The fizz is back

Rarely does a crisis present itself in the garb of success, as it did, when Atul Singh took over as the Country Head of Coca-Cola India in September 2005. Boosted by the 5-rupee (200 ml) bottle, its sales were rocking and, courtesy its new brand ambassador, Aamir Khan, Coke had—finally— wrested the buzz from its arch rival Pepsi. Aamir’s Thanda Matlab Coca Cola and Panch Matlab Chota Coke were not only popular but delivered volume growth that earned Coke India its first and only Woodruff Cup—named after Robert W. Woodruff, one of Coca-Cola’s most influential chairmen who was with the company for over 50 years.

1. Powered by 11 consecutive quarters of growth, including the best-ever quarter in Q1 '09 2006 Q3: 4 Q4: 13 2007 Q1: 5 Q3: 21 Q4: 19 2008 Q1: 12 Q2: 7 Q3: 18 Q4: 28 2009 Q1: 31 Percentage growth in sales volume for each quarter over the same quarter of previous year. Source: Coca-cola

Beneath the apparent aura of success, however, problems were mounting. The company was running on empty—and that meant more than just losing money. By the middle of 2005, once the world’s most admired brand had its reputation in India in tatters. Its partners—mostly bottlers—were edgy, its people downbeat (attrition rate had touched a record 35 per cent) and its Atlanta headquarters was jittery. It was no comfort that its arch rival Pepsi was also in the same boat, egged on by the competitive pricing strategy.

That seems such a far cry from the Coca-Cola India Inc. (CCII) of today. On April 21, it became officially known that January-March 2009 was Coke India’s best quarter ever in its 17-year-history in terms of annual sales volume growth. This was the company’s 11th consecutive quarter of growth—another record.

Adding punch to this feat is the fact that, unlike earlier, the growth is not at the expense of profits. The company is regaining market share (it has always been the leader in collective terms, with a market share of 50 per cent and above ), has finally gained mindshare too, and is making profits on a turnover that’s estimated to be over Rs 4,000 crore. To cap it all, CCII is also stepping up investments ($250 million and a similar amount by its bottlers in the next three years). The man at the helm of Coke, through its journey from extreme lows to a record high, is Atul Singh. Handpicked by Coke’s then CEO, Neville Isdell, Singh has used every lesson he learnt in his career graph that spans the US, Africa, Eastern Europe and China, to script the turnaround in India.

Margin vs Market
Singh’s experience and skills were put to the toughest test within months of his taking over the reins in India. The Rs-5 bottle, which had the company’s sales booming, had to be stopped and stopped soon. It was hemorrhaging the company and its bottlers, and—in varying degrees— the other players in the industry too, who had launched their own versions of chota cola. But, there was no agreement on the timing and extent of the price hike. “The Rs-5 bottle, for a change, had our plants humming through the year. Of course, the company was subsidising our costs,” says a franchise bottler of coke. Also, the company believed that it helped the soft drink break the critical “tea barrier” and was weaning away customers from tea (priced at three to four rupees) to cold drinks—thus creating a new market.

Singh decided not to take any shortcuts and went for a one-shot big price hike of up to 60 per cent. “There was no silver bullet. We had to restore financial health, and we knew it would be at the cost of a hit on volumes (sales). My job was to convince everybody that this was good not just for the short term, but also for the long term,” says Singh.By the end of 2005, the price hike was implemented—40 per cent to 60 per cent across regions. The Rs-5 bottle was consigned to history and replaced by bottles priced at Rs 7 and Rs 8. “Ironically, Coke has grown by scaling down its ambition. The strange thing is that in wanting less, it is getting more,” says former McCann Erickson Head, Santosh Desai, who handled Coke, and is now CEO, Future Brands. He says it’s slightly complex figuring why the higher-pricing strategy works for Coke: “Coke tried so much and the Rs-5 strategy was at the potential cusp of exploding into something else as there was a huge consumer-connect.
However, internal productivity was not part of the paradigm—which it seems to be today.”

