Coca-Cola in Rural India

Coke in Rural India Submitted to:- Mr.N.H Mullick

Rural Market Scenario
Most MNCs that came in to India after 1999 targeted India upper middle class to earn more revenues.
According to industry estimates rural India accounts for 74% of population and 58% of indian rural disposable income.
Rural India is also characterized by growing affluence: agricultural output increasingly to early 215 millions tonnes in 2004 compared to 176 millions in 1991.

According to data compiled by the National Council of Applied Economic Research rural India now accounts for the 70% of toilet soap users, and 38% of two-wheelers purchases come from India.
Atlanta based Coca-Cola company is one of the first global majors to have spotted the potential spin offs from the country’s rural market.
It has perfected a unique supply chain to cater to india’s vast rural markets hinterland. The results are working and coca-cola India rural penetration increased from 13 percent in 2001 to 25 percent in mid 2003.

Over this period, the numbers of company’s rural distributors increased from less than 4000 to 5500.
Cola’s, being fast moving consumer good, hold enormous potential from a manufacturer like the coca-cola company. The biggest reason for this is the low per capita consumption, which coke estimates at 3.7 bottles person per year compared to 10 bottles per person per year for all India.

Breaking to this market required innovative thinking and a new strategy. Rural india meant reaching 6,27,000 square Km; it meant getting distributors to travel 200 kms to reach five shops with drop sizes of than a case.
A typical village retail environment consists of 4-5 kirana shops( stripped down version of mom and pop shops), the size of such stores varies depending on the size and population density of village where it serves.

Coke in India
Coca-Cola was the leading soft drink brand in India until 1977 when it left rather than reveal its formula to the government and reduce its equity stake as required under the Foreign Exchange Regulation Act (FERA) which governed the operations of foreign companies in India.
After a 16-year absence, Coca-Cola returned to India in 1993, cementing its presence with a deal that gave Coca-Cola ownership of the nation's top soft-drink brands and bottling network.

Coke in India
Coke’s acquisition of local popular Indian brands including Thums Up (the most trusted brand in India21), Limca, Maaza, Citra and Gold Spot provided not only physical manufacturing, bottling, and distribution assets but also strong consumer preference.
Leading Indian brands joined the Company's international family of brands, including Coca-Cola, diet Coke, Sprite and Fanta, plus the Schweppes product range.
In 2000, the company launched the Kinley water brand and in 2001, Shock energy drink and the powdered concentrate Sunfill hit the market.

Coke in India
Coca-Cola India achieved 39% volume growth in 2002 while the industry grew 23% nationally and the Company reached breakeven profitability in the region for the first time.
Coca-Cola India produced its beverages with 7,000 local employees at its twenty-seven wholly-owned bottling operations supplemented by seventeen franchisee-owned bottling operations and a network of twenty-nine contract-packers to manufacture a range of products for the company.

Coke in India
Coke and Pepsi dominated the market and together had a consolidated market share above 95%.
While soft drinks were once considered products only for the affluent, by 2003 91% of sales were made to the lower, middle and upper middle classes.
Soft drink sales in India grew 76% between 1998 and 2002, from 5,670 million bottles to over 10,000 million and were expected to grow at least 10% per year through 2012.

Coke in India
In spite of this growth, annual per capita consumption was only 6 bottles versus 17 in Pakistan, 73 in Thailand, 173 in the Philippines and 800 in the United States.
With its large population and low consumption, the rural market represented a significant opportunity for penetration and a critical battleground for market dominance.
In 2001,Coca-Cola recognized that to compete with traditional refreshments including lemon water, green coconut water, fruit juices, tea, and lassi, competitive pricing was essential.

Coke Rural Initiatives
Coca-Cola India doubled the number of outlets in rural areas from 80,000 in 2001 to 160,000 in 2003, which increased market penetration from 13 per cent to 25 per cent.
It brought down the average price of its products from Rs 10 to Rs 5, thereby bridging the gap between soft drinks and other local options like tea, butter milk or lemon water.
It doubled the spend on Doordarshan, increased price compliance from 30 per cent to 50 per cent in rural markets and reduced overall costs by 40 per cent.

