The Indian beverage industry beckons innovative product developers with a rapidly evolving and growing market

When Pepsi and Coca Cola entered India market more than two decades ago, India known for consumption of hot beverages such as tea and coffee, took to carbonated beverages in a big way. These MNCs’ strong product pipeline and financial muscle power to invest aggressively in marketing and branding to develop the market, was well supported by country’s tropical weather, growing middle class and rising disposable income in popularizing the carbonated beverage in Indian market. Product’s shelf stability also meant that it could have a wider distribution reach covering even the rural hinterland. As a result, soft drinks became an instant hit with Indian consumers and captured major share in the non-alcoholic beverage segment. Since then, the product category has witnessed strong growth in Indian market. Pepsi and Coca Cola have become the undisputed market leader in India, as they are elsewhere in the world.

However,the trend has reversed in last few years. With increased incidences of lifestyle diseases and growing health awareness to manage it, consumers’ and especially young generation is looking to replace carbonated beverage with healthier alternatives. This is changing the market landscape of the beverage Industry in the country in number of ways.

Firstly, there is an emergence of new beverage categories. Fruit Juices have evolved from being just a fruit based beverage to 100% fruit juice with, no added sugar variants, mix vegetable juice variants, organic variants and high fiber variants. More interesting is the rejuvenation of traditional drinks in new avatar. Traditional grandma recipe of drinks such as Jaljeera, Aampanna, Kala Khatta have been commercialized in modern and convenient “ready to drink”packaging format. Paper Boat from Hector beverages is leading this transformation. Dabur with its HajmolaYoodleybeverage is a recent entrant. Additionally, many fruit based fizzy drinks and dairy-juice blends have been introduced in the market.

Secondly, small and medium sized beverage companies are giving big cola brands a run for their money. With changing consumer preferences, they now have the ammunition to challenge big players by developing and marketing innovative, healthy and convenient ready to drink beverages. Increasing penetration of internet and social media has also made it possible for them to market their products on social platform in a cost effective manner without the need of engaging expensive celebrities to endorse their productorof launching a massive tele-commercial campaign.

There is also an interest from PE and venture funds to support these emerging ventures in expanding their product development capabilities, manufacturing capacities, distribution infrastructure and marketing reach. To understand what has prompted their interest in this segment, one has to look at what big beverage companies are doing in international market to respond to competition from emerging players. Coca Cola has been on an acquisition spree and taking stakes in niche beverage companies such as Honest tea, Zico Cocounut water, Monster beverage, Suja etc. to expand its portfolio and meet consumer’s varying beverage needs. Such a strategy might work well as it reduces the go to market time for these players. More so because developing products and establishing market presence are time and resource consuming processes and fraught with risks related to product failures. Very soon, we can expect similar strategy from these big players in Indian market as well which will mean better exit avenues for early stage investors in niche beverage companies through strategic sell out.

In a nutshell, with waning entry barriers related to consumer acceptability as well as high investment in branding and access to finance, the Indian beverage market looks attractive for new entrants who are willing to invest in developing innovative consumer oriented products. Some have already started harnessing this opportunity as a first movers while for others sitting on the edge, it may be the right time to take the plunge.

Author

Ahmed Saifee

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