INDIA – Coca-Cola and PepsiCo plants for aerated sugary beverages are running at about half their capacities, underscoring a pronounced shift in consumer preference that has led to the slowest phase of growth for India’s carbonated soft drinks industry.
“On an average, carbonated soft drink (CSD) lines at plants are running at half or 40% of their capacity.
Earlier, this was the case only in off-season months such as December and January.
Now, barring May and June, plants are running at half their capacity the rest of the year for aerated drinks,” two industry insiders told ET.
Buyer preference for non-sugary healthier beverages and a proliferation of B-brands have led to tepid demand, with growth falling to low single digits for seven quarters now.
Further, levies of 40% on aerated beverages under the single producer tax GST have dented the profitability of both global companies.
Output lines for functional drinks such as juices, juice-based drinks, sports drinks and flavoured or fortified water are running at optimum capacity, but these have a far smaller base than the Rs 22,000-crore CSD category.
Both companies are, therefore, focusing on manufacturing more non-aerated drinks, tweaking production plans to be in kilter with the latest consumer preference.
For its part, PepsiCo says utilisation is satisfactory. Niteen Pradhan, VP, supply chain and operations, said that there was “no significant change” in the capacity utilisation across the company’s plants.
“We have the right capacity to service our growth plans for the portfolio going forward. Over the last few years, our beverage portfolio has expanded into many newer categories across carbonated beverages-within both colas and flavours, juice and juice drinks, sports and active hydration, in line with evolving consumer choices,” Pradhan said.
He said several new products such as Pepsi Black, Tropicana-Essentials and 7UP Revive have been supported by rigorous capacity planning and optimisation across operations.
To be sure, Coca-Cola shut down five plants across Rajasthan, Uttar Pradesh, and Andhra Pradesh last year because of slowing demand. PepsiCo said it has not closed any plant in the past three years.
“Colas defined CSDs for many years. But this will not be the case in the future. The relevance for colas is fast moving with food outside home at restaurants,” another industry official said.
PepsiCo has 45 beverage plants in all, which includes nine company-owned facilities.
Almost all of PepsiCo’s franchisee-run plants are owned and operated by Ravi Jaipuria-promoted Varun Beverages.
Coca-Cola has 57 plants, including company-owned and franchisee bottlers.
A Coca-Cola spokesperson said the company’s manufacturing facilities are being used to their optimum capacity and have the necessary flexibility to support business growth objectives.
“We have products in our innovation pipeline that will require the full capacity of our manufacturing plants,” he said.
Research and analytics firm Euromonitor says that between 2016- 2021, bottled water sales will increase a fifth, far outrunning the 7% growth for carbonated drinks.
In terms of value, too, bottled water will rise 17%, compared with 4% for CSDs.
“Unavailability of clean drinking water, especially away from home, will continue to be a major growth driver during the forecast period and will encourage the growth in bottled water sales,” it said.
August 29, 2017: ET Retail