Beat the heat! From Pepsi to Mirinda, soft drinks' sales outlook remains buoyed in 2023

The Indian soft drink market is expected to see significant growth as consumption is steadily anticipated to increase, driven by a variety of factors.

The Indian beverages industry presents significant growth opportunities in 2023 on higher demand of soft drinks and energy drinks in the summer season. Apart from seasonal demand, growth in beverages industry is also driven by deeper penetration into rural markets, an expanding demographic profile, and a growing middle-class population, according to a recent report by Varun Beverages.

The domestic soft drinks industry saw robust growth in 2022, following two years of impact from the Covid-19 pandemic during peak summers. The main segments constituting the soft drinks market in India are carbonates, juices, and bottled water. Carbonates is the largest category in value terms. New products such as fruit-based drinks, pulp juices - in line with evolving customer preferences have also been introduced in the market.

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Soft Drinks – Key Growth Drivers:

The Indian soft drink market is expected to see significant growth as consumption is steadily anticipated to increase, driven by a variety of factors which are as follows:

-Geographic locations, weather: A large portion of the Indian population resides in regions with hot, dry, or moderate climates. This will significantly boost the consumption of soft drinks in the coming years.

-Rapid urban growth and higher earnings: Over 50 percent of India’s population falls within the working age group, resulting in an increase in disposable income and a shift in spending habits. The rising number of women joining the workforce in India has led to higher family disposable income, which has contributed to increased consumer spending.

With the growth in per capita income, consumers are willing to spend more on premium and niche products. Urbanization is playing a significant role as more people in urban areas have greater disposable income. The resurgence of out-of-home channels and pent-up demand driven by consumers returning to socializing after the pandemic were also major growth drivers.

-Positive demographic characteristics: India has a large population with individuals in the age group of 15-64 years making up the majority of the overall population, which creates a sizable workforce to support economic growth. The shifting population demographics and the rising spending power of young consumers are likely to drive the demand for soft drinks in India, as per the report.

-Rural development and electrification: Predictions for the rural areas in India look optimistic with forecasts of good monsoon and improved agro-economic conditions which is a positive sign for the country’s economic growth. The increase in electrification in Indian villages along with improved electricity supply will further aid in the penetration of cooling systems in these regions - promoting the expansion of the industry.

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India's popular beverages, soft drink products:

Carbonated soft drinks, carbonated juice-based beverages, juice-based beverages, energy drinks, sports drinks and packaged drinking water comprise the Indian beverages industry.

The various PepsiCo brands manufactured and distributed by Varun Beverages include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda Orange, Seven-Up Nimbooz Masala Soda, Evervess, Duke, Slice, Tropicana Juices, Gatorade, as well as packaged drinking water under the brand Aquafina.

Brokerage View

Domestic brokerage firm Motilal Oswal noted in its research report that Varun Beverages aims to improve the dietary habits of its consumers with its nutrition-based portfolio. Accordingly, it is offering health-based fruit-pulp and juice-based drinks, energy/sports drinks, and dairy-based beverages. The product mix of low and zero-sugar products improved to 36.2 percent in 2022 from 34.7 percent in 2021.

''We expect Varun Beverages to maintain its earnings momentum, underpinned by 1) high demand due to the early onset of summer, high temperature and further possibility of an El Nino event, 2) increased penetration in newly acquired territories in South and West India, and 3) higher acceptance of newly launched products,'' said Motilal Oswal.