Market Analysis of Pepsi to regain its position

Industry Highlights:

Major Brand Owners in India

Market Share

Quick Figures

Non Alcoholic Beverage Industry

The global soft drinks market has experienced moderate growth in recent years. This is predicted to continue, albeit at an accelerated rate, throughout the forecast period. The global soft drinks market is expected to have total revenues of around $678 Billion in 2014, representing a compound annual growth rate (CAGR) of 3.8% between 2007 and 2014. Market consumption volume increased with a CAGR of 3% between 2007 and 2014 and are expected to reach a total of 468 Billion Litre in 2014. Also, the market’s volume is expected to rise to 520.4 Billion Litres by the end of 2016, representing a CAGR of 4% for the 2011-2016 periods.

Coca-Cola witnessed the biggest increase in value sales in 2013. With a strong product portfolio including ThumsUp, Coca-Cola, Sprite, Limca and Fanta, Coca-Cola India is a tough competitor for its rival PepsiCo across all of carbonates including non-juice based lemonade/lime and non-juice based orange carbonates. The company also focused on aggressive promotional activities to reach out its products to a larger consumer base.

• Juice Market: It is dominated by Dabur’s Real fruit juices with 50 per cent market share and PepsiCo’s Tropicana with a 45 per cent market share. This market is expected to grow at 30-35% annually. Fruit Drinks is expected to grow 10-15% annually.
  
• Packaged Water: As per estimates, the total water hydration market in India is pegged at INR 4,200 Crore, including the bottled, bulk and pouches business. Of this, bottled water accounts for INR 2,300 Crore, followed by pouches at INR 1,200 Crore and bulk water at INR 700 Crore. Almost every national beverage player has a water variant and organized brands like Himalaya, Bisleri, Kinley (Coca Cola) and Aquafina (PepsiCo) vie with thousands of local players for a slice of the market.

Market Segmentation

Products produced in this industry are broadly referred to as soft drinks but can be further divided into six main segments based on industry revenue.

The table above shows the different Product Segments, Segment Size and Major Brands in each segment.

• Functional beverages are growing at faster rate. Ex: Herb based tea, Fruit Drinks, Sports (Isotonic), Energy Drinks and Single Serve Fruit Juices
• Sport Drinks: Gatorade from Pepsi holds 85% market Share and Stamina from Gujarat Co-op Milk Marketing holds 15% market share. Powerade from Coca Cola had to be withdrawn owing to low sales.
• Energy Drinks: Redbull comes in as the first leading player followed by Power-horse from Power Horse Energy Drinks GMBH. Tzinga is also building up its market share rapidly
• Dabur Foods Ltd: Real and Activ under the aegis of Real juice
• PepsiCo: Tropicana holds the 2nd rank after Dabur
• Mother Dairy India Ltd. Safal brand, Parle Agros N-JOI, Ladakh Food’s Leh Berry are the other entrants.
• This segment is expected to grow at 20-25 % annually.

The beverage market majorly targets at the urban areas than the rural areas. In fact its market share in the urban region is a whopping 75%. However, several major players, including coke have realized the potential to tap into rural markets as well.

Soft & Aerated Drinks

• Coke has a market share of 57% and Pepsi holds a market share of 34%. These two are the dominant players comprising of a 60 Billion rupee industry growing at 5% annually. Other players being, Parle Agro, Pearl Drinks etc.
•  Per capita consumption is 9 bottles per year
• 85% of the soft drinks are consumed in returnable bottles

Bottled Water

• The market is held by Coca-Cola, Pepsi, Nestle with a total market size of 20 Billion  INR
• It is expected to grow at 12% year
• Per capita consumption is half a bottle per year
• Bailey from Parle Agro, Aquafina from PepsiCo, Kinley from Coca Cola are some of the leading products

Source Indiastat.com

Fruit Beverages

• The market is held by fruit based drinks (Maaza, Frooti, Slice) and nectar based drinks ( Real and Tropicana) with a total market size of 8 Billion  INR
• It is expected to grow at 18% year

Industry Forecast

Figures are in INR Million

Source: Euromonitor International

Considering the future of the Carbonate market w.r.t to the Juices, it’ll be surpassed by the year 2016.

Financial Insights

Brands in the Market: Tropicana, Nimbooz, Slice, Pepsi, Gatorade, Diet Pepsi, Pepsi Atom, 7 Up, Mirinda, Mountain Dew to name a few.

