Coke in Rural India

Submitted to:-
Mr.N.H Mullick

st-rajkumarsingh@ismc.edu.in
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Rural Market Scenario

• Most MNCs that came in to India after 1999 targeted India upper
middle class to earn more revenues.

• According to industry estimates rural India accounts for 74% of

population and 58% of indian rural disposable income.

• Rural India is also characterized by growing affluence: agricultural

output increasingly to early 215 millions tonnes in 2004 compared to
176 millions in 1991.

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Rural Market Scenario

• According to data compiled by the National Council of Applied

Economic Research rural India now accounts for the 70% of toilet
soap users, and 38% of two-wheelers purchases come from India.

• Atlanta based Coca-Cola company is one of the first global majors

to have spotted the potential spin offs from the country’s rural
market.

• It has perfected a unique supply chain to cater to india’s vast rural

markets hinterland. The results are working and coca-cola India
rural penetration increased from 13 percent in 2001 to 25 percent in
mid 2003.

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Rural Market Scenario

• Over this period, the numbers of

company’s rural distributors
increased from less than 4000 to
5500.

• Cola’s, being fast moving

consumer good, hold enormous
potential from a manufacturer like
the coca-cola company. The
biggest reason for this is the low
per capita consumption, which
coke estimates at 3.7 bottles
person per year compared to 10
bottles per person per year for all
India.

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Rural Market Scenario

• Breaking to this market required innovative thinking and a new

strategy. Rural india meant reaching 6,27,000 square Km; it meant
getting distributors to travel 200 kms to reach five shops with drop
sizes of than a case.

• A typical village retail environment consists of 4-5 kirana

shops( stripped down version of mom and pop shops), the size of
such stores varies depending on the size and population density of
village where it serves.

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Coke in India

• Coca-Cola was the leading soft drink brand in India until 1977 when
it left rather than reveal its formula to the government and reduce its
equity stake as required under the Foreign Exchange Regulation Act
(FERA) which governed the operations of foreign companies in
India.

• After a 16-year absence, Coca-Cola returned to India in 1993,

cementing its presence with a deal that gave Coca-Cola ownership
of the nation's top soft-drink brands and bottling network.

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Coke in India

• Coke’s acquisition of local popular Indian brands including Thums

Up (the most trusted brand in India21), Limca, Maaza, Citra and
Gold Spot provided not only physical manufacturing, bottling, and
distribution assets but also strong consumer preference.

• Leading Indian brands joined the Company's international family of

brands, including Coca-Cola, diet Coke, Sprite and Fanta, plus the
Schweppes product range.

• In 2000, the company launched the Kinley water brand and in 2001,
Shock energy drink and the powdered concentrate Sunfill hit the
market.

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Coke in India

• Coca-Cola India achieved 39% volume growth in 2002 while the

industry grew 23% nationally and the Company reached breakeven
profitability in the region for the first time.

• Coca-Cola India produced its beverages with 7,000 local employees

at its twenty-seven wholly-owned bottling operations supplemented
by seventeen franchisee-owned bottling operations and a network of
twenty-nine contract-packers to manufacture a range of products for
the company.

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Coke in India

• Coke and Pepsi dominated the

market and together had a
consolidated market share
above 95%.
• While soft drinks were once
considered products only for
the affluent, by 2003 91% of
sales were made to the lower,
middle and upper middle
classes.
• Soft drink sales in India grew
76% between 1998 and 2002,
from 5,670 million bottles to
over 10,000 million and were
expected to grow at least 10%
per year through 2012.

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Coke in India
• In spite of this growth, annual per
capita consumption was only 6 bottles
versus 17 in Pakistan, 73 in Thailand,
173 in the Philippines and 800 in the
United States.

• With its large population and low

consumption, the rural market
represented a significant opportunity
for penetration and a critical
battleground for market dominance.

• In 2001,Coca-Cola recognized that to

compete with traditional refreshments
including lemon water, green coconut
water, fruit juices, tea, and lassi,
competitive pricing was essential.

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Coke Rural Initiatives

• Coca-Cola India doubled the number

of outlets in rural areas from 80,000
in 2001 to 160,000 in 2003, which
increased market penetration from 13
per cent to 25 per cent.