Coke Rural Initiatives
It also tapped local forms of entertainment like annual haats and fairs and made huge investments in infrastructure for distribution and marketing.
Result: the rural market accounts for 80 per cent of new Coke drinkers and 30 per cent of its volumes.
The rural market for Coca-Cola grew at 37 per cent over the last year, against a 24 per cent growth in urban areas. Per capita consumption in rural areas has doubled in the last two years.

Coke Products:

Coca- Cola in Indian Market
We want to be the Hindustan lever limited of the indian beverage business.
Sanjeev Gupta, Deputy President – Coca-Cola India in May 2002
The rural market is the significant part of our rural marketing strategies which enables us to help the consumer link with our product.
Sanjeev Gupta, Marketing Director – Cola-Cola India, in August 1995
The real market in india is the rural areas. If you crack it, there is a tremendous potential.
Nanto Banarjee- Spokeswoman CCI.

‘ Thanda’ Goes Rural
In early 2002, CCI launched a new advertisement campaign featuring leading Bollywood star Aamir Khan. The advertisement with tagline- ‘Thanda matlab Coca- Cola’ was targeted at rural semi urban consumers.
The idea was to position Coca-Cola as a generic brand for cold drinks. The campaign was launched to supports CCI’s rural initiatives.
CCI began focusing on the rural market in the early 2000s in order to increase volumes. The decision was not surprising, given the huge size of the untapped rural india.

In an effort to make the price point of Coke within reach of this high-potential market, Coca-Cola launched the Accessibility Campaign, introducing a new 200ml bottle, smaller than thetraditional 300ml bottle found in urban markets, and concurrently cutting the price in half, to 7.
Rs. 5. This pricing strategy closed the gap between Coke and basic refreshments like lemonade and tea, making soft drinks truly accessible for the first time.
Coke invested in distribution infrastructure to effectively serve a disbursed population and doubled the number of retail outlets in rural areas from 80,000 in 2001 to 160,000 in 2003, increasing market penetration from 13 to 25%.

However, the poor rural infrastructure and consumption habits that are very different from those of urban people were two major obstacles to cracking the rural market for CCI.
Because of the erratic power supply most grocers in rural areas did not stock cold drinks.

Brand Localization Strategy: The Two Indias
India A: “Life ho to aisi”
“ India A,” the designation Coca-Cola gave to the market segment including metropolitan areas and large towns, represented 4% of the country’s population.
This segment sought social bonding as a need and responded to aspirational messages, celebrating the benefits of their increasing social and economic freedoms.
“ Life ho to aisi ,” (life as it should be) was the successful and relevant tagline found in Coca-Cola’s advertising to this audience.

India B: “Thanda Matlab Coca-Cola”
Coca-Cola India believed that the first brand to offer communication targeted to the smaller towns would own the rural market and went after that objective with a comprehensive strategy.
“ India B” included small towns and rural areas, comprising the other 96% of the nation’s population.
This segment’s primary need was out-of-home thirst-quenching and the soft drink category was undifferentiated in the minds of rural consumers.
Additionally, with an average Coke costing Rs. 10 and an average day’s wages around Rs. 100, Coke was perceived as a luxury that few could afford.

CCI’S Rural marketing strategy
CCI’s rural marketing strategy was based on three A’s – Availability, Affordability and Acceptability.
The first ‘A’ – Availability emphasized on the availability of the product to the customer.
The second ‘A’ - Affordability focused on product pricing.
The third ‘A’- Acceptability focused on convincing the customer to buy the product.

Availability
Once CCI entered the rural market, it focused on strengthening its distribution network there.
It realized that the centralized distribution system used by the company in the urban areas would not be suitable for rural areas.
In the centralized distribution system, the product was transported directly from the bottling plants to retailers.
However, CCI realized that this distribution system would not work in rural markets, as taking stock directly from bottling plants to retail stores would be very costly due to the long distances to be covered.

