Something has been concerning me as a consumer because I have been using Diet Coke as well as Diet Zero and Coca-Cola Zero for the longest time. Does it make me any more prone to cancer given the reports that we have been hearing?
Arnab Roy: An important question. Let me actually open a nice cold can of Diet Coke. So two things; the ingredient in question is aspartame, which is there in Diet Coke. It does not exist in Coke Zero. So that is one thing. Aspartame, very interestingly, is one of the world’s most researched food ingredients. These concerns about aspartame are not new; they have been going on for the last 30 years. And across all the continents, most universities and most labs have done extremely detailed researches on this ingredient. And every time it has come out as completely safe. That is one.
Secondly, if you actually go through the report of what came out, it does not say that aspartame causes cancer. It essentially says that if you have, say, around 15 to 20 products with aspartame in one go, you are at the same risk level as, for example, aloe vera or red meat or going to a barber shop. If you go through the report, you have to get into the details. So you should not absolutely, worry about it.
If you like your Diet Coke, like millions around the world do, just go and continue to have it.
So is it fair to say that the product is being produced and distributed as widely as ever?
Sundeep Bajoria: We continue to expand on choices that we offer to the consumers. So there has been no stoppage or any slowdown on our production or distribution of any of our products. Rather, as consumers have been opting for zero sugar and lower sugar choices, we have been expanding it.
How have the last few months been for you? It was an erratic summer and erratic monsoon; difficult times?
Sundeep Bajoria: If I look at the longer term, I think we are entering into this super cycle where the beverages and the soft drinks within that, have been gaining significantly ahead of the rest of the FMCG. Every few years, we see summers which have a lot of rains. This was one of those summers where we were challenged but the work that we have started to do around recruiting more consumers, getting into more households, being present in more stores, actually gives us an edge. That is how we continue to grow, even through a very difficult summer. And as we get out of summer, the journey becomes easier, yes.
But you have still managed to do a double digit volume in the last few months. And I am guessing it is likely to pick up with the World Cup lined up?
Arnab Roy: Absolutely. I think as Sundeep said, yes, I think there was a little bit of a challenge in one or two months but we still are on track to meet all our targets for this year.Anisha Jain: And what are those targets?
Arnab Roy: They are pretty good targets, pretty strong targets because India is considered as one of the most important growth markets around the world. The targets are pretty strong. But we feel very confident that we will be okay on those. But yes, as I said, the momentum is very good. And as we head into Q3 and Q4, we have the interesting tailwinds of both the World Cup and also a lot of festivals going on.
Over the last two years, what we have been trying to do is to ensure that we are not just seen by consumers as summer products but products that can be enjoyed throughout the year. And clearly, we can see that the seasonality, which used to be there, is flattening out in a very encouraging way.
Sundeep Bajoria: Let me build on that. If I look at what is happening within the Indian consumer space, historically, we have for long been associating packaged beverages with summer, with heat. And the reality of the Indian consumer was that most of our celebrations and festivals were in the second half. The festivals are the time for consumption.
They are the time for celebration. Beverages have to be part of that. That is what we have repositioned on how to participate to celebrate all the different festivals of India. This year is truly special with the World Cup, with the festivals coming along and a longer extended time for the festivities. So absolutely.
So is double digit volume growth for the full year a realistic target?
Sundeep Bajoria: Absolutely.
But since you are talking about the World Cup and Coca-Cola has been synonymous with those big, momentous ads, what should we look forward to when it comes to the World Cup, like, taste the thunder or thanda matlab Coca-Cola? Those have become the taglines that you always associate the product with. What more is lined up with the World Cup coming in?
Arnab Roy: Two or three things. As you rightly said, sports and sports events are a part of our DNA because I think they give very strong anchors to activate not just consumers but also all our key customers, traditional trade, modern trade, both and also have partnerships with our bottlers. It is a very nice ecosystem to be a part of. And whether it is the FIFA World Cup or Olympics or the FIFA Women’s World Cup that is being activated in some parts around the world, the ICC is going to be a big event for us. It happens to be the second largest sporting event in the world.
It is important for us, but also in markets like Pakistan, Bangladesh and South Africa. So you can expect to see a lot of interesting activation. To be very honest, what used to happen 10 years ago is that you probably had one nice, big, iconic television commercial. That is over and we have been speaking about it in a lot of interactions.
As we move away from a TVC-heavy plan to a wholly integrated plan, which will have a lot of work around the shopper marketing stuff, digital, on-ground activation, experiential. So it is going to be a very different approach. I think that is the way to go around it. So hopefully, at the end of the day, after doing all of this, we still have to drive the business. There has to be a very clear ROI, which we feel okay about but let us see.