• It brought down the average price of

its products from Rs 10 to Rs 5,
thereby bridging the gap between
soft drinks and other local options like
tea, butter milk or lemon water.

• It doubled the spend on

Doordarshan, increased price
compliance from 30 per cent to 50
per cent in rural markets and reduced
overall costs by 40 per cent.

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Coke Rural Initiatives

• It also tapped local forms of entertainment like annual haats and

fairs and made huge investments in infrastructure for distribution
and marketing.

• Result: the rural market accounts for 80 per cent of new Coke
drinkers and 30 per cent of its volumes.

• The rural market for Coca-Cola grew at 37 per cent over the last
year, against a 24 per cent growth in urban areas. Per capita
consumption in rural areas has doubled in the last two years.

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Coke Products:

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Coca- Cola in Indian Market

• We want to be the Hindustan lever limited of the indian

beverage business.
Sanjeev Gupta, Deputy President – Coca-Cola India in May 2002

• The rural market is the significant part of our rural

marketing strategies which enables us to help the
consumer link with our product.
Sanjeev Gupta, Marketing Director – Cola-Cola India, in August 1995
• The real market in india is the rural areas. If you crack it,
there is a tremendous potential.
Nanto Banarjee- Spokeswoman CCI.

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‘Thanda’ Goes Rural

• In early 2002, CCI launched a

new advertisement campaign
featuring leading Bollywood star
Aamir Khan. The advertisement
with tagline- ‘Thanda matlab
Coca- Cola’ was targeted at
rural semi urban consumers.
• The idea was to position Coca-
Cola as a generic brand for cold
drinks. The campaign was
launched to supports CCI’s rural
initiatives.
• CCI began focusing on the rural
market in the early 2000s in
order to increase volumes. The
decision was not surprising,
given the huge size of the
untapped rural india.
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‘Thanda’ Goes Rural

• In an effort to make the price point of Coke within reach of this high-
potential market, Coca-Cola launched the Accessibility Campaign,
introducing a new 200ml bottle, smaller than thetraditional 300ml
bottle found in urban markets, and concurrently cutting the price in
half, to 7.

• Rs. 5. This pricing strategy closed the gap between Coke and basic
refreshments like lemonade and tea, making soft drinks truly
accessible for the first time.

• Coke invested in distribution infrastructure to effectively serve a

disbursed population and doubled the number of retail outlets in
rural areas from 80,000 in 2001 to 160,000 in 2003, increasing
market penetration from 13 to 25%.

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‘Thanda’ Goes Rural
• However, the poor rural
infrastructure and consumption
habits that are very different from
those of urban people were two
major obstacles to cracking the
rural market for CCI.

• Because of the erratic power

supply most grocers in rural areas
did not stock cold drinks.

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Brand Localization Strategy: The Two Indias
India A: “Life ho to aisi”

• “India A,” the designation Coca-Cola

gave to the market segment including
metropolitan areas and large towns,
represented 4% of the country’s
population.

• This segment sought social bonding

as a need and responded to
aspirational messages, celebrating the
benefits of their increasing social and
economic freedoms.

• “Life ho to aisi,” (life as it should be)

was the successful and relevant
tagline found in Coca-Cola’s
advertising to this audience.

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 India B: “Thanda Matlab Coca-Cola”
• Coca-Cola India believed that the first
brand to offer communication targeted
to the smaller towns would own the
rural market and went after that
objective with a comprehensive
strategy.

• “India B” included small towns and

rural areas, comprising the other 96%
of the nation’s population.

• This segment’s primary need was out-

of-home thirst-quenching and the soft
drink category was undifferentiated in
the minds of rural consumers.

• Additionally, with an average Coke

costing Rs. 10 and an average day’s
wages around Rs. 100, Coke was
perceived as a luxury that few could
afford.

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CCI’S Rural marketing strategy

• CCI’s rural marketing strategy was based on three A’s – Availability,

Affordability and Acceptability.

• The first ‘A’ – Availability emphasized on the availability of the

product to the customer.

• The second ‘A’ - Affordability focused on product pricing.

• The third ‘A’- Acceptability focused on convincing the customer to

buy the product.

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Availability

• Once CCI entered the rural market, it focused on strengthening its

distribution network there.

• It realized that the centralized distribution system used by the

company in the urban areas would not be suitable for rural areas.