The company portfolio contains total of 22 brands and comes 2nd after Coca Cola in its market share in soft drinks.

Trends

• Major Key trend that is shaping the Indian soft drinks market is the increasing preference for healthy products. To cater to this demand, more and more players are launching products that have less or no sugar, calories and preservatives.
• For the rural consumer; manufacturers continue to focus on offering economy pack sizes.
• A number of young Indians indulge in outdoor sports and exercise regularly, which has increased the demand for sports drinks. Satiety-inducing beverages such as dairy-based drinks, are also finding favor among the young, who often skip breakfast or meals.
• The competition between Coca-Cola and PepsiCo grew fiercely, especially in juices in 2013. Both the companies expanded their juice portfolios by introducing new flavors to capture a larger share. PepsiCo introduced Tropicana Coconut Blends and Coca-Cola launched Minute Maid Guava flavor to attract consumers in 2013.
• Rural market is fast growing into a prominent target segment. This has led soft drink manufacturers to launch products in smaller, competitively priced packs, designed to appeal to the rural consumer.

Target Audience Preferences

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 goes as high as 25 Million crates per month and during off season the same goes down to 15 Million  crates in a month.  Below are some of the target audience preferences:

1. Color and Flavor: Intensity of color and the flavors are the key drivers behind consumer acceptance of soft drinks.
2. Health factors: Customers are gradually moving towards being health conscious and are concerned about the nutritional facts vis-à-vis calorie content, fat content etc.
3. Brand awareness: Mainly, the soft drink purchase is an impulse buying purchase and hence the consumers prefer to buy the product which they are aware of as a brand and when it comes to comparison between two similar brands they tend to go to brand which has more visibility in terms of advertisement and display.
4. Celebrity endorsement: Celebrity endorsement also plays a role as the consumers can relate to the celebrity endorsing the product.

• PepsiCo entered Indian market in 1989 thereby gaining the vantage of an early start over Coca Cola in India. It launched its partnership with the very popular R.P Goenka group of companies and later went ahead to partner with the government of Punjab and launched Lehar Pepsi.
• As of 2013, PepsiCo Inc. is the second largest food and beverage multinational company in the world (Market-Line, 2013).
•  PepsiCo manufactures and sells twenty-two major brands of beverages and snack foods in more than 200 countries and territories (PepsiCo, 2013), each generating over $1 Billion in sales each year (Market-Line, 2013).
• However, PepsiCo is slowly losing its market share and competitiveness to its rivals in the industry every year. In 2012, the PepsiCo’s sales amounted to $65,492 Million worldwide (PepsiCo, 2012). Although PepsiCo was performing exceptionally, it recorded a fall of 1% in net revenue compared to its performance in 2011. PepsiCo’s market share in the soft drink industry had also dropped from 10.3% to 9.9% in 2012 (Euromonitor, 2014).

Pepsi Logo Timeline:

Major Competitors of PepsiCo

1. Coca Cola
2. Dabur
3. Cadbury Schweppes
4. Parle Agro
5. Hector Beverages

Undoubtedly the fiercest battle fought for a whale of portion in the ever growing soft drink market is between PepsiCo and Coca Cola. The battle has been fought with bared teeth, many a times adhering to a series of ambush campaigns to slander respective market shares.

Before analyzing the various businesses and marketing strategies adopted by Pepsi in India, a brief reference on Coca-Cola, Pepsi’s arch rival, might pay off.

The Coca-Cola Company is the leading player in the global soft drinks market, generating a 57% share of the market’s volume. PepsiCo Inc. accounts for a further 34% of the market.

Pepsi’s 4P’s

1. ProductBasic Ingredients: carbonated water, high fructose corn syrup, sugar, colorings, phosphoric acid, caffeine, citric acid and natural flavors. The caffeine free Pepsi-Cola contains the same ingredients minus caffeine.

• PepsiCo India’s product line includes Pepsi, 7UP, Nimbooz, Mirinda, Slice and Mountain Dew, in addition to low-calorie options such as Diet Pepsi, hydrating and nutritional beverages such as Aquafina drinking water, isotonic sports drink Gatorade and fruit juices such as Tropicana and Tropicana 100%.
• It has launched Duke Brand of drinks in Raspberry, Gingerade, Ice Cream Soda and Masala Soda flavours, along with retro-packaging to remind consumers of the brand.
• Place

• Sold in almost every General Store, Super Store, Theatre, Restaurants and even in vending machines in almost every country.
• PI sells the Pepsi brand concentrates to bottling partners who manufacture and bottle the Pepsi products and distribute it to consumers via various channels e.g. major supermarket chains, convenience stores, smaller milk bars, restaurants and fast food outlets (e.g. KFC, Pizza Hut and Oporto).
• Product is made available in adequate quantities at places where customers are normally expected to shop for them to satisfy their needs.

