This story was first published on the Benzinga India portal.
PepsiCo (NASDAQ:PEP) and Coca-Cola (NYSE:KO) are reportedly considering launching more affordable soft drinks, priced 15%-20% lower than their mainstream products, to target regional markets and counter the growing competition from Reliance Consumer Products' Campa.
What Happened: Billionaire Mukesh Amabani-owned Reliance's aggressive pricing in its Campa brand and higher trade margins for retailers in a bid to gradually expand its distribution has prompted global cola giants, which have dominated the market with little competition outside regional players, to devise counter-strategies, including introducing cheaper alternatives — or B-brands — to protect the image and margins of their core products, the Economic Times reported, citing sources.
Ravi Jaipuria, chairman of Varun Beverages, PepsiCo's largest bottling partner in India, spoke with the business daily and acknowledged the pricing competition from Campa but stated that PepsiCo had not been significantly affected.
However, he noted that if necessary, PepsiCo would create a range of products to compete in the B-segment pricing space. "They (Reliance) have a different play," Jaipuria said during a post-earnings analyst call, while also admitting that Campa poses "formidable competition" and could capture market share.
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Can't Budge On Price: Global soft drink leader Coca-Cola is also stepping up its distribution efforts, particularly in tier-2 markets, by pushing returnable glass bottles priced at ₹10. The company is also preparing to launch regional brands, like RimZim jeera, which it had previously introduced on a smaller scale. This strategy is intended to protect the margins of its mainstream brands and prevent diluting their equity.
Campa is priced competitively, selling a 200-millilitre bottle for ₹10 (12 cents), while Coca-Cola and PepsiCo sell 250-millilitre bottles for ₹20 (24 cents). A 500-millilitre bottle of Campa costs ₹20, compared to ₹30 (36 cents) for Coca-Cola and ₹40 (48 cents) for Pepsi.
Though PepsiCo and Coca-Cola have not reduced prices directly, they have increased local promotions, cross-promotions and bundling on quick-commerce platforms to maintain competitiveness. Reducing the price of core brands would directly impact margins, a key part of their strategies, industry sources told ET. Additionally, any pricing decision would need to involve independent franchisee bottling partners.
Reliance Consumer has been offering distributors a 6%-8% margin, compared to the 3.5%-5% offered by other soft drink makers, which has had a disruptive impact on the competitiveness of other brands.
