Chapter 1: Industrial Scenario

INTRODUCTION

The Indian beverage industry has come very far from the days when tea was the „holy‟ beverage
of the commoners, coffee was the „sophisticated‟ beverage of the upper class, Cola was the
„cool‟ beverage of the youngsters and hard drinks were the „man‟s‟ thing. Today, right from
whiskey, wine & cocktails to health drinks & powdered juices, the Indian beverage market is
flooded with a plethora of options & variants for alcoholic as well as non-alcoholic lovers with
all kinds of tastes & preferences.

Currently, the alcohol beverages market size is approximately Rs1500 billion, while the non-
alcohol beverages market is close to Rs195,000crore.

HISTORY

Coca Cola introduced Indians to the taste of cola in 1970, before exiting the country in 1977 due
to changes in the government policies. Parle which was facing stiff competition from Coca Cola
then took over the reins by launching new carbonated drinks such as Thumbs Up, Gold Spot and
Limca. However, Parle‟s supremacy lasted only until 1990 when Coca Cola and Pepsi forayed
into the Indian market. Today, Coca Cola and Pepsi together contribute to more than 60% of the
carbonated drinks market. The rest is controlled by Parle, Dabur, Bisleri and other local brands.
However, over the past few years, non-cola aerated drinks, especially those with fruit content has
gained traction. Hence, these brands are keen to explore this new market as well. For example,

• Parle has recently introduced Frooti Fizz, a fizzy version of its popular mango drink.

• Earlier this year, Bisleri International launched Bisleri Pop, an aerated fruit-based drink.

• Dabur has also launched a range of fruit juice based aerated drinks under the brand Real Volvo.

However, carbonated drinks are reeling under stagnation and sales have dipped as an increasing
number of people are switching to juices and other health drinks. People around the world are
becoming health-conscious and understand that carbonated beverages are high in sugar and lack
nutritional content.

OVERALL WORKING OF THE SECTOR

The food processing industry in India has a total turnover of around USD 65 billion which
includes value added products of around USD 20.6 billion. Coca cola, Pepsi, and Nestle are the
leading beverage brands that have been ruling the Indian beverage market since past few
decades. Among all the beverages, tea and coffee are manufactured as well as exported heavily
in the international markets succumbing to the individual demands around the world.

The beverage industry in India constitutes of around USD 230 million among the USD 65 billion
food processing industry. The major sectors in beverage industry in India are tea and coffee
which are not only sold heavily in the domestic market but are also exported to a range of
leading overseas markets. Half of the tea and coffee products are available in unpacked or loose
form. Among the hot beverages manufactured in India, tea is the most dominant beverage that is
ruling both the domestic and international market even today. The supply of tea and coffee is
insurmountable in the Indian beverage industry.

The taste factor in tea varies according to the taste of individuals in different countries and the
beverage companies in India manufacture the products in accordance with the taste of the
individuals. For example, the inhabitants in the southern parts of India prefer dust tea whereas
the inhabitants in the western part of India prefer loose tea. The Southern India also prefers
coffee a lot. The production capacity of the total packaged coffee market is 19,600tonnes which
is approximately a USD 87 million market. The soft drink market such as carbonated beverages
and juices constitutes around USD 1 billion producing 284 million crates per year. In the peak
season, the consumption capacity reaches 25 million creates per month and during off season the
same goes down to 15 million crates in a month. Pepsi and Coca cola are the two leading brands
in the Indian market. The mineral water market in India is a USD 50 million industry and
produces 65 million crates. Around 4.9 million crates is usually consumed each month but it
rises to 5.2 million crates in the peak season.

