Jun 18, 2012 03:52 PM IST | Source: CNBC-TV18

Room for growth across mkts for portfolio brands: Coca Cola

Atul Singh, who heads India and the southwest part of Asia for Coca Cola, took over about seven years ago and under his watch, Coke's share in Coca Cola's global sales have grown from a small 1% to almost 2.5% today.

Atul Singh, who heads India and the southwest part of Asia for Coca Cola, took over about seven years ago and under his watch, Coke's share in Coca Cola's global sales have grown from a small 1% to almost 2.5% today. Recently, he has been given an extension and a war chest of USD 2 billion to invest and make India from Coca Cola's 10th largest market into maybe the top five in the group.

Below is an edited transcript of Singh's exclusive interview on CNBC-TV18.

Q: You want to take Coke to the top five, isn't that true?

A: That is our aspiration - to be among the top five Coca Cola businesses around the world.

Q: How easy is that?

A: It is going to be a challenge clearly.

Q: You are competing with countries like China which grew 20% last year, Mexico and all of these are large bases. So you are going to break into that club?

A: Clearly, India has the opportunity given the demographic dividend that India has to offer with a population of over a billion with another 300-400 million people, which will move in the next 10 years from below the poverty line or at the edges of the poverty line to the emerging consuming class. So there will be a lot of consumption happening, there is going to be urbanisation happening, the teen and young adult population is going to grow. So I think that India has the opportunity to get into that league of the top five Coca Cola businesses.

Q: 2011 was slightly slower year. How has 2012 been so far? You had a very hot summer so that's good news for you?

A: We have had a first quarter growth of 20% in the first quarter of last year.

Q: Compared to what last year?

A: Last year, we actually have had a 13% growth for the year. But if you look at the last three quarters, which is the first quarter of 2012 and the last two quarters of 2011, they have all been 19-20% growth. So we have got strong momentum, more importantly, when you look at the last six-seven years. We have had 23 consecutive quarters of growth and 17 of them would be double digits.

Q: You took over in 2005, which was a difficult year. I think your bottler lost money, Coke sales dropped about 14%, there was the controversy over alleged pesticide content in the water that was used in Kerala. So it was a tough year to take over. You have grown it from 1% to 2.5% - that’s no mean task. What did you do right that is different from year before that?

A: There were a lot of challenges. There was lower employee morale. When the business was not doing well, there was very high attrition. Clearly, the bottling system was broken so to speak because our bottlers were not willing to invest and there was a lack of confidence.

Q: The whole model works around the bottler investing?

A: Absolutely. The bottlers have to invest and there has to be a seamless alignment. We have to be one system. We are two sides of the same coin. When the company can’t provide the leadership and the strategic input, the strategic guidance and lay out a roadmap and a vision, you have trouble where the bottlers are really not sure of where to invest, what to invest, what the roadmap is. I think that was one of the issues that we were facing.

Q: So it wasn't a larger macro issue. It was more internal.

A: I think the economy was doing well. The Indian economy has been doing well since the 90’s. GDP has been growing. So there were a lot more internal issues to our system that were a problem. What we did right at that point in time was we basically started talking to our bottling partners. I brought the bottles in and really had a dialogue with them. A heart to heart conversation as to what do we need to do and jointly we created our vision.

We brought in our management team; I brought in managers from Coca Cola system worldwide. There were a lot of people we had exported out. So we brought them back - managers from Russia, from China, from the US and these were people who grew up in the Indian system in the early and mid 90s, had gone out for assignments and I brought them back. We really looked at ourselves in the mirror and said what’s going wrong, what do we need to do to fix it.

Q: What you do on the product side, did you have to do any tweaks in the product side?

A: Not really. One of the things we had to do was align our pricing to what the market could bear and what would be economically viable for our bottling partners because a lot of the products we were selling were just not viable. If you remember the Rs 5 coke, 200ml at Rs 5 was just not viable and the system was losing a lot of money because of that.

Q: You took Rs 8, that's a big jump, it's a 60% jump so weren’t you afraid of losing volume? Did you lose volumes?