Availability
For transporting stock from spokes to village retailers the company utilized auto rickshaws and cycles.
Commenting on the transportation of stock in rural markets, a company spokesperson said, “We use all possible means of transport that range from trucks, auto rickshaws, cycle rickshaws and hand carts to even camel carts in Rajasthan and mules in the hilly areas, to cart our products from the nearest hub.

Availability
The company instead opted for a hub and spoke distribution system, Under the hub and spoke distribution system, stock was transported from the bottling plants to hubs and then from hubs, the stock was transported to spokes which were situated in small towns.
CCI not only changed its distribution model, it also changed the type of vehicles used for transportation. The company used large trucks for transporting stock from bottling plants to hubs and medium commercial vehicles transported the stock from the hubs to spokes.

Affordability
A survey conducted by CCI in 2001 revealed that 300 ml bottles were not popular with rural and semi-urban residents where two persons often shared a 300 ml bottle.
It was also found that the price of Rs10/- per bottle was considered too high by rural consumers.
For these reasons, CCI decided to make some changes in the size of its bottles and pricing to win over consumers in the rural market.

Affordability
In 2002, CCI launched 200 ml bottles (Chota Coke) priced at Rs 5.
CCI announced that it would push the 200 ml bottles more in rural areas, as the rural market was very price-sensitive.
It was widely felt that the 200 ml bottles priced at Rs. 5 would increase the rate of consumption in rural India.
Reports put the annual per capita consumption of bottled beverages in rural areas at one bottle as compared to 6 bottles in urban areas.

Acceptability
The initiatives of CCI in distribution and pricing were supported by extensive marketing in the mass media as well as through outdoor advertising.
The company put up hoardings in villages and painted the name Coca Cola on the compounds of the residences in the villages.
Further, CCI also participated in the weekly mandies by setting up temporary retail outlets, and also took part in the annual haats and fairs - major sources of business activity and entertainment in rural India.

Distribution Strategy
To reach out to rural India, Coke started out by drawing up a hit list of high potential villages from various districts. To ensure full loads, large distributors (Hubs) were appointed, and they were supplied from the company's depot in large towns and cities.
Full load supplies were offered twice weekly against payment by demand draft. On their part,the hubs appointed smaller distributors (Spokes) in adjoining areas.
The smaller distributors undertook fixed journey plans on a weekly basis and supplied against cash. The distributors also hired rickshaws (cycle operated vans) that travelled to villages daily.

Coke Rural Market 5,472 4,263 3,935 Distributors 25% 21% 13% Rural Penetration 158,432 130,375 81,388 Rural Coverage 2003 2002 2001

CCI’s distribution system in urban areas CCI’s distribution system in Rural areas Distribution Strategy

Advertising Strategy
Coke realised that the communication media used in cities and urban areas would not work in villages because of low penetration of conventional media.
Coke has estimated that TV access is 78.5 per cent in urban India but only 41per cent in rural India Similarly, Cable & Satellite access in urban India is 51 per cent in urban India but only 14 per cent I rural India.
Coke considered alternative options, and decided to concentrate on 47,000 haats (weekly markets) & 25,000 melas (fairs) held annually in various parts of the country.

CCI also launched television commercials (TVCs) targeted at rural consumers. In order to reach more rural consumers, CCI increased its ad-spend on Doordarshan.
The company ensured that all its rural marketing initiatives were well-supported by TVCs.
When CCI launched Chota Coke in 2002 priced at Rs. 5, it bought out a commercial featuring Bollywood actor Aamir Khan to communicate the message of the price cut and the launch of 200 ml bottles to the rural consumers.
The commercial was shot in a rural setting.