How Atul Singh fixed Coke’s 5Ps... Profit Earlier: Excessive reliance on price cuts pushed volumes, but drained resources and investment Now: Coke India is finally profitable, growth is sustainable and investments are flowing in Partners Earlier: Confusion, confrontation often marked relations with franchisees causing defection and underinvestment Now: A new structure to separate franchise and company bottlers, transparency and trust in dealings People Earlier: High attrition of executives, frequent change in CEOs, lack of clarity in roles Now: Attrition at one of the lowest ever levels, several employee benefit schemes Planet Earlier: Pesticide controversy tarred the company image and badly affected all cola makers Now: Commissioned independent third party environment audit, report made public Portfolio Earlier: Healthy growth, but without very clear focus, underinvestment in packaging, distribution Now: Each brand has specific pricing, packaging, channel and occasion strategy. New launches planned Productivity A newly added 6th P to focus on efficiency and effectiveness

The curse of success triggered by the Rs-5 bottle lingered on for some time. Sales—beverage industry reports sales in unit case volumes—continued to slide for three quarters due to the price hike and other inventory-improvement measures. Pepsi, which had become the leader by beating Thums Up sometime in early 2000, continued its reign (till October 2007 when Thums Up got back its leading status). But Coke had achieved its immediate goal of stanching losses. In the company’s scheme of things, it had fixed one critical P (profit) of its 5Ps (see graphic The 5Ps below). Isdell had, in 2005, unveiled a “Manifesto For Growth” for the company, which was described as “the framework for our roadmap and guides every aspect of our business”. This meant achieving perfection across the “5Ps”—Profit, Portfolio, People, Partners and Planet—which, if properly implemented, would generate profitable and sustainable growth for the beverage giant. When Singh took over, only one of the 5Ps—portfolio—was working in favour of the company. Having fixed the profit P, Singh was to tune up the other Ps in the months to come.

Successful brands, unsuccessful company
Though many of Singh’s challenges stemmed from the company’s excessive reliance on the affordability plank to drive up sales, Coke India’s fundamental problem dates back to its re-entry (it exited the country in 1977) strategy in 1993. And, that fundamental problem is the problem of plenty.Coca-Cola entered India as a market leader from day one. Thanks to its $40-million acquisition of Parle’s soft drink brands, the company acquired 60 per cent market share at one stroke, compared to Pepsi’s then share of 26 per cent, created assiduously over the years. But, while this may have been a masterstroke as an entry strategy, it saddled the company with multiple brands to juggle. It had two colas— Thums Up and Coke—and two orange flavours— Gold Spot and Fanta, to which it later briefly added Crush, the brand it globally acquired from Cadbury’s in 1999. “There was a role for each brand and it’s likely that at times in the past we didn’t focus with laser-sharp precision in marking our brands for different occasions and across different geographies,” says Singh. As a result, a company insider says, “we had successful brands, but were not successful as a company.”

Adding to the complication was the sheer resilience of brand Thums Up. Though the company denies having tried to kill or even neglect it, the market perception is that it did. And failed. Sixteen years after Coke’s re-entry, and two decades since Pepsi’s entry, Thums Up remains the number one sparkling drink brand in the country.

None of Coke’s previous country heads could really resolve the problem of plenty. Reason: they didn’t know which brand to underplay and with what consequences. The experience with Thums Up didn’t help. Apparently, and again the company denies this, Coke realised that every experiment to undermine Thums Up was benefitting Pepsi more than Coke. Even today, without Thums Up, Coke’s collective market share falls to 43.3 per cent. So, Coke finally decided to use Thums Up not only to strengthen its portfolio but also attack Pepsi. Result: its market share has climbed up to 59 per cent.

Though the problem of plenty hasn’t entirely disappeared, there is a much more focussed approach today than ever before. Singh’s methodology was to apply a formula called BPPCO (brand, pack, price, channel and occasion) for defining the role of each brand. “We ensure that the right brands at the right price, in the right pack, in the right channel and for the right occasion are made available,” says Singh.