A: There are times when you have to make a tough call and you got to make a call that’s right for the long term sustainability of the business. So when we did that and we aligned into what we call our OBPPC which is occasion, brand, pack, price and channel strategy that provides us with the right packaging, the right product, the right brand for the right occasion. So for example a 200ml, we said the price should be Rs 8 at that point in time and it would be in X number of channels for these particular occasions, the product would be sold for, for X number of brands.

A product like a Diet Coke, for example, we would not put into a returnable glass bottle because Diet Coke consumers are very different evolved consumer. So we did come up with specific strategies for each of our packaging. Also expansion plans, we clearly identified a segmented approach as to how do you segment the market metro, urban, semi-urban, rural? How do you then go and execute? What should be your route to market? What are the products you need to innovate? We have a great opportunity in India with a range of products that are global brands such as Coco Cola, Fanta and Sprite as well as local brands Thums-up, Limca and Maaza.

Q: Your sales in the last quarter grew 20%. This is something that we have seen across consumer goods across the country. We have had FMCG companies, listed ones reporting growth in excess of 20% so are you recession proof or are you recession resilient because it has been a slow year for rest of the country?

A: I think the beauty is that a chairman always says that we are in the best business because there are so much of opportunities for us and in the beverage business specially and also FMCG for that matter. India, coming back to the demographic dividend, it’s a nation over a billion people; there are only two in the world.

There is going to be urbanization that’s going to happen over the next 10-15 years, there is going to be more people going to the consumer class so there is going to be a lot of inherent consumption that is going to be built and with the GDP growth. I know it is slowing down to about 6-6.5% but even 6.5%, if we can maintain 7-8% at a bare minimum and then come back to a 9-10% after that will give you a lot of people getting into the middle class, that consumption I won’t call it recession proof. But clearly, it would boost consumption, and with that consumption will come expansion of FMCG products and opportunity to grow.

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Q: Is there difference in the way the market for a company like yours is growing in India and in the developed world? For example, in a developed world, there is a movement against fizzy drinks, movement towards health? Is that strong here or is this still a market that has to mature to that level before that takes off?

A: We believe there is lot of room for growth both in the developed world as well as in the emerging markets or the developing markets for our sparkling portfolio brands like Coca Cola, Fanta, Sprite etc as well as for our stills portfolio whether its juices, juice drinks, waters, teas, coffees etc. We are seeing that growth across the world both in the emerging market as well as in developed markets.

Q: Are you going to remain a beverage company in India or are you tempted to go the route as ITC, Britannia went into snacks. The logic they use is that they have got great distribution chain which goes all the way down to the smallest village, so why not leverage that. In your quest to become among the top 5 cola companies in the world would you also be tempted to go into snacks?

A: Not really, we are a total beverage company; we are not into snack foods. Our focus is beverages and that is what we do best. Our focus is going to be non-alcoholic ready to drink beverages.

Q: And you are in about two-third India's retail outlet?

A: Yes, we are and we believe there is lot of opportunity. The challenge and opportunity for us is how do we go and cut across all retail outlets across India. There are all of 5-6 million outlets, and we are in 2-2.5 million is what we would like to achieve very quickly then move forward from there.

Q: How do you sell beverage in areas where there is no electricity?

A: Electricity, road transportation to distribute our product, are some of the challenges but we have innovated in India. So where there is electricity for few hours we use coolers where you can have power for 8-9 hours in a day and then they chill product for the rest of the day.

We have also now invented solar coolers where we are piloting and we are going to be putting 400-500 of them out very shortly and these works on solar panels. So if there is no electricity then through the solar panels whenever there is sunlight you can chill these products and our pilot is doing well.

Q: What is the cost of that because solar panels are expensive, so these coolers would be expensive, what kind of sale would commensurate with that or is it just a ego thing of getting your drink across?

A: Yes, these are more expensive today but as technology improves, as there is more scale, costs will come down. In the last couple of years, we have already got the costs down. We will continue to work on supply chain and bring the cost down. On the other hand, even though the payout maybe longer what happens is these are outlets where they were never selling your products. So now you are bringing in a lot of potential consumption into the fold where there was no sale. So when you do the math it works in the long term.