• In the centralized distribution system, the product was transported

directly from the bottling plants to retailers.

• However, CCI realized that this distribution system would not work
in rural markets, as taking stock directly from bottling plants to retail
stores would be very costly due to the long distances to be covered.

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Availability

• For transporting stock from spokes to village retailers the company

utilized auto rickshaws and cycles.

• Commenting on the transportation of stock in rural markets, a

company spokesperson said, “We use all possible means of
transport that range from trucks, auto rickshaws, cycle rickshaws
and hand carts to even camel carts in Rajasthan and mules in the
hilly areas, to cart our products from the nearest hub.

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Availability

• The company instead opted for a hub and spoke distribution

system, Under the hub and spoke distribution system, stock was
transported from the bottling plants to hubs and then from hubs, the
stock was transported to spokes which were situated in small towns.

• CCI not only changed its distribution model, it also changed the type
of vehicles used for transportation. The company used large trucks
for transporting stock from bottling plants to hubs and medium
commercial vehicles transported the stock from the hubs to spokes.

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Affordability

• A survey conducted by CCI in 2001 revealed that 300 ml bottles

were not popular with rural and semi-urban residents where two
persons often shared a 300 ml bottle.

• It was also found that the price of Rs10/- per bottle was considered
too high by rural consumers.

• For these reasons, CCI decided to make some changes in the size
of its bottles and pricing to win over consumers in the rural market.

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Affordability

• In 2002, CCI launched 200 ml bottles (Chota Coke) priced at Rs 5.

• CCI announced that it would push the 200 ml bottles more in rural
areas, as the rural market was very price-sensitive.

• It was widely felt that the 200 ml bottles priced at Rs. 5 would
increase the rate of consumption in rural India.

• Reports put the annual per capita consumption of bottled beverages

in rural areas at one bottle as compared to 6 bottles in urban areas.

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Acceptability

• The initiatives of CCI in

distribution and pricing were
supported by extensive
marketing in the mass media as
well as through outdoor
advertising.
• The company put up hoardings
in villages and painted the name
Coca Cola on the compounds of
the residences in the villages.
• Further, CCI also participated in
the weekly mandies by setting
up temporary retail outlets, and
also took part in the annual
haats and fairs - major sources
of business activity and
entertainment in rural India.

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Distribution Strategy

• To reach out to rural India, Coke

started out by drawing up a hit list of
high potential villages from various
districts. To ensure full loads, large
distributors (Hubs) were appointed,
and they were supplied from the
company's depot in large towns and
cities.

• Full load supplies were offered twice

weekly against payment by demand
draft. On their part,the hubs appointed
smaller distributors (Spokes) in
adjoining areas.

• The smaller distributors undertook

fixed journey plans on a weekly basis
and supplied against cash. The
distributors also hired rickshaws (cycle
operated vans) that travelled to
villages daily.

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 Coke Rural Market

2001 2002 2003

Rural 81,388 130,375 158,432

Coverage

Rural 13% 21% 25%

Penetration

Distributors 3,935 4,263 5,472

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Distribution Strategy
CCI’s distribution system in urban areas

CCI’s distribution system in Rural areas

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Advertising Strategy

• Coke realised that the communication media used in cities and

urban areas would not work in villages because of low penetration
of conventional media.

• Coke has estimated that TV access is 78.5 per cent in urban India
but only 41per cent in rural India Similarly, Cable & Satellite access
in urban India is 51 per cent in urban India but only 14 per cent I
rural India.

• Coke considered alternative options, and decided to concentrate on

47,000 haats (weekly markets) & 25,000 melas (fairs) held annually
in various parts of the country.

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Advertising Strategy

• CCI also launched television

commercials (TVCs) targeted at
rural consumers. In order to reach
more rural consumers, CCI
increased its ad-spend on
Doordarshan.
• The company ensured that all its
rural marketing initiatives were well-
supported by TVCs.
• When CCI launched Chota Coke in
2002 priced at Rs. 5, it bought out a
commercial featuring Bollywood
actor Aamir Khan to communicate
the message of the price cut and
the launch of 200 ml bottles to the
rural consumers.
• The commercial was shot in a rural
setting.

