Dabur, Tata Consumer change strategies amid the ongoing cola wars

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Not only are makers of nutritional drinks and fruit-based beverages like Dabur and  Tata Consumer Products battling for market share with the cola colossuses, they are doing so amid aggressive pricing strategies and shifting consumer preferences while demand remains subdued.

The entry of Reliance Consumer Products Ltd (RCPL) into the carbonated soft drinks market with the Campa Cola brand last year intensified  the cola wars. RCPL’s aggressive pricing strategy—offering significantly lower prices than its rivals—quickly captured consumer attention, allowing the conglomerate to carve out a foothold in a market long dominated by multinational giants.

In addition to Campa, though, RCPL also entered the re-hydration category with the launch of RasKik Gluco Energy and sports drink Spinner, both priced at Rs 10. While the Rs 10 pricing strategy for 200 ml bottles is yet to spark worries in the carbonated space, its effect trickled down to the non-carbonated drinks category, forcing established players in the segment to readjust their pricing strategies.

RCPL declined to comment.

Tata Consumer is already feeling the pinch, and highlighted how its glucose-based ready-to-serve drink Tata Gluco+ has been affected. The company has quickly taken countermeasures.

"Tata Gluco Plus was the one impacted where while the Rs 10 price was matched by the competition, they had gone significantly deeper on retail margin, and that is what we've matched. We have taken down prices and that has had an impact on the revenue line and the margins... We will figure out how to compensate for that margin pressure from other businesses," said Tata Consumer managing director Sunil D'Souza in a post-earnings call last month. The company's  ready-to-drink segment (NourishCo) saw a 2 percent revenue drop due to price re-indexation for retailers, despite a 14 per cent  volume increase in Q3, with December alone seeing a 39 per cent volume growth.

Meanwhile, Dabur's  beverage business declined by 10.3 per cent YoY in the Oct-Dec quarter led by weakness in the juices & nectars (J&N) category. Fast-moving consumer goods (FMCG) giant Hindustan Unilever underlined that its nutritional drinks segment sustained its competitive momentum, gaining both value and volume share, but added that it too readjusted pricing architecture for its  large packs to encourage higher consumption.

"The segment is under pressure since the last few quarters and mainly due to the competitive intensity from the soft drinks side. Consumers are now more opting towards sugary drinks, carbonated drinks. Another factor is, of course, the entry of Campa Cola. There is a disruption in the price point of carbonated drinks. Dabur had been impacted because they don't have the portfolio in the lower price point," said Axis Securities analyst Preeyam Tolia.

Dabur cautioned that the out-of-home consumption of its  200ml Tetra Paks under the nectar category, which contributes up to 40 percent to the J&N portfolio, had taken a hit. Dabur's Réal brand offers a diverse range of nectar products—essentially, juice containing pulp/flesh of the fruit— and  includes options such as mango, guava, litchi, mixed fruit and pineapple, and is currently priced at Rs 20.  Dabur CEO Mohit Malhotra  flagged that the higher price gap is making it harder for consumers to justify choosing Dabur over cheaper alternatives, affecting demand and sales.

Dabur has plans to address this. Instead of officially reducing the MRP from Rs 130 to Rs 100, Dabur will introduce temporary consumer offers (discounts, promotions or bundling) to make the products more affordable without altering the list price,  Malhotra told analysts in a post-earnings call.

The company will also introduce a new, more affordable juice range, priced at an RPI of around 2—meaning it will be twice the price of cola. While this is still higher than soft drinks, it marks a reduction from previous pricing, which had an even higher RPI, allowing the juices to be more competitively priced now.

Relative Price Index (RPI) measures how the price of a product compares to a benchmark—in this case, colas.

Malhotra said that the nectar segment has been the "most impacted", while other categories such as fruit drinks, coconut water and the Activ brand continue to see double-digit growth. He noted that the repercussions have been felt most in the 200ml nectar packs component, particularly in metro cities, where the company holds a 70 percent market share.

The biggest chunk of the beverages market by far is the aerated segment, where the battles are most intense. Here, a 500 ml PET bottle of Campa Cola comes for Rs 20, against Coca-Cola and PepsiCo’s Rs 30 and Rs 40 price tags, respectively. Reliance Industries, the parent of RCPL, has projected a turnover of over Rs 1,000 crore for each of its FMCG brands, Campa and Independence, in FY25 as part of its aggressive push into the consumer goods sector, the conglomerate said in its third-quarter results statement on January 16.

However, Varun Beverages, which packages and distributes beverages under Pepsi, Mirinda and Tropicana labels, did not see a threat from rising competition.

"There is a market for lower-priced products that will always remain. Our products are not competing against that and we feel there is enough room for everybody to grow in this market... The more players there are, it will be better, there'll be more competition. The India market is still very huge, and it's not even being tapped fully. So we don't feel there is any threat of our growth in the market," chairman Ravi Jaipuria said in a post-earnings call on February 11.