a local firm growing significantly and perceive it to be a threat the two companies would pound to acquire the local player.
Agree with the localization strategy. Just wanted to check if Pepsi or Coke is in talks with any of the local players for acquisition. On the quality front, why have been the big players not able to match the quality at a similar price point. I assumed that they might have the benefit in terms of scale in procurement of raw material and packaging cost. Also, as health consciousness is going up, are we seeing a trend where the traditional model of centralized manufacturing and processing is giving way for more localized and small scale manufacturing.