Coming back to the point that we were discussing regarding a bit of a summer blip that we saw, are you seeing any change in consumer trends in terms of, let us say, down-trading or looking at different sets of products? Is there any other geography in terms of rural versus urban? Do you see a big distinction in terms of the consumption trends?
Sundeep Bajoria: One of the things that we have been driving is how do we make sure that we do not look India as one composite but make sure that we are winning in every India that we operate in, which is where the generic models of urban or rural actually gets broken down much deeper in the way we started to operate. And that is what is happening. Again, we do not operate like the typical automobile company where there is a once-a-year pricing. We have a philosophy in beverages which we call BPPC, which is brand, package, price, and the channel and a combination of all those four determine what should be the pricing.
There would always be certain price points which are more memory-carrying for consumers. A 20-rupee single-serve package would always be there but there are a range of packages and a range of brands where we manage to make sure that the consumers are getting a beverage offering at the right occasion, in the right channel, in the right brand. That is how we make sure that we are addressing the needs and the choices for each of the consumers so no down-trading. There would, of course, be some promotions. There would, of course, be some premiumisation, and both of them have to go simultaneously.
Let me break it down into three parts.
Arnab Roy: I just wanted to add a few data points, which is interesting. Yes, there was a blip, but we saw one of our highest market share gains, in the last four to five years, probably more than that in this quarter. And secondly, one of the key metrics we are all working towards is how to increase your household penetration.
Even though the summer was not very hot in a lot of parts of the country, we still saw the household penetration number going up, which again is a very positive sign because it clearly shows that the consumer is now more willing to accept a category as a part of their everyday needs. That is a very important metric to see if the long-term sustainable growth is actually feasible or not.
That is the interesting point that I wanted to deep dive into with respect to the penetration because one would assume that it is already deep enough. It is, what, 80, 90% in terms of distribution, I would guess, because you will see Coca-Cola, Thumbs Up pretty much everywhere. How are you driving that penetration further?
Sundeep Bajoria: Let me put penetration in two aspects; first, in terms of households, what we measure are close to 35% of Indian households only would have a penetration of a soft drink. That leaves a massive headroom, almost two-thirds of the Indian households do not regularly have a soft drink at home, unlike a lot of other FMCG categories, which would have got to a 90, 95% penetration levels, the opportunity for beverages is massive.
Similarly, we continue to expand the reach of our outlet universe. In India, all the outlets which potentially could sell a beverage is somewhere between 12 and 14 million. We have only reached four and a half million till now.
Sundeep Bajoria: So the opportunity and the headroom for us to continue expanding is massive. And that is where the work that we are doing, connecting a household penetration through a grocery, through a wholesale, is going to be absolutely important. The work that the bottling system and all of the companies starting to work is how are we, one, like Arnab said, connecting to a consumer’s experience of 360 degree, social, digital, television, radio, print, everything but also making sure that we are available at an arm’s reach in every channel that the consumers go to.
Last couple of years were a bit challenging, whether you call it on account of inflation, supply side disruption, et cetera. How are things on the ground now with respect to how the raw material pricing is trending to be? And with respect to supply disruptions, glass, et cetera, is everything in place?
Sundeep Bajoria: So with every challenge, there is always this opportunity. We had the challenge with Covid and supply constraints started off in China and spread around the world. Of course, we got impacted. But at the same time, the consumers also were looking for comfort and soft drinks give you a very, very low price entry for getting that comfort. Also, the safety of brands, the promise of big brands like Coca-Cola always brings the consumer back.
So we had a challenge and we had an opportunity and how we started to bridge those two. From a supply side, we used to invest an average of two to five new lines every year. That has suddenly expanded to 17 lines last year. And this year, we will be going with 35 new lines. So this is a journey, not a one-off, but a journey as we become better in terms of addressing those choices with the consumers and making ourselves even more relevant.
Arnab Roy: I think there were certain challenges last year. I think you would have seen the macro trends. Inflation definitely is cooling down a little bit and I think that is obviously helping all of us. There were some challenges in mango pulp for Maaza. I do not know whether you’re probably aware of it, we are the world’s largest buyer of mangoes, mango pulp. And it is interesting because if there is a little bit of a disruption, it starts impacting everything. And that makes Maaza a little complicated in business overall than any other sparkling drink.