• Direct Distribution: The key accounts are different wholesalers, restaurants and hotels like Pizza Hut, KFC and Metro which serve as a place for key sale. These are known as national key accounts and are very important in terms of competition.
• Indirect Distribution: It is done through base market distributors and outstation distributors.
• Price
  • Pepsi decides its price on the basis of competition. It has not taken the position of a price leader/loss leader and has always chosen the competitor to set the price and decide upon its pricing strategies later.
  • The Indian customer is price conscious, Price Inelastic and loyal to traditional products. The strategy here is to keep the price as low as possible.
  
  
• PromotionPepsi uses AIDA principle for its promotion (See the Figure)
  
• • Pepsi, Cricket and Bollywood have been joined at the hip since the cola’s entry into India.
  • Pepsi pours Million of rupees every year into celebrity advertising, and this is done by having a Pan India celebrity like the Indian Cricket teams captain MS Dhoni, or Sachin Tendulkar, while at the regional level, stars with a more local fan following are used.
  • Pepsi needs to explore opportunities and increase visibility by smart and consistent use of social media. For instance, there could be “Make you own jingle campaigns” and “Demonstrate Your Attitude” video campaigns where Pepsi is central in the campaigns that the users participate in.
  • Though Pepsi has made it a well -recognized brand in the youth segment of India who are the highest consumers of soft drinks, it does not appeal as a family based drink – something coke has successfully managed.
  
  

  SWOT Analysis

  1. Strengths
     • Huge brand recognition among consumers
     • Strong and efficient supply chain network, ensuring that all the products are available even in the most remote place
     • Diversified product portfolio
     • Global reach with presence in over 200 countries
     • Excellent branding and advertising with global celebrity as brand ambassadors
     
     
  2. Weakness
     • It has been losing market share to local and regional brands
     • Limited product portfolio
     • Cases against products have affected the brand image of the company
  3. Opportunities
     • Increase penetration into developing countries and capture their market
     • Per capita consumption of juice is quite low, which implies huge scope in the upcoming years
     • Mergers and acquisitions to strengthen the brand
  4. Threats
     • Stiff competition from unbranded and local products
     • Entry of more domestic and international players
     • Inflation, economic slowdown and instability causes decline in the purchasing power of consumers
  
  

  Porter’s 5 Force Analysis

  

• 1. Bargaining power of Buyers: As the number of players in the market has increased, offering variety of products; therefore customers have more options to choose from resulting in increased bargaining power. Medium
  2. Bargaining power of Suppliers: As Pepsi Co. holds 40% stake in Pepsi Bottling Group, therefore for bottling and metal can, they don’t have to rely on outsiders. Secondly, India is an agro based country, which results in huge number of suppliers. These two factors mainly contribute for low bargaining power. Low
  3. Competitive Rivalry: Coca Cola is the prime competitive company offering various ranges of products similar to Pepsi Co.; though it holds major market share, but the increased number of other competitors ranging from international to local companies makes its impact high. High
  4. Threat of New Entrants: To be successful in this market, one has to focus on taste and brand loyalty; these things lead to high entry and exit costs. Secondly, good distribution channel makes it more challenging for new entrants; thus the impact is low. Low
  5. Threat of Substitutes: Market is primarily dominated by cost leadership strategy, therefore it gives the customers huge opportunity to switch. Secondly the rising trend of healthy beverages poses a huge challenge; these led to high impact. High

  
  

  Marketing & Business Strategies

  Pricing

  It has recently lowered the price of its 200 ml returnable glass bottle of Pepsi by INR 4 and has decided to sell the product at Rs.8. The move came after Coca Cola followed the same pricing strategy for coke and dropped the price of 200 ml coke from Rs.10 to Rs.8. earlier last year, to gain a better market share than Pepsi.

  • Good pricing move by PepsiCo. A price drop of 20% may harm Coca Cola more than the 33% price drop by Pepsi. Being the cheapest among its carbonated beverages Coke stands the risk to endanger the sales of ThumsUp which is still being sold at INR 10.
  • Strategic pricing decision taken in a few months before the festive season of Oct and Nov.