About Beverage Companies in India

Fruit juices, pulp and concentrates, and sauces or ketchups are doing very well in the beverage
market in India for the past few years. Various milk products, health beverages, beer, and
country liquors have also been contributing largely in the rising demand of beverages in India.
The leading beverage companies in India are also exporting various products especially tea and
coffee to the international markets every year. Tea and coffee have registered an excellent
growth in the Indian beverage market as these are the most preferred drinks purchased
excessively around the world. Among all the leading beverage companies in India, Coca cola has
accounted for a thriving growth since its inception. It occupies around 60 percent of the
carbonated drink sector in the Indian beverage industry. Another predominant brand in beverages
is Nestle India Limited which occupies 61.85 percent of the total Nestle S.A. Switzerland. The
Nestle products are hugely exported to Russia apart from selling in the domestic market.
CHALLENGES FACED BY BEVERAGE INDUSTRY IN
INDIA

Despite being the second highest producer of beverage, India is yet to evolve extensively when it
comes to food and beverage industry. This industry is made up of an array of products including
alcoholic drinks, juice/health, alcoholic and aerated drinks. Beverages are currently receiving
substantial attention as their market potential is mushrooming. The soft drink and alcohol
industry had made significant progress during last several years in production.

Although, still the level of processing is lower in contrast to other countries. It takes double the
time as compared to other countries to the get the process and regulations done. The beverage
industry presents absolute challenges to each of the stakeholder community. The challenge to the
industry is how effectively beverages can be developed in the marketplace. To the consumer, the
call out is whether to trust the experts and if so what is the proposed benefits of beverages. The
challenge of the government bodies is how to maintain a balance in preventing false and
misleading information from reaching consumers while reassuring the use of beverages to attain
a healthy lifestyle. So, some of the hindrances that this industry faces massively are:

Upswing of Healthy and Organic Drinks

While packaged drinks were once at the peak of the supply chain, but this trend does not hold true
anymore. Currently, consumers are looking out for drinks that do not contain synthetic ingredients. The
drastic reduction in the demand for processed drinks have nourished the organic market and caused
many hitches in the beverage market and competition. Growing awareness levels regarding natural,
healthy drinks and their practical impacts have favored the trade for natural beverages. Industry
Hercules needs to brainstorm multiple channels to combat the biggest challenge that healthy drinks will
become in the upcoming future.

Complicated Government Regulations

This sector is continuously monitored by reforms and regulations .New tax regime under GST
discourages aerated beverage and other drink consumption. One of the major challenges that this
industry faces is the complicated and overlapping taxation structure in India. Specifically in beer
market, the biggest drawback is that every state has different set of regulations. It feels like you
are operating with 28 diverse countries.

Environment Friendly Propaganda

Environment-friendly is the next leading trend in the Indian market, owing to global warming
and other weather conditions. A product that is tagged to be “eco-friendly” obviously has more
chances of a fruitful sale than a product that is assumed to be harmful to the environment. The
beverage companies are striving hard in making the entire manufacturing process friendlier to
the environment, by maintaining reprocessing practices and profiting from renewable sources of
energy. Exercising green business practices is a vital part of the few challenges in food and
beverage industry in India.

The E-commerce Edge

This sector has been relatively slow on the upkeep of technology, while industries like
electronics, textiles, and other domestic products have already ingrained their presence in the
commerce domain. This is one of the extreme challenges in beverage industry, considering that
consumers are more technologically attentive and sociable, thanks to the invention of internet
and social media. Wholesalers and retail industries have already begun to invest in e-commerce
and Instagram, Facebook to develop reach of their products. This is causing a huge flood in the
beverage sector and worry about further diversification.

Dearth of Innovation
Innovation is among the top challenges in beverage industry today. To combat intense
competition, manufacturers must come up with inventive products. In Indian market, all we see
is: pool of products that are generally of the same character and term. For example, there is a
wave of organic things; so people will follow the similar footsteps rather than going and bending
the monotony. The challenge of innovation is surely a roadblock in the Indian scenario.

Logistics
The logistics market in India is highly unorganized with plenty national level players in the
beverage sector. The infrastructure is grossly inadequate, with lack of proper roads and networks.
Insufficient distribution channels, exploited ports, and poor quality of services are just a few of
the bottlenecks that imprint beverage players and their production. This leads to high logistics
costs, which leads to higher cost of pre-production as compared to other countries.

