Objective : The main objective of this essay is to study and analyse the economic setup the beverage companies have managed to establish in two different markets like India and UK. This will be done mainly on the basis of Structure-Conduct-Performance (SCP) Paradigm. The study will concentrate more on the leading soft-drink manufacturer 'The Coca-Cola Company' which is regarded as the leader in that particular segment of the market all over the globe. The study also includes deeply looking into the anomalies or the problems that the company might have faced to be in the competition in the two economies , if any, which may be based on the structure of the market - population, standard of living, overall spending capacity of the people in the country etc and also looking into the steps taken by the company to overcome the issues which constitutes the conduct of the company. Analytical research and explanation on the sales graph of the company for the past two decades in the above said economies which shows the performance of the company is also included in the study.
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To start with the essay and to get a better understanding , light has to be thrown on the history of the company and the roots of the company in the two countries .
INDIA AND UK AS BEVERAGE MARKETS : The Basic Conditions of the market -
India as a developing country with 8.5 % GDP, is regarded as one of the fastest growing economies in the globe. But poverty has always been a critical problem for India. With more than half of its population living under poverty line who cannot afford luxuries, major investors has to concentrate on the rest of the population and mainly on the big cities. And the presence of much cheaper alternate drinks like tea, coffee and fresh juice makes the competition harder. But , against the backdrop of an ageing world, India has the biggest advantage of having a huge young population. Around 570 million people of the total population of India are under 25 years of age#6. The working age group (15-60) is estimated to constitute more than 60 % of the total population till 2050.This large proportion of the working age group which is considered as the main consumers in any economy makes India a dream destination for the retail market giants whole across the globe. India is home of 20% of the global population under 25 years of age, and as part of the IT/ITeS boom from the recent past ,this proportion of the population equipped with a good salary and who are considered to be the ' Brand conscious minds ', has made the Indian market a well promising ground for the investors. And for a global brand like Coca-cola, the demand factor in India is in a higher level with the above said new generation.
On the other hand , UK a well developed and powerful G8 economy with a comparatively much lesser proportion of poverty population ,is having a much better standard of living when compared to that of India. But, contradicting to the situation in India , UK has a large proportion of ageing population. According to recent estimates , in a period of 30 years, 40% of the total population in UK will be more than 60 years of age# 10. And the fall in the fertility rate is also a major concern for the future market.The boom in the demand of alternate products like bottled water and fresh juice is also an area for concern.Though the future is unclear, the present market scenario is very pleasant with strong development policies by the government and the comparatively high standard of living .
Coca-Cola in both the Markets : The STRUCTURE -
In India , the economy with a population of 1.1 billion , 55 % of the total population lives below the poverty line. Using a newly developed index, a recent Oxford University study states that one-third of the world's poor lives in India#4. And the expense for a soft drink from their budget would be more than a luxury for that category of population. So the company has to look for the remaining portion of the consumers. Thanks to the quickly growing metropolitan urban cities of the country which has maximum number of brand conscious youth generation, from where the company has managed to raise most of its profit. And as the organised retail system became so popular in India from the recent past, company was able to push the sales figures to a much higher level.
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When compared to India , the standard of living of the people in UK is way better with a poverty of 22% of the total population#12 . And for the remaining portion of the population, especially among students and the younger generation , the consumption of soft drinks is like almost a regular routine. This has helped the company to maintain a regular raise in the sales graph.
The exit of the company from India in 1977 due to the regulations of the Indian Government had caused a major blow for the company's growth in the country. And when the Company re-entered the Indian market in 1993 , the main rival ,PEPSI had already made a solid stand there in the market, which had re-entered three years back. The market was very competitive with the Global Rival Pepsi and well established domestic rivals like Limca, Thumps Up, Gold Spot and Citra.
THE CONDUCT and the PERFORMANCE:
The journey of the company was not so smooth in the Indian market. After the company withdrew from the country on 1977 because of the Foreign Exchange Regulation Act (FERA) that regulated the operations of foreign companies in the country , they came back in 1993 ,as Coca-Cola India (CCI) by acquiring the then famous soft drink brands in India by PARLE ' Thumps up, Limca, maaza ,Gold spot and Citra.But their main rival ,PEPSI ,had already re-entered the Indian market in 1990 and had been holding most of the market share#5. But, acquiring the popular domestic brands and access to 53 of Parle's plants and a well established bottling network ( Suppliers ) helped coca-cola to establish themselves in the country more easier and to bring in the global brand value that they had. And by 2000 , the company launched their new product ' Kinley ,bottled drinking water. But ,on 26th Jan 2000 ,the company had stated a loss of $45 Million on their fourth quarter results due to heavy investments in India and Japan, and by that time the company had invested $800 million in the Indian market. Considering the loss in the market regarded as 'developing economy' ,the US Head quarters of the company had sent a warning message to CCI.
