HCCB - Finance Case Study

Non-Alcoholic Beverage Market in India: Industry Landscape

The consumption of non-alcoholic ready to drink beverages (NARTD) has increased nationwide due to consumer
preferences shifting, advances in product packaging, increase affordability, accelerated urbanisation and growing
rural consumption. The non-alcoholic beverage industry in India is expected to see “Significant growth” and
anticipated to expand at a compound annual growth rate (CAGR) of 8.85% during the forecast period to reach 250
million Physical Cases by the end of FY 2027. With impressive profitability – The industry will see emergence of new
players and heightened expansion from the existing players.

Segment insights:
The non-alcoholic beverages market is segmented into carbonated and non-carbonated beverages. The market for
carbonated beverages is projected to surge at a CAGR of 5.57% during FY 2022 to FY 2027 to reach 100 million
Physical Cases at the end of the forecast period.

The category of carbonated beverages is anticipated to lose market share during the projected period because of
the non-carbonated beverages segment's quick expansion. Aerated beverages that aren't cola, in particular fruit
drinks, have grown in popularity recently. Leading companies are changing their business strategies in response to
consumer worries about their health. The market for non-carbonated beverages has expanded rapidly because of
growing consumer health consciousness and easier accessibility. Non-Carbonated Category holds prominence in
southern part of India with a whopping market share of 60% in the non-alcoholic beverage market defining
consumer preferences towards Juices over aerated drinks.

Competitive Advantage:
Capacity would be the differentiating factor. Major Players in the industry are looking to augment capacity to meet
the rising consumption trends towards NARTD. Plus- It would warrant rejigging the existing network to meet the
disruptive needs of Urban consumers and building Supply centre in the hinterlands to exploit the demand in
underpenetrated areas and augment rural distribution.

ABC Ltd Scenario Today:

The Company holds the highest market Share of 55% in the Non -Alcoholic Beverage market with a segmented share
of 70% in Carbonated and 40% in Non-Carbonated category. It has been growing ahead of industry and is looking to
tap the potential as Industry is poised to grow substantially in future. It is committed to its mission of refreshing,
bringing happiness, creating magical moments, and making difference to the people of India by providing world
class quality beverage.
The company operates through various South & West and North & East zones (Demand centre) served by supply
centre in South and North to cater to channel and customers across geographies in India. The company has following
portfolio of Products: Carbonated – Cola, Lime, Orange with various Packs, Non-Carbonated- Mango and Orange
Juice.

It has a manufacturing footprint in Andhra Pradesh, Chennai and Haryana and each of the sites is short of space to
add another manufacturing lines. Company employs large worker base across these sites as most of the operations
across process, packaging and shipping are labour intensive. 70% of the workforce hails from the local villages and
have been employed for last 25 years since the inception of ABC operations in India.
Company is confronted with a Challenge of constrained capacity in South Cluster and have surplus capacity in North.
Presently- Capacity in North (Manufacturing Site at Sonipat, Haryana) is utilised to feed part of Southern Zone
Demand (Andhra Pradesh). However, Sonipat Site is marred with few operational challenges:
a) Water Scarcity during peak summers, b) Tough Labour Union.
There is a limit on the ground water extraction and during season the demand is higher than the limit permissible by
authorities. In Haryana- labour had always posed major problems.
Strikes seemed to be a perennial problem across all industries. There are few notorious workers who have spent
more than 2 decades in ABC ltd fuel such adverse environment. There has been proposal by the Haryana government
directing 70% of employees in the manufacturing set up should be from the state which is prejudicial to the merit
system.

Overall ABCL LTD Manufacturing lines across brown field sites are fully utilised and can cater to the growth for next
1 year. There is a possibility of improvement in throughput as some critical parts of machinery are outdated and it
is believed that efficiency improvement can add to 10% of capacity. The company may go for a new Green Field site
looking at the long-term growth projections coupled with evaluating options to outsource manufacturing of few SKUs
(through co-packers) to unlock capacity constraints for the immediate requirement. These co-packers (independent
setup) have footprint in the southern region and do manufacturing for Competitor Products. The company is scaling
the digitisation agenda to add productivity and enhance visibility on the operational processes executed on shop
floor.

Following are some of Key Areas requiring Strategic interventions:

• Capacity: Manufacturing lines are fully utilised and can cater to the growth for next 1 year. There is a
possibility of improvement in throughput with Engineering interventions and Upskilling existing workforce.
• Innovation: The company is looking to add new products under the non-Carbonated category having health
benefits with the addition of Aloe vera and Amla in the existing Mango and Orange drinks.
• Logistics and Distribution: As part of the Strategic initiative- Company is looking to Strengthen urban
distribution by leveraging B2B opportunities and expand its rural distribution to tap the growing rural
demand necessitating adding Depots for Supplying stock to Trade.
• Automation and digitisation: Adoption of Technology and replacing obsolete manufacturing lines with high-
Speed lines to unlock capacity and aid cost productivity. Promote Digitisation enhancing visibility on the
operational processes tracking and eliminating inefficiencies.
• Environment and Sustainability- Driving Effectiveness in Power and Water usage and shifting towards green
(renewable) energy for running Manufacturing lines.

Task at Hand:
Divided in to following Stages.

Stage 1 (Executive Summary Round): Pick up 3 of the above key interventions, critical in the context of changing
NARTD Industry landscape and conceptualize a Comprehensive Strategic Roadmap to remain dominant and relevant
in the growing phase.

Stage 2 (Detailed Summary Round): Bring in other Key initiatives, link it to the Road Map presented in the previous
stage and come up with the estimated plan detailing investments needed to execute the plan.

Stage 3 (Grand Finale): Executive Summary of Strategic Initiatives along with Action plan on its execution and how
each will help to drive growth and productivity.
FAQs:

1. Do we need to create the entire Strategic Road map in the first stage?

No, In the first stage, it is expected to Pick up critical strategic imperatives in the wake of disruption in the NARTD
industry. You would mention the reasons for choices made and will prepare a write-up on the relevance and
groundwork /due diligence needed to proceed with the execution of the strategy.

2. Can we use more data than given in the Business Case?

Yes, please don’t limit yourself to the given data. You may do research on the broad manufacturing and logistics
costs incurred in the beverage industry; and the investment needed for adding production capacity.

3. Can we assume on the Pack and Product Portfolio?

Yes, you may do that. Based on the Packs prevalent in the soft beverage industry. You may also think of introducing
a new product line under the NARTD category.