Immense Opportunities in the Indian non-alcoholic beverage market
With a population of nearly 1.30 billion, India offers immense opportunities for domestic and international beverage companies. The Indian non-alcoholic beverage market has grown steadily over the years. However, much like the other markets, demand for carbonated beverages has stagnated. Packaged juices, water, energy and health drinks have taken a huge share from carbonated soft drinks.
The Indian non-alcoholic beverage market has come a long way in the past decades. With only a few Indian players in the 1970s and 1980s, the market witnessed the re-entry of several multinationals such as Coca-Cola and Pepsi in the 1990s. Since then, various Indian companies as well as foreign multinationals have tried to get a piece of the fast-growing market.
Today, India represents an important market for various players to build a strong beverage brand. The Indian non-alcoholic beverage market is among the fastest growing markets globally, as various macro factors support strong growth. The current low per capita consumption signals significant potential for volume growth in the future. The Indian soft drinks market might continue its “robust growth trajectory” as annual per capita bottle consumption is expected to reach around 84 by 2021, according to the annual report of PepsiCo India’s bottling partner Varun Beverages Limited.
Still, compared to most of Asian countries, the Indian non-alcoholic beverage industry is relatively underdeveloped with low penetration. The per capita consumption is far lower than global averages, despite double-digit growth rates of recent years. The main segments constituting the soft drinks market in India are carbonated soft drinks, juices and bottled water, which together accounted for over 99 percent of the total volumes sold.
The battle on the Indian non-alcoholic beverage market: Carbonated beverages vs. packaged juices
Carbonated beverages, which traditionally has had the largest share in the Indian non-alcoholic beverage industry has been losing their market share to other beverage categories in the last few years. The growing consumer preference for healthier food and beverages and the excessive use of sugar in their soft drinks has played against the carbonated beverages during these years. The packaged juices segment – categorized into three sub segments fruit drinks, juices and nectar – has grown at a CAGR of nearly 15 percent over the last five years. Until now dominated by mango juices and nectars, other juices have recently started to grow big. The mango juice segment, within the INR 120 billion packaged juices market in India, is estimated to be over 50 percent in size, owing to the popularity of the fruit. This segment has been growing in double-digits steadily, prompting beverage majors to focus on this category in a major way.
Packaged water and natural flavors
Packaged water has become one of the fastest growing sub-segments in the non-alcoholic beverage category in India in the last ten years. At the end of year 2018, the total market of packaged water was estimated at INR 160 billion. Nearly 67 percent market share of the sector is held by the top five players such as Bisleri, PepsiCo, Coca-Cola, Parle and Dhariwal. Mineral and packaged water bottles which were considered a luxury and that, too, only during travelling are now commonly available at every nook and corner of the country. The rise in the consumption of mineral water has been mainly due to increasing awareness about health, increase in tourism and easy availability of bottled water. There is a new variant called flavored water that has taken over the luxury tag from mineral water bottles. The target market is the people who prefer a healthy lifestyle on the go and love to drink water infused with vitamins, natural flavors or nature identical flavoring substances such as basil, lemon, mint, orange, hibiscus, fruits, etc. O’cean, Blue and Qua are some brands in this category.
Key growth drivers & opportunities in the Indian non-alcoholic beverage market
The Indian non-alcoholic beverage market is in its growth phase. Favorable demographics, low per capita consumption, long summers and higher spending on packaged products makes it an attractive market. This coupled with continued innovations towards product packaging and sizing to enhance product affordability are likely to strengthen growth rates. India is home to one of the largest and fastest growing middle-class populations anywhere in the world. The rising aspirations of this segment is expected to boost demand for non-alcoholic beverages in the coming years to new highs. India’s aggregate consumer expenditure is likely to grow over threefold from 45 trillion in 2010 to nearly 150 trillion by 2020 and its affluent and aspiring households from 48 million to more than 100 million.
India’s annual soft drinks consumption at 44 bottles per capita is relatively low compared to matured markets like the U.S. (1,496 bottles), Mexico (1,489 bottles) and Germany (1,221 bottles) and even developing markets like Brazil (537 bottles) (Source: Varun Beverages Limited).
Challenges for the Indian non-alcoholic beverage market and industry
One of the biggest challenges for the Indian soft drink industry is penetration in rural markets, which form about 67 percent of India’s total population. In addition to the vast population, reaching to rural consumers in the gigantic geography of the country poses significant challenges in distribution. Making carbonated drinks available to this vast population in the chilled form is also a challenge.
Despite numerous opportunities offered by a huge population base, there is a number of challenges for the Indian non-alcoholic beverage industry and producers.
Major beverage producers in the Indian non-alcoholic beverage market
Coca-Cola and PepsiCo lorded over the Indian soft drink market for almost three decades, often setting the rules of the game. Indeed, after PepsiCo entered India in 1989 and Coca-Cola re-entered India in 1993, cola had become synonymous with beverages and vice versa. At the close of the last century, they had cornered nearly all of the organized carbonated beverage market between them. Coca-Cola and PepsiCo have retained their hold in carbonated beverages with a near 96 percent share but, unfortunately for them, the segment is lagging overall industry growth. However, in recent years a number of domestic companies have also started to give a tough competition to the two established powerhouses. These domestic companies are strong in some geographies and niche segments.
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