The year 2002 saw a remarkable turn around in the sales of the company's product in India. The company adopted a marketing strategy of reducing the size of the bottle with a substantial lowering of price. The company brought in 200 ml bottles with a price of Rs 8 ( 11 pence ) which created some excitement in the crowd resulting the sales to go up by 15 ' 20 % #7
And the sales graph raised even more when the company slashed the price of the 200ml bottle to Rs 5 ( 7 pence ) which helped the company to push the target population from 164 million to 250 million. The Coke India was awarded with Woodruff Award ,which is considered as a prestigious award within the company. The products were further more popularised as the advertisements of the product were done through highly paid Movie actors such as Aamir Khan and Aishwarya Rai. In 2003 , the companies plant in Bidadi ,near Bangalore, was given ISO certification# 1. This was a big achievement and the company was achieving enormous popularity and revenues.
The ANTI-COLA STRIKE IN INDIA
In 2003 ,when the graph was on the peak , the company faced the most devastating challenge. The centre for Science and Environment (CSE) , a non-governmental company in Delhi , accused that the aerated soft drinks in India had high level of pesticides which may cause cancer and many birth deceases. Tests proved that Soft drinks from Coca-cola consisted of 30 times the permitted level of pesticide residues allowed under European Union Regulations. Where as tests done in other countries ,including UK ,had not proved positive for the residues. This started of a huge number of protests against the cola items all over the country which resulted in a remarkable fall in the sales figure of the product by 11 % #8
In the following years, more protests came up as one whole village in Kerala ,a southern state of India protested for the company plant located in one of their village to be shut down accusing that the company was exhausting the underground water resources leaving the whole village in water scarcity. This caused the state government to ban the company plant in the year 2006, though the ban was reversed by the Kerala High Court after a month. Five other Indian state governments also partially banned the soft drink from colleges, schools and hospitals. #9 .Many other states in India also joined the anti-cola movement including a state called Rajasthan, where the water level fell enormously after the entry of the plant in 1999 ( Fig 1.1)
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Figure 1. 1 Source: www.waronwant.org
The Impact of the strike in UK
The impact of the strikes against the company for exploiting the environment in countries like India and being accused of union-busting activities in countries like Turkey, Nicaragua, Pakistan, Russia ,Guatemala and most notably in Colombia where the company was accused for using paramilitaries to abduct and kill the union-leaders in their bottling plant#13 , had clearly created a deep negative mark in the reputation of the company worldwide and the company was placed at the bottom in the Ethical Magazine with a score of 3 out of 20.
In 2004, things totally went out of the company's hands when their highly advertised product ' DASANI, bottled drinking water, was tested positive to contamination and was labelled as 'contaminated Tap water'. Coke had to admit the defeat and 500,000 bottles were recalled and the production was stopped#14. The company's stand in UK was again badly affected when in 2006, major UK universities like University of Sussex, Portsmouth , Leeds, Middlesex and the University of East Anglia had banned the Coca cola products from the campus for its un-ethical activities around the world ,along with bans from schools accusing that the products cause obesity in children.#11. These issues caused a deep fall in the sales figures of the company and the well going graph had a quick dip in the sales.
The COMPANY'S REPLY :
The company denied all the accusations made against it and came up with strong advertising strategies and convinced the people by installing 500 rain harvesting plants in 22 different states in India and by donating $1 million(US) to revive a 1000 acre lake called Nemam#17. The company gave great importance to promote a positive image to its reputation in the market by spending over $2 billion per year for advertisements alone. In India, the company began advertising heavily about the quality of the product with movie celebrities directly going to the plants and talking about the false controversies.
Top 5 Advertisers in Beverage sector Print Ad pie in India till may 09 % Share
Coca Cola India Ltd 13
Pepsi Co 11
Mohani Tealeaves Pvt Ltd 8
Tata Tea Limited 8
United Breweries 6
The company began to invest heavily on sponsoring international sports events like FIFA world Cups ( being 2010 FIFA World Cup partner has helped the company to boost its profit by 5 %#18 ), Olympic Games, Common wealth games and many environmental friendly campaigns. In long run this helped the company to re-establish its lost glory over the globe and it was able to re-capture the label of the global leader of soft drinks.
Both India and UK are considered as strong revenue generating markets based on the performance of the company for the last couple of years.
It was reported that the company's global profits were lifted by the sales in India for the 2009 Q2 by 33 %#16 and 2009 Q4 by 20% #15. As per the 2010 First Quarter Financial Result of the company, 29% growth was reported on the unit case volume in India.And
According to the Grocer magazine's Britain's 100 Biggest Brands annual survey , Coca cola has become the first brand to top '1 billion in annual UK grocery sales #11
3.Basu, Indrajit. "Coke bubbles after a decade in India," www.atimes.com, 26th April 2003.
7.Basu, Indrajit. "Coke bubbles after a decade in India," www.atimes.com, 26th April 2003.