To conclude, the challenges in food and beverage industry are immense, owing to the massive
competition. A single transformation is constrained to affect the entire supply chain.
Contemporary markets, changing consumer spending, increasing prices due to taxes, universal
appetite, and modern technology are predicted to bring about extensive changes in this sector in
the next coming years. Despite the ongoing challenges in beverage industry, it is anticipated to
show beneficial gains in the near future.
S.W.O.T ANALYSIS

STRENGTH:

 Basic consumer needs

 Large and growing market
 Demographic Advantage
 Low costs
 Popularity
 Low operational costs

WEAKNESS:

 Negative Claims regarding components

 Health awareness
 Traditional preservation
 Ecological Hazard
 FSSAI regulations
 Counterfeit Products
OPPORTUNITIES:

 Establish facts and utilize PR

 New generation trends
 Replace alcohol
 Replace Tea and Coffee
 Rising disposable income sector
 Untapped rural market

THREATS:

 Health issues
 School and Parental perception
 Ecological issues
 Distribution costs
 Government stand
 Competition
 Tax and regulatory structure
MAJOR PLAYERS IN BEVERAGE INDUSTRY

1. Dabur India Ltd

2. Varun Beverages
3. Orient Beverage Limited
4. Red Bull India Pvt. Ltd.
5. Tetra Pak India Pvt. Ltd.
6. Pearl Drinks Ltd.
7. Bengal Beverages Ltd.
8. Coca-Cola India
9. PepsiCo India

GDP CONTRIBUTION
The food and beverages industry accounts for ~3% of India‟s GDP and is the single largest
employer in the country, with more than 7.3 million workforce . The nationwide lockdown set
this industry on a downward spiral with some predictions suggesting that nearly a quarter of all
restaurants may shut down by the end of 2020. India‟s US$50 billion restaurant industry is set to
lose an ~US$9 billion in 2020 according to the National Restaurant Association of India (NRAI).
GLOBAL PERSPECTIVE ON BEVERAGE SECTOR

According to a recent market report listed on Research and Market, the global beverage market
size is evaluated at US$1.54 trillion in 2018 and is projected to reach $1.85 trillion by the year
2024, representing a strong CAGR of 3.1% during the forecast periods. The market growth is
mainly driven by the growing per capita consumption of drinks in major developing regions
owing to rising disposable income and changing preferences of consumers towards ready to
drink beverages. Geographically, the developing countries in Asia Pacific, such as China, India
and Thailand are expected to be some of the largest beverage markets in the coming years, owing
to rising disposable income, rapid urbanization and changing the lifestyle of consumers.

Over the recent years, the global beverage industry has seen a growing number of mergers,
acquisitions, and product launches, so that the leading beverage companies can maintain their
competitive advantage over other players. For example, in January 2019, The Coca-Cola
Company acquired Chi Ltd., a leading juice and diary drinks company. In August 2019, Diageo
announced the acquisition of Seedlip, the world‟s first distilled non-alcoholic spirits.

However, rising health concerns regarding the sugar content of soft drinks, in addition with the
health concerns regarding consumption of alcohol may bring some challenges to the growth of
the market over the next few years. Therefore, the launch of new products with low or zero
sugar, as well as well low in calories or non-alcoholic are expected to create ample opportunities
for the market growth during the forecast period.

MARKET SIZE

TEA INDUSTRY

The Indian tea market is estimated to be ~Rs. 26,000 Crores, with unbranded being 30-35%
of the overall market (by value). Tea is the favourite Indian beverage and we continue to see
growth across all tiers through upgradation from loose to economy branded
tea and movement up the chain to premium and super premium teas.

COFFEE INDUSTRY

The branded retail coffee market in India is estimated at ~Rs. 2,750 Crores in
2019. Instant coffee is the largest sub-segment and is ~80-85% of the category and growing
as consumers look at convenience. Industry also witnessing the emergence of artisanal and
gourmet premium coffees – estimated to be ~5% of the organised market.
WATER INDUSTRY
Water is the second largest beverage sub-category after Tea in India (globally it is the largest
sub-category in the Beverages market). The current size of the packaged water market in India
is ~Rs. 17,000 Crores, growing at a CAGR of 12%. Fruit-based beverages is a ~Rs. 8,250
Crores category, growing at a CAGR of 10%.

SUMMARY

The beverage industry in India constitutes of around USD 230 million among the USD 65 billion
food processing industry. The major sectors in beverage industry in India are tea and coffee
which are not only sold heavily in the domestic market but are also exported to a range of
leading overseas markets.