India Drinks Up

The food and beverage (F&B) market in India is worth $232 billion and it has experienced a compounded annual growth rate (CAGR) of approximately 18% over the past few years. Despite the size and growth of the industry, related sub sectors such as store-bought nonalcoholic beverages remain underpenetrated, offering substantial growth opportunities to beverage companies and their subsidiaries.

This is due to a lack of overall consumption, a lack of routine daily consumption, poor brand differentiation and ineffective or irrelevant product positioning.

A Boston Analytics study has found that respondents in India do not like the taste of fruit drinks sold in stores.

Boston Analytics has conducted a study of over 7,900 locals across 14 different cities in India on carbonated beverage, fruit juice and energy or sports drinks product categories. Chart 1 shows a snapshot of the study.

Market challenges

• Lack of consumption

Approximately 120 billion liters of nonalcoholic beverages are consumed by Indians every year, but only 5% represent store-bought packaged beverages. Some 75% of the Indians surveyed said they consume ‘less than one’ store-bought non-alcoholic beverage a day. They cite health concerns and a preference for preparing their beverage according to their taste as reasons for not consuming store-bought packaged beverages. Here are more reasons why they do not consume many store-bought beverages:

• The three main reasons for low demand for carbonated beverages are health concerns, taste and the lack of preferred flavors,

• Respondents said they do not like the taste of fruit drinks; the beverages are not available in their preferred flavors and cite health concerns for low consumption, and

• Respondents find energy or sports drinks not easily available; the beverages are deemed unaffordable and do not suit their taste.

• Lack of routine consumption

Routine consumption here is defined as a regular consumption of beverages at the same time each day. In India, there is a lack of routine consumption for all product categories and approximately 60% of respondents said they consume a carbonated and/or fruit drink at “no fixed time” of the day. About 9% of the respondents said they consume energy drinks routinely.

• Lack of brand differentiation

Brand differentiation is achieved when consumers are able to differentiate a product or a brand from its competitors based on particular product attributes or services. Pepsi for example is differentiated from Coca Cola because it achieved signifi cantly higher consumer ratings for ‘taste’.

There is however little differentiation among brands in India’s carbonated beverages, fruit drinks and sports or energy drinks sectors. In an analysis of several product attributes such as product taste and quality, freshness, packaging, health benefits, brand image and promotions, non-alcoholic beverage brands were found to share similar ratings. This indicates that there is no product leader based on brand differentiation.

• Poor product positioning

Most brands in the store-bought non-alcoholic beverage market in India do not position themselves based on attributes that respondents value. While respondents ranked “attractiveness of packaging” as the second most important buying criteria for energy and sports drinks, none of the brands available in the market received an average rating of above five on a scale of one to 10, with 10 being “excellent”.

While some of these attributes may require significant long term investments in product innovation (such as creating healthful carbonated beverages), companies could work on areas that require a relatively less expensive and shorter term investment (such as creating an attractive packaging).

Opportunities

Despite the challenges, India's store-bought non-alcoholic sector still presents opportunities. Here are some of them.

• Meaningful brand differentiation and positioning

The study found that health concerns are a significant inhibitor of consuming store-bought non-alcoholic beverages, as brands in various product categories received poor ratings in terms of their health benefits. The average ratings for health benefits for each brand were lower than those for product attributes such as taste, packaging and availability.

If a brand can differentiate itself from the others in terms of its perceived health benefits, it would strengthen its existing consumer base and attract new ones. One company for example has announced a soft drink to address anemia amongst the rural Indian females.

• Customer segmentation

Beverage companies need to categorize the diverse Indian consumer market and identify viable growth segments. The highest penetration of store-bought non-alcoholic beverages can be found in the larger metropolitan areas such as Delhi, Mumbai and Kolkata, where there is a high frequency of consumption. Routine consumption is also found to be the highest in these cities.

The frequency of consumption across age and annual household income groups is reported to be the highest for the group between 18 and 25 years old and those in the income bracket of 10.1-20 Lakhs INR ($25,000-$50,000). Consumption is generally seen to directly increase with income (with the exception of the highest income group) and decrease with age.

• Routes to market

About 90% of trade in India is considered “traditional” or managed via independent mom-and-pop shops or grocers. Energy or sports drinks manufacturers in particular need to know how to navigate the fragmented traditional trade/retail routes in the country in order to enable greater consumer access to their products.

Conclusion

The store-bought non-alcoholic beverage market in India represents a potentially large and fast growing market as the large and growing number of Indians under the age of 35 represents the largest consumer group for non-alcoholic beverages.

Infrastructural development is also enabling greater market penetration, especially in rural regions and there are polices favoring deregulation and there are more foreign institutional investments.

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