Trusting partners, winning people
Every weekend, employees working at Coca-Cola India’s Gurgaon headquarters take home four litres of company beverage free under a programme called “Weekend Funda.” It’s a small gesture that adds up with other initiatives like a concierge and crèche service, a diversity council and a Coke University (for training employees, bottlers and retailers) to help keep employee motivation high. The company claims that measures like these have helped bring down the attrition rate to an alltime low of under 15 per cent. “When the system doesn’t make money for a long time, it affects everybody.

Even our salary levels were not aligned with the best in industry. Employee morale was low and we had lost faith in ourselves,” recounts Singh. Within a year (in 2006), three salary hikes were effected. Singh’s approach helped. “He’s seen as an approachable boss, who cuts rank to have a monthly breakfast with managers and employees,” says a company insider. The obvious part of Singh’s footwork has been in picking the right set of talent as part of his leadership team. That has won him many admirers from within and outside: “I see that he’s accomplished a huge task in having a very positive, stable and youngish leadership team around him. The fizz of the product is reflected in the key people of the Suresh, Managing Director, Stanton Chase International. Singh brought in Venkatesh Kini from Atlanta to head marketing (Kini’s now gone back to Atlanta as the Head of the Juice Business) and Vikas Chawla from Sri Lanka to head franchise operations. e’s nurtured existing talent like Asim Parekh to head technical and innovations and Nalin Garg, who was brought in from Diageo to head HR.Even tougher than the people challenge were the challenges posed by partner and planet Ps. A unique characteristic of the soft drink business is the integral role of bottlers, who interface with the retailer, and therefore, can hugely influence customer satisfaction. Singh is clear that Coke is essentially a “120 years old franchise company”. If franchisees are happy and profitable, they will keep the customer happy and the company profitable. But right from the time it re-entered India in 1993, Coke has had a stormy relationship with its franchisees. Unlike in the US, the company ended up acquiring several of its franchisees in India. That created two different types of bottlers—company-owned bottlers (COBO) and franchisees (FOBO). Currently, 50 per cent of Coke’s bottling plants are company-owned.With thinner margins, several of the FOBOs were struggling and its own bottlers were running into huge losses. It showed up in poor distribution, infrequent availability of Coke brands and an aversion to investing in new lines of production (e.g. new kinds of PET bottles, tetra packs, coolers). This was a key factor in the competition stealing a march over Coke in several markets.

Isdell, partially solved the problem for Singh by introducing the global model with a separate companyowned bottling operations and an independent concentrate and marketing division. Today, CCII is in charge of concentrate selling, marketing and innovation strategy. The Hindustan Coca-Cola Beverages Company, on the other hand, drives bottling operations and distribution (COBO) and reports to the Bottling Investment Group, in Atlanta. Singh took this repair job further by mending fences with his bottlers, which also included instituting training programmes. Says a franchisee who wished to remain unnamed: “There is huge transparency today. We know of many plans and decisions, which we earlier used to learn from the market.”

Another bottler says that he is now able to plan as much as a year in advance. “Singh may not agree with everything that we say, but he gives us a fair hearing,” he adds.

Buzz and the mindshare
One of the ironies of Coke India was that despite always having a lion’s share of the market (combined share of all its brands), it could never capture the mindshare, which was invariably with its rival Pepsi.

This reflected in everything from distribution of products to brand campaigns. That’s changing now. For the IPL matches in South Africa, Coke pulled the carpet from under its rival’s feet by zeroing in on Pepsi’s “Youngistan” campaign brand ambassadors, Virendra Sehwag and Ishant Sharma. Though they champion Pepsi, their teams are sponsored by Coke brands.

Coke has got Sehwag along with its own brand ambassador Gautam Gambhir to launch a limited edition bottle of Coca-Cola. It roped in Shah Rukh Khan (a former Pepsi brand ambassador) and Sharma to champion Sprite and got them to similarly launch a limited edition bottle of Sprite.

