Coca-Cola India Toasts First Shot of Embarking into Alcohol Segment

Coca-Cola India Toasts First Shot of Embarking into Alcohol Segment



Known for its famous soft drinks, Coca-Cola India is determinedly entering the alcoholic beverage business. In Goa and certain regions of Maharashtra, the company has already started a trial run for Lemon-Dou, a well-known alcoholic ready-to-drink beverage. Lemon-Dou is a delicious blend of lime and shochu, a distilled liquor similar to vodka and brandy.

India's alcohol market has grown significantly over the years, driven by urbanization, changing lifestyles, and the country's expanding middle class. India, a country renowned for its diversity of cultures, has a long history of alcohol consumption, which is closely linked to social events, festivals, and religious ceremonies. The size of the alcohol market in India is anticipated to grow from $ 54,740.0 million in 2023 to $ 111,238.9 million in 2033. Over the course of the projection period, alcohol sales in India are anticipated to grow at a notable CAGR of 7.0 percent.

India's consumption habits differ depending on the location and the population. Spirits such as vodka, rum, and whisky have long been favored by customers. The company's decision to enter the alcohol market is the result of strategic experimentation with a sizable market. Coca-global-Cola's marketing chief, Manolo Arroyo, highlighted the company's understanding of consumer preferences by classifying these alcoholic beverages as "fuel for the body and the mind."

The introduction of digital platforms and e-commerce has completely changed how alcohol is purchased and sold in India. Online liquor delivery services are becoming more and more popular since they give customers more options and convenience.

The Product Entering India

The first lemon sour brand from Coca-Cola, Lemon-Dou, was created in response to the increasing demand from fans of the beverage to "enjoy the authentic taste of Lemon Sour not only in the drinking places but also at home." As Chuhai, a Japanese alcoholic cocktail, Lemon-Dou was first introduced in Japan in 2018. It is now a part of Coca-Cola's global lineup. The drink's primary ingredient, lemon, and the Japanese term "dou," which means "house," are parodies in the name.

Ideal for Tropical Regions

With its "crushed whole lemons, infused in alcohol and mixed with bubbles" recipe, Lemon-Dou creates a full-bodied, refreshing lemon-sour drink that's ideal for tropical nations like the Philippines. There are three varieties of Lemon-Dou available: Honey Lemon has a three percent alcohol content and is sweet and mellow. With five percent alcohol content, Signature Lemon has a strong lemon flavor. The witty Devil Lemon, which has a nine percent alcohol content, is what Coca-Cola describes as "wickedly good taste."

"After three decades as India's top soft drink manufacturer with well-known brands including Coke, Sprite, Thums Up, Fanta, and others, Lemon-Dou is Coca-Cola's foray into the alcoholic beverage industry."

With its long-standing emphasis on non-alcoholic beverages, Coca-Cola India has significantly diversified with this entry into the alcohol market.

Regulatory Environment

According to ICRA, domestic alcoholic beverage companies are anticipated to sustain a consistent revenue growth rate of 8–10 percent in FY2024. Revenues for the companies in ICRA's sample set increased YoY in FY2023 by over 20 percent to approximately Rs 26 billion, surpassing pre-COVID levels. It did, however, caution that even with a stable demand, the OPM of the enterprises in ICRA's sample set is expected to fall by around 90 to 140 basis points in FY2024, after declining sharply by 300 basis points in FY2023.

The high cost of essential inputs in the current fiscal year, such as non-basmati rice and other grains like maize, which are needed to make extra neutral alcohol (ENA), the base used to make spirits, is the main cause of the anticipated margin contraction. Therefore, it is still essential to determine the industrial cost structure by looking at the effects of a poor monsoon, El Nino conditions, and government actions on grain prices.

The report also stated that the cost of packing materials, especially glass, continued to be high due to rising soda ash prices. Nonetheless, barley prices, which are essential for making beer, have corrected recently and are probably going to stay steady in the short to medium run. Furthermore, one of the most important influencing factors for the sector to keep an eye on is the availability and ensuing pricing pressures from the diversion of grains towards the manufacturing of ethanol, which is witnessing growing demand due to the Government blending rules.

During the current fiscal year, a few significant states Karnataka, Haryana, Delhi, and Uttar Pradesh have approved price increases for alcoholic beverage items. In addition, the Madhya Pradesh government last year extended the reach of its alcobev product distribution network, which is benefiting the business this year as well.

Although the sample set of ICRA undertook a significant capital expenditure in FY2023 at approximately five percent of sales, this is anticipated to decrease to approximately 2-3 percent in FY2024 and FY2025 since major firms have recently upgraded their capabilities. The majority of the current capacity expansion is due to the production of beer, which is anticipated to increase in the near to medium term as some firms want to both deepen their penetration in the current regions and expand into new states. Meanwhile, ICRA anticipates that the sector will continue to show steady and sound credit metrics backed by robust cash flow production and constrained debt increase.

Coca-Cola’s Strategy

Coca-Cola intends to expand gradually in India, taking into account the complexities of manufacturing and distribution in this highly regulated and intricate market for alcohol. The corporation re-established itself in India thirty years ago, and now it is venturing into alcoholic drinks.

Additionally, Coca-Cola and Pernod Ricard have established a partnership to introduce a pre-mixed cocktail, including Absolut vodka and Sprite, in the UK, Netherlands, Spain, and Germany starting in 2024.

This novel product will combine Coca-Cola's Sprite and Sprite Zero Sugar soft drinks with Pernod's premium vodka, Absolut.

Beyond this partnership, though, Coca-Cola has been a major player in the alcohol industry, offering seltzers like Topo Chico Hard Seltzer and pre-mixed cocktails like Schweppes and Jack Daniel's & Coca-Cola in a number of international markets.