Innovation in business does come to a point where you have to look at a totally new market or consumer.
When you look at reports of United Breweries Kingfisher brand entering the Gujarat market with a lemon-based test drink called Kingfisher Radler, it may seem novel but there is a very real business sense to it.
Let us look at the points that support this strategy for an alcoholic beverage maker:
Shelf Space: Kingfisher with its alcoholic beverage could not find this shelf space in states such as Gujarat and Bihar that have gone for complete prohibition.
Mind Space: There is a fair amount of recall and association of the Kingfisher brand with beer and this new entry strategy adds to the mind share that Kingfisher will command.
Politics: In the event of a change in government or policies there will not be much effort needed to create a huge brand awareness on the ground.
Branding: In the event that government policies change then here is no real pressure to build up the brand from scratch. The brand recall is active and fresh in the minds of the consumers. The other side of the equation is when people move out of the state, they take their preferences and tastes with them creating new demand pockets and becoming unofficial brand ambassadors. This segment that moves out of non-alcoholic states become buyers of alcoholic drinks of the same brand in other places.
One interesting observation is that if this strategy succeeds then there is a very real possibility that the tiny space occupied by non-alcoholic drinks in an alcohol selling outlet will also go to brands from companies who make alcoholic beverages.
The Price Point Strategy: This is an active reality for all industries that are in the B2C market. Samsung implemented a similar strategy by releasing phones targeting every price point. This worked for them and they were able to take the pole position in the Indian markets.
The alcoholic and non-alcoholic beverage makers have to contend with a similar market strategy as Samsung to be able to take maximum mind share of the consumer which in turn will drive sales and profits.
Non- Alcoholic Bevarage Makers
If we look at the non-alcoholic beverage producers entering the alcoholic space, it is a fairly different plan but yet one that could work. If we break it all down, the first point of contention would be that the brand recall is very good.
Non-alcoholic beverage makers command the shelf space in most markets and though they can