But we have been working very closely with a lot of our sustainability programmes on ground, working with the farmers to ensure that we are able to build a very strong, consistent and sustainable supply chain for mangoes. So yes, are there going to be challenges even in the future, absolutely. And that is the cost of doing a big business out here in India.
But since you brought up Maaza, it is one of those homegrown brands, right? Thums Up has already reached that one billion brand stage, so has Limca and Sprite?
Arnab Roy: No, not Limca.
Okay, so Sprite has. What about Maaza and Limca then?
Arnab Roy: Yes, so Thums Up is our largest brand. It became a billion dollar brand in 2021. If you look at the retail consumer value of Thums Up, it is probably one of India’s top I would say consumer brands overall. Iconic brand. Sprite is also there, extremely close. It became a billion dollar brand last year. Maaza is close. I think there is some way to go. It is very hard for me to predict whether it can become a billion dollar brand this year, but we feel confident it will happen very soon.
Coming back to business itself, you were explaining in terms of pricing how it is really very dynamic. But given the fact that raw material prices have been coming off, as Arnab also pointed out, is there a case that the prices will be brought down as well or is that also very dynamic and keeps on happening?
Sundeep Bajoria: So, we usually do not roll back prices, but we definitely build portfolio which would help the consumers to even get more attractive price points and so you would see more packages which would not only cover a 40 and a 50 price points, but also potentially a 30 price point and a 20 price point and those would expand faster and that is the way we manage the BPPC, the pricing to the consumers, that you would have more offerings at a lower price points as against the higher price points.
But the other thing that you were talking about is that every challenge is an opportunity, but that opportunity exists not only for you, for others as well, right? And we have seen this heated competition with some other big peers also entering the sparkling beverage category. Are you threatened by the competition at all?
Sundeep Bajoria: Actually, from where we are, we actually love it and let me explain. India has one of the smallest per capita consumption for soft drinks. Our consumers still have to learn to pick it out of a bottle or a can and that is the journey for all of us. More competition, more investments within the categories is actually fantastic for the industry and then we know how we can get back to making Coke and Thumbs Up and Sprite to be more and more relevant to our consumers.
There has been this long-standing debate on how carbonated drinks are not healthy. But you have other portfolios of juices, etc. How you are trying to manage this entire myth around it being unhealthy and how Coca-Cola is looking at portfolio transformation.
Arnab Roy: We address need states and there are eight or nine very important beverage need states. There is an opportunity for a kind of a beverage at some point in the day, I would say throughout the year and exactly as Sundeep said, even within the sparkling portfolio, when we do our overall opportunity size mapping, the opportunity is still massive.
It is important to understand that sparkling will continue to be a phenomenally big opportunity and a lot of the competition is still happening in the sparkling space. Most of the big brands have or at least have plans to launch sparkling water brands. They have their entire plans around that and that is the right thing to do because the numbers are there. If you compare or index India’s sparkling consumption versus a market like Brazil, the per capita is almost 10 times. So, that is a kind of headroom that we have.
Having said that and when you want to address other need states, there is an opportunity for a lot of other beverages. We are planning to have a few experiments. We have already been launching a few things. We continue to be India’s largest juice company with both Minute Maid, Pulpy Orange and Maaza, they address a specific need state. Can we do a lot more? Absolutely. The question is, is it going to be profitable? Is it going to be sustainable and is there enough scale in that?
We have our internal metrics. Once any new idea is able to meet three-four important metrics, absolutely, they will be in the market. So, a lot of action will happen. Some interesting experiments over the next six months and yes, just keep an eye out for them.
India is already the fifth largest market when it comes to Coca-Cola globally and given the kind of opportunity size you are telling me, we are probably going to be what, top three very soon?
Arnab Roy: Hopefully.
There is another strategic initiative that Coca-Cola has also been undertaking and one of such was the acquisition of Thrive. What was the rationale behind that because that seemed a bit off the usual bread and butter.
Sundeep Bajoria: Thrive is a very strategic acquisition. We took a small 15% stake there. What Thrive does is it has already reached a 12,000-strong network. These are the stores which need digital capability to make themselves more and more relevant in this new era. Our partnership is actually going to bring together the requirements for millions of eating and drinking stores, HoReCa (hotel-restaurant-catering) stores around the country, expanding their capabilities with the digital and our relationships. So, it is a three-way win-win for our customers, for our partners, Thrive as well as Coca-Cola and that is the idea for taking a small strategic stake in a capability builder like Thrive and that is going to continue to expand.
So, are you looking at increasing it further, more than 15%?