  Positioning

  • Pepsi in India categorically targets the youth.  With the “Oh Yes Abhi” campaign now, it positions the brand with the Youngistaan Brigade.
  • It has religiously employed august personalities from these Cricket and Bollywood to create an aspirational reference groups.
  • It has always positioned itself as a brand of the current age by continually changing its brand ambassadors: from Juhi Chawla to Deepika Padukone, Aamir Khan to Ranbir Kapoor and Sachin Ramesh Tendulkar to Unmukt Chand.
  • Pepsi needs a strong positioning on the rural markets. ThumsUp and Sprite, from the house of Coke has a significant presence in rural domain.

  Innovative Campaigns

  

  • Target Customer: Youth in Urban Cities.
  • The campaigns have been customized with catchy slogans that use a hybridized set of Hindi and English words, Hinglish to be in coherence to the language the youth.
  • Popular Campaigns were: Yehi Hai Right Choice Baby, Aha! (1990), Ye Dil Maange More (1999-2006), Ye Pyaas hai Badi (2000),Ye hai Youngistaan Meri Jaan (2009), Change the Game (2011), Oh Yes Abhi (2013-14) (Fig.17).         
  • In ‘Oh Yes Abhi’, Pepsi portrays the ‘impatience’ of the so called ‘Youngistaan’. Celebrity endorsers such as Ranbir Kapoor and Mahendra Singh Dhoni have been roped in for the campaign.
  • Through this initiative, Pepsi has engaged audiences through large scale ATL communication activities.
  • 
    

World Cup Association

PepsiCo has spent INR 160 Crore to Board of Control for Cricket to bag the title sponsorship and the tournament was officially declared PEPSI IPL 2013-14. It gained a lion share of 67% exposure among central sponsors, Repucom International.

Covert Advertisement

Pepsi as a brand has been featured in several movies like Subhash Ghai’s Taal and Karan Johar’s My Name is Khan to create a brand recall.

Ambush Marketing

Pepsi’s ‘Nothing Official about It’ , the massive advertisement blitz blanketing the ad world during 1996 World Cup is recalled as one of the classic cases of Ambush Marketing when Coca Cola was the official sponsor of the tournament.

Innovation(Indian aspect)

Pepsi Atom, the pilot launch of Tropicana in powdered form in sachets at INR 10 at Mumbai and Bangaluru, Nimbooz masala Soda in North India are some of the innovations it has delved into in the recent times. Pepsi Atom has been launched in tune with Masala Cola, Jaljeera flavor.

Targeting Health Conscious Groups

• It has introduced products with low sugar, zero sodium and saturated fat. Through its bottled water, juices and sport drinks like Gatorades, PepsiCo is aspiring to outperform its rival.
• However, Pepsi’s variant Diet Pepsi has not been as successful as predicted by the organization.

Advertisement

Be it the IPL season or Cricket and FIFA World Cup or festive occasions like Navarathri, Pepsi pours out its advertisements and campaigns on billboards, television, radio, internet, Newspapers and Magazines. This not only increases its visibility manifold, but also significantly serves as a strong Brand Recall.

Failures:

Point of Difference

There is no unique taste of Pepsi that can be spoken of as compared to ThumsUp. ThumsUp has carved a niche for itself in the rural markets in this respect. Therefore, PepsiCo needs to diversify its product portfolio with respect to local taste and requirements.

Creativity in ad campaigns

• Pepsi has over the years copied its ad campaigns from its global marketing campaigns, some of them being the direct Hindi rendition of its English Slogans. Coke on the other hand has established a connect to its target customers through original ad, ‘Happiness on the go’, ‘Thanda matlab Coca Cola’
• Coke has also come up with some innovative campaigns such as running open trucks with mobile fountain machines parked at places where election rallies were held.

Market Segment

Pepsi has failed in developing a market in exactly where Coca Cola has established the market for its cash cow, ThumsUp: Rural Market. With the per capita consumption being only 4 bottles per year, Pepsi should have seen tremendous opportunities in this market segment.

Price Point Edge

One of the stiffest competitions that Pepsi faces in rural markets is the local sellers of Chaach, Lassi and Lime Juice. Pepsi should introduce newer variants in 150 ml bottle size at low prices, ex. Rs.5 in this market. It can gain a significant advantage over Coke over sales volumes. This might cannibalize the sales of its higher priced versions, but this is a marketing strategy that can be deliberated over to have a price point edge over Coke or ThumsUp.