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Advertising Strategy

• In the summer of 2003, CCI

came up with a new commercial
featuring Aamir Khan, to further
strengthen the Coca-Cola brand
image among rural consumers.
• The commercial aimed at
making coke a generic name for
‘Thanda.’ Of the reason for
picking up the word ‘Thanda’,
Prasoon Joshi, national creative
director – McCann Erickson, the
creator of the commercial, said,
“Thanda is a very North India-
centric phenomenon. Go to any
restaurant in the north, and
attendants would promptly ask,
‘thanda ya garam?’

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34
Advertising Strategy

• Between March and September 2003, CCI launched three

commercials with the ‘Thanda Matlab Coca-Cola’ tag line.

• All the three commercials aimed to make rural and semi-urban

consumers connect with Coca-cola.

• The first ad featured Aamir Khan as a ‘tapori’ (street smart); in the

ad he makes the association between Coca-Cola and the word
‘Thanda.’

• The second commercial in the series featured Aamir Khan as a

‘Hyderabadi shop-keeper’; here again he equates the word ‘Thanda’
with Coca-Cola.

• The third commercial featured Aamir Khan as a ‘Punjabi farmer’ who

offers Coca Cola to ladies asking for Thanda.
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Advertising Strategy

• ‘Thanda’ usually means lassi or

nimbu pani, ‘garam’ is essentially
tea. Because the character, in
itself, represented a culture, They
wanted to equate Coke with
‘Thanda’, since ‘Thanda’ too is
part of the popular dialect of the
north.
• Thus making ‘Thanda’ generic for
Coca-Cola. With the long-playing
possibilities of the ‘Thanda’ idea
becoming evident, ‘Thanda’
became the central idea. Once we
decided to work on that idea, the
creative mind just opened up.”

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Rural Success

• Comprising 74% of the country's population, 41% of its middle class,

and 58% of its disposable income, the rural market was an attractive
target and it delivered results.

• Coke experienced 37% growth in 2003 in this segment versus the

24% growth seen in urban areas.

• Driven by the launch of the new Rs. 5 product, per capita

consumption doubled between 2001-2003.

• This market accounted for 80% of India’s new Coke drinkers, 30%
of 2002 volume, and was expected to account for 50% of the
company’s sales in 2003.

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Pepsi Vs Coke

• The main competitor and rivalry of Coke is Pepsi, but if we the rural
market, there are some major regional players like Campa- Cola
and others.

• When Coke launched ‘Thanda matlab Coca-Cola’, suddenly Pepsi

came up with ‘Thanda- Chelaga Kya’.

• PepsiCo too had started focusing on the rural market, due to the
flat volumes in urban areas.

• Like CCI, PepsiCo too launched 200 ml bottles priced at Rs. 5.

Going one step ahead, PepsiCo slashed the price of its 300 ml
bottles to Rs 6/- to boost volumes in urban areas.

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 Market Share

39

Coke
Pepsi

61

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Future Prospects

• CCI claimed all its marketing initiatives were very successful, and as
a result, its rural penetration increased from 9% in 2001 to 25% in
2003.
• CCI also said that volumes from rural markets had increased to
35% in 2003.
• The company said that it would focus on adding more villages to its
distribution network.
• For the year 2003, CCI had a target of reaching 0.1 million more
villages. Analysts pointed out that stiff competition from archrival
PepsiCo would make it increasingly difficult for CCI to garner more
market share.
• In early 2003, CCI announced that it was dropping plans to venture
into other beverage businesses.

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Future Prospects

• Company sources said that increasing volumes of cola

drinks had made the company rethink its plans of
launching juice and milk-based beverages.
• In 2002, CCI had announced plans to launch beverages
such as nimbu paani (lemon juice), fruit juice, cold
coffee, and iced tea in collaboration with Nestle India.
• Though CCI was upbeat on account of its early success
in its drive to capture the rural market, the question was
whether the company would be able to take this success
further.

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Pesticides Issue

• A major media setback occurred in August 2003, when the Delhi-

based Center for Science and Environment announced that it had
found high pesticide content in soft drinks manufactured and sold by
both cola majors.
• With many social and political groups becoming active against the
cola companies in rural areas, it remains to be seen whether CCI
will be able to quench its thirst for the rural market.
• Though CCI refuted these allegations, the company reportedly
experienced a considerable decline in sales after August 2003.

• After presenting the facts, CCI was able to regain its rural
customers.

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Thank You

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