Sundeep Bajoria: Whether we take an investment or not is a different decision. But definitely, scaling up Thrive to reach a lot more partners is definitely going to happen.
That has been one of the strategies as well, right? I mean, the partnership with McDonald’s, for instance, is iconic. It is a case study on its own. But any more such distribution networks that you are looking at, some more channel partners or something of that sort?
Sundeep Bajoria: We continue to expand in more and more customer partners. Very recently, you would find Subway starting to sell Coca-Cola as well and that is an industry dynamic. Delhi Airport is another one, as you get into that airport you will start finding the beverages of your choice with Coca-Cola and a lot more vending machines there. So that is a journey that we are continuously on and that is the secret to winning more and more share in more and more market.
Arnab Roy: Yes, just to build on that and also connected to the question you asked me earlier, as you get into new other categories, you may not be able to…, probably you cannot depend on the existing distribution infrastructure because it is probably tailor-made to certain kinds of products. So, for some new experiments that we might launch, you might need a proper D2C network and do we have the entire blueprint on that? Well, not yet.
But I think that is the way to go ahead, you will have to experiment with a slightly different distribution model, depending on what the end consumer is and what the nature of the product is and obviously that will impact what the margin structure is and therefore what you can do with it. So, lots of things are happening in this space. I do not think we have all the answers. But only to experiment and make it happen on the ground is the best way to learn.
Since we are talking about the strategic initiatives, I also wanted to touch upon the entire bottling unit, because the strategy globally seems to be that you want to get asset light and we had seen the first round of divestment in 2019 itself. What more is in the pipeline?
Sundeep Bajoria: First, it is a good space because soft drinks after a long time have started to attract capital. We are liking it that the industry is expanding, we are winning, and we are starting to attract more and more either investor capital or a provident fund or even competition which is coming in. So, it is an attractive place to be in for the next few decades.
The Coca-Cola company has always stated that we would like to be the smallest bottler. That also comes with, “we would also want to continue expanding in India, continue investing behind it.” We need to make sure that we meet both the objectives, investing in India, continuing to build capability to execute, as well as reducing the company’s shareholding in India. It is a journey. We did some work in 2019. More will happen in the future. It is a work in progress.
But since you are talking about investing in India, investing into the brand, are the ad and marketing spends likely to go up? I do not think you need that because you already have a vote of confidence from the likes of Elon Musk and Warren Buffett, who are avid consumers. Talk about all those health myths that we are talking about. Buffett is living it up and he is saying he is happy having his share of Coca-Cola.
Arnab Roy: Absolutely. He is one of the best ambassadors that we have and his favourite drink is Diet Coke. Bill Gates, who is completely into everything you can understand about science, technology, innovation, has at least seven to eight Diet Cokes a day. So, just going back, you can absolutely enjoy your nice Diet Coke, chill Diet Coke and drink how much you want.
The other big talking point and there has always been this controversy around sustainability and how, of course, Coca-Cola has to use a lot of plastic as well in their packaging. What is the way forward when it comes to sustainability?
Sundeep Bajoria: We already have a global commitment. We call it the world without waste, where we have promised to make sure that 100% of the plastic that we put out in the world are not only collected back but recycled.
Help me demystify an urban legend. What is about this secret recipe, secret ingredient that is locked up somewhere as far as Coca-Cola is concerned? Is that the real thing?
Arnab Roy: So, let me try to attempt to answer that. Actually, yes, I think it is not a secret ingredient. It is actually a recipe, as probably you were kind of mentioning, which is kind of there inside in Atlanta, kept in a vault in something what we call the world of Coca-Cola. Yes, we have tried to create some magic around it because at the end of the day, our brand is very simple in terms of product, but it has still been very magical. The formula has stayed the same. The formula has stayed the same for more than a hundred years plus.
Since the 19th century?
Arnab Roy: Yes. since 1886. Yes, there have been some modifications. Once you read the ingredients, a lot of the perceptions about this product will go. One is on Coke having preservatives; there are no preservatives in Coca-Cola. Remember, a hundred years ago, there used to be very few things which had chemicals. A lot of them are still naturally extracted but it is a combination which is the magical thing, which is what is also liked by Warren Buffet and think there is history to it and it is kind of nice to have a little bit of a magical story around it.
Sundeep Bajoria: So, there are two realities. One, this is one recipe which remains standard globally across all 200 countries that we operate in. So, of course, there is nothing which is artificial, which is added here, there is nothing which is prohibited by any of those 200 countries. Two, the magic is actually on the front of the pack, not in the behind which is the name, Coca-Cola and that is what is the magic.