Failure of Pepsi Atom and Pepsi Max

• Pepsi Atom had been launched to compete with ThumsUp. However it failed to generate interest among its target customers. Even the marketing strategies adopted to popularize Pepsi Atom have fizzled out to ThumsUp star power backed by the very popular Salman Khan.
• Pepsi Max being marketed widely over internet only and an order based delivery approach did not click with the otherwise dormant online soft drink purchasing Indian crowd.

Innovations

Pepsi’s innovation, Jaljeera flavored Pepsi Atom competed head on with ThumsUp and is viewed as a ‘me-too’ product that seeks to rival ThumsUp thereby downplaying its theme of innovation.

Brand Revival Strategies

The Pepsi Store: Urban Strategy

• In order to penetrate the urban sector this store will be opened in most of the tier 1, 2 and 3 cities, especially in the hubs: an educational hub or an industrial hub. These stores will be of Franchise Owned Franchise Operated model, and they have to pay the company certain amount of money yearly or half – yearly. These stores will associate itself with the education centre attracting the youth, as the entire product portfolio will be available in these.
• Secondly, they can also associate with the shopping centres creating Pepsi Floor or Pepsigasm courts, where the furniture and the floor will be painted in Pepsi colors, depicting its logo, its major brands.

In order to advertise, these stores will open exclusive stalls in college fests, corporate meals, and government fares and in other public gathering occasions.

The Pepsi Pouch: Rural Strategy

• It is time Pepsi needs to shift focus to the severely untapped potential of rural market.
• In order to gain its stand on rural market, company has to focus upon three factors – Availability, Affordability & Acceptability. As we know the cost of soft drinks and other products are considered as high range products because of the low per capita income, therefore a single 300 ml Pepsi bottle is generally shared between two. In order to mitigate this problem, Pepsi pouches can be introduced at a reduced price of Rs.3.
• This pouch will be a 100 ML soft drink pouch. This pouch is a plastic pouch which is fitted with a capped straw to drink.
• Distribution model is as follows: Factory  -> Regional / Zonal Distributor ->  Multiple Local Distributors -> Caravan / Mobile Distributors -> Consumers
• This particular packaging can compete head on with the generic colas as distributed by regular mom-pop shops in the villages.
• The penetration is expected to increase by 30%, as forecasted according to historic scenario of introduction of 200ml bottles at the half price of 300 ml bottles.
• Pepsi should improve the design of the package first. As it is advertised as” the choice of new generation”, the design must be looked young and fresh. So the color should be more sharp and attractive.

Other Recommendations

• A diversified product portfolio is the need of the hour calling for variants having unique taste as opposed to the most of similar tasting cola drinks.
• Besides the Diet cola for the ladies, Pepsi can introduce many other new choices. For example, it can create a new kind of cola more suitable for children. Maybe by addition of Vitamins or some nutritious element that is necessary for children. A cola with very light alcoholic content can also be deliberated over which might be suitable for the adults.
• Pepsi is in dire need to be a price leader in the market. It needs to achieve a price point edge among its competitors. It can be achieved by taking steps similar to that of the innovation it brought out in the price strategies of Tropicana, INR 10 sachets.
• Pepsi needs to bring in unique and distinct flavor variants and create and target a separate market segment rather than falling into the trap of a ‘me-too’ product like Pepsi Atom.
• Pepsi Atom needs a revival in its marketing strategies. It is in a direct competition with ThumsUp. Campaigning it with a young and relatively new in the industry, Sushant Singh Rajput as against Salman Khan Advertising for ThumsUp has not been a successful idea. It has ramp up its visibility, bring an attractive pricing strategy to gather momentum in its sales.
• More variants in health and sport drinks can be introduced and actively campaigned in urban cities where consumers are largely shifting their buying behaviors to health based drinks and fruit based beverages. Sponsoring the major sport events across the country and annual sport fests held at popular colleges can be a strategy adopted to position its health based drinks.

Considering all the marketing strategies discussed in this report and their efficacies, it can be said without the slightest doubt that Pepsi does has a strong brand recall, however, it is yet to reach the top spot in the Indian Market. A brand revival strategy of Pepsi is hence, of utmost importance to position it above ThumsUp and Sprite and all other competitors in the Indian Market.

On the whole Pepsi is multinational brand which is very famous in the world and generates an annual income running to several Billion  dollars. Pepsi, to gain the market share that it aspires to, therefore needs to foray into new horizons, establish its point of difference and reinstate its Brand Equity like never before.

By : Tarun Gupta