In the summer of 2003, CCI came up with a new commercial featuring Aamir Khan, to further strengthen the Coca-Cola brand image among rural consumers.
The commercial aimed at making coke a generic name for ‘Thanda.’ Of the reason for picking up the word ‘Thanda’, Prasoon Joshi, national creative director – McCann Erickson, the creator of the commercial, said, “Thanda is a very North India-centric phenomenon. Go to any restaurant in the north, and attendants would promptly ask, ‘thanda ya garam?’

Between March and September 2003, CCI launched three commercials with the ‘Thanda Matlab Coca-Cola’ tag line.
All the three commercials aimed to make rural and semi-urban consumers connect with Coca-cola.
The first ad featured Aamir Khan as a ‘tapori’ (street smart); in the ad he makes the association between Coca-Cola and the word ‘Thanda.’
The second commercial in the series featured Aamir Khan as a ‘Hyderabadi shop-keeper’; here again he equates the word ‘Thanda’ with Coca-Cola.
The third commercial featured Aamir Khan as a ‘Punjabi farmer’ who offers Coca Cola to ladies asking for Thanda.

‘ Thanda’ usually means lassi or nimbu pani, ‘garam’ is essentially tea. Because the character, in itself, represented a culture, They wanted to equate Coke with ‘Thanda’, since ‘Thanda’ too is part of the popular dialect of the north.
Thus making ‘Thanda’ generic for Coca-Cola. With the long-playing possibilities of the ‘Thanda’ idea becoming evident, ‘Thanda’ became the central idea. Once we decided to work on that idea, the creative mind just opened up.”

Rural Success
Comprising 74% of the country's population, 41% of its middle class, and 58% of its disposable income, the rural market was an attractive target and it delivered results.
Coke experienced 37% growth in 2003 in this segment versus the 24% growth seen in urban areas.
Driven by the launch of the new Rs. 5 product, per capita consumption doubled between 2001-2003.
This market accounted for 80% of India’s new Coke drinkers, 30% of 2002 volume, and was expected to account for 50% of the company’s sales in 2003.

Pepsi Vs Coke
The main competitor and rivalry of Coke is Pepsi, but if we the rural market, there are some major regional players like Campa- Cola and others.
When Coke launched ‘Thanda matlab Coca-Cola’, suddenly Pepsi came up with ‘Thanda- Chelaga Kya’.
PepsiCo too had started focusing on the rural market, due to the flat volumes in urban areas.
Like CCI, PepsiCo too launched 200 ml bottles priced at Rs. 5. Going one step ahead, PepsiCo slashed the price of its 300 ml bottles to Rs 6/- to boost volumes in urban areas.

Market Share

Future Prospects
CCI claimed all its marketing initiatives were very successful, and as a result, its rural penetration increased from 9% in 2001 to 25% in 2003.
CCI also said that volumes from rural markets had increased to 35% in 2003.
The company said that it would focus on adding more villages to its distribution network.
For the year 2003, CCI had a target of reaching 0.1 million more villages. Analysts pointed out that stiff competition from archrival PepsiCo would make it increasingly difficult for CCI to garner more market share.
In early 2003, CCI announced that it was dropping plans to venture into other beverage businesses.

Future Prospects
Company sources said that increasing volumes of cola drinks had made the company rethink its plans of launching juice and milk-based beverages.
In 2002, CCI had announced plans to launch beverages such as nimbu paani (lemon juice), fruit juice, cold coffee, and iced tea in collaboration with Nestle India.
Though CCI was upbeat on account of its early success in its drive to capture the rural market, the question was whether the company would be able to take this success further.

Pesticides Issue
A major media setback occurred in August 2003, when the Delhi-based Center for Science and Environment announced that it had found high pesticide content in soft drinks manufactured and sold by both cola majors.
With many social and political groups becoming active against the cola companies in rural areas, it remains to be seen whether CCI will be able to quench its thirst for the rural market.
Though CCI refuted these allegations, the company reportedly experienced a considerable decline in sales after August 2003.
After presenting the facts, CCI was able to regain its rural customers.

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Coca-Cola in Rural India

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