Spoofs and ambushes aside, “the real heart of marketing lies in a lot of work beneath the surface that goes towards establishing brands,” remarked Kini, before he moved on to his new assignment in Atlanta. His biggest contribution here was to make the brand messages across different platforms consistent. Often, in the past, there was a disconnect between the campaign that a Coke consumer would see on-air and what he would see at the point-of-purchase. Also, there’s greater focus now on packaging innovations with different pack sizes sold through different retail points—for instance, the 1.2 litre bottle is pushed more through kirana stores, whereas 350 ml Coke Express is primarily for consumers on-the-go.

On the product front, the company seems to have overcome its near obsession with being everywhere with everything: “There’s huge room for growth in our existing base portfolio, we want to maximise on that potential,” says Singh, when asked if he foresees big changes away from sparkling drinks in future. The company launched Minute Maid in 2007, and the brand has already notched up 1.8 per cent market share, besides coming out with an apple variant in Fanta in 2008. Its re-packaging of Kinley in 2008 has worked well so far. Kinley is neck-and-neck with market leader Bisleri (in the retail segment), even edging past it in certain months. In fruit drinks market, it rules with Maaza that has 36.2 per cent market share, which is 19.5 per cent more than its nearest rival Slice. There is another big threat that the company seems better equipped to handle now. This relates to its 5th P—planet. The pesticide controversy of 2003 had brought the growth in the entire cola category to a halt. The issue cropped up again in 2006, but by then the company had launched an initiative to tackle the issue and had also put in place initiatives to replenish resources. The guidance had come right from the top, with Isdell stating clearly in 2005 that growth only for profit— without concern for the society and sustainability—can no longer be the company objective. Coke India was the first to go in for an independent third party environment audit of its operations in 2007, the findings of which were made public. The audit was done by TERI.

The institute was impressed by the transparency with which Coke interacted and the spirit it showed in accepting criticism. “The general attitude was one of wanting to do the ‘right thing’ and ameliorating any unintentional adverse impacts caused in the past,” says Dr Leena Srivastava, Executive Director, TERI. The company plans to attain zero ground water balance by the end of 2009.Present perfect, but future?

Problems of plenty Some discontinued brands of Coke in India. Gold Spot Crush Canada Dry Sunfill Rimzim Portello Shock

For all his brilliance and boldness, Singh has been helped by the tailwind of the unprecedented economic boom that coincided with the start of his stint. Without taking any credit away from him, it can be safely assumed that getting rid of the affordability plank may not have worked as well as it did if consumer spending hadn’t spurted in the past 3-4 years, especially among urban and youth segments. Then, there was the excise duty cut of eight per cent in 2006 that helped bottlers restore some profits. To understand how much a macroeconomic situation can condition a company’s response, rewind to 1999 and 2000, when sales growth of soft drinks had fallen to zero and there was a fear that sparkling drinks may never be able to cross their then two per cent share in the total non-alcoholic drinks market. Coke India had begun to focus on nonsparkling drinks and had launched Sunfill, a competitor to Rasna that was subsequently withdrawn.

But, then, there has never been a great leader who has not been helped by some luck and the doing—and undoing— of his predecessors. The same holds true for Singh, and he admits it unequivocally. Besides, he too has been a part of Coke India’s history—he was Head of Franchise Operations for the company between 1998 and 2001, after which he was posted to China. The economic downturn and increasing competition, both from existing players and from new ones—will test Singh’s agility and resilience in the months to come. Tata Tea and Cadila Healthcare have recently launched cold drink brands and Pepsi has entered the lime water segment with Nimbooz. Coke, with all its existing brands in superhigh gear, is likely to launch an energy drink and a lemon-based drink this year. For the long term, Singh counts the changing demography, speed of urbanisation and changing consumption pattern as the sure shot signs of market growth. “The learning I brought from China is that in developing economies if you do the right things and do them quickly, the market just takes off. The potential is so large,” says Singh.

So far, this learning has paid off very well in India. Having put Coke India’s house in order, Singh has made the company ready for several years of fierce, focussed and profitable journey ahead.