Q: Does this work as a marketing tool or sales tool?

A: It works as both in the long term.

Q: Dairy is something you forayed into, how big can diary get for you?

A: If you are refereeing to Maaza Milky Delite, it is a pilot in Kolkata, so it’s still early days.

Q: Is that unique to India?

A: No, we do have dairy products in several countries around the world. We have it in Asia and in other parts but this particular formulation is unique to India.

Q: You still source a lot of raw material from outside of the country; you source orange pulp from Brazil; what is that is keeping Indian raw material expensive for you?

A: We have started sourcing a lot more locally. As you mentioned, we source the orange pulp from Brazil because the oranges that we have in India are not good for the type of juice that we are selling right now. So the industry is importing a lot. We have other beverages, for example, our mixed fruit juices we have local supply for that. And we are trying to localize more our supply base. In fact, we are working with our global suppliers.

We brought in 7000 saplings of orange trees into India and they are bearing fruit now. This is in a nursery where we are doing a pilot project with Jain Irrigation, where if the pilot is successful then we can expand and get more orange trees into India. It is in Maharashtra and we will try to get that project going so that you can use local oranges or oranges grown in India for our local supply of juices.

Q: As you have grown from a fairly small component of cokes global sales to now in the top 10. Are there practices that Coca-Cola has internationally picked up from India?

A: The beauty of the company that’s over 206 countries is we share best practices. So, we bring in best practices from global at the same time we export best practices.

Q: Give an example of what you have done?

 A: The solar cooler is one example where there are countries in Africa where we send samples of those. We also have tea, coffee etc.

Q: Have you developed this cooler yourself?

A: Yes, in India. In fact we have a cooler testing lab in India. We have a product trade sample lab in Pune, where from 26 countries products come in and we do testing of our products, quality testing of our products in India and we send their results overseas. We also have tea and coffee machines that we have exported to the Middle East and Africa that sell Georgia Coffee in India. So, that’s an innovation that we have done locally.

There are a lot of examples where we have taken talent from India, where we have exported talent, over 35 people actually have been exported to jobs overseas. At the same time technology, we have been working very closely to share best practices.

Q: You are a big sponsor of sports. So, just break it down for us, how effective is cricket for you, how effective is World Cup, how active are you in the IPL this year, how effective is it?

A: Cricket is a passion for all of us and our brand is about open happiness. Coca Cola is about opening happiness, Cricket opens happiness, so there is a great fit for both and our analysis shows that whenever you tie up with passions of a country there is a very positive rub off on both.

Q: The Sachin packaging can that you did, is that something for the record or did it really make you money?

A: I am not going to get into specifics of how we analyze and what metrics we use. But when you associate our brands with the passions that people in India are associated with, there is a very positive correlation in terms of building brand love, brand preference, it takes time. It is not going to happen in one ad or in one set of cans that we launch. But overtime there is a positive rub off.

Q: How big is new media for you?

A: The social media boom, digital, new media is a big part of our plans. This is something that we are going to continue, this is global phenomenon that’s happening. So, absolutely we use traditional media, radio, television, print, at the same time we do use the digital form of media.

Q: Are you on Facebook?

A: Yes, we are on Facebook, we are on Twitter.

Q: How many fans do you have?

A: You can look up our Favebook fans; for example, we had a lot of fans in season I, had over 0.5 billion fans, I think it was 600-700 thousand fans in season I.

Q: Is there anything that worries you about India because as you have spelt out it’s a great opportunity for any FMCG company, many Indians are moving into the middle class who have always been huge consumers. Is there something that worries you?

A: I think there is a huge opportunity and what really worries me is the fact that can we capture this opportunity with the speed with which we want to capture it. Do we have the capability, can we build system capability that quickly because we are adding thousands of people in our entire system. When you look at our entire value chain and the speed with which we want to go, can we actually achieve that speed. So, that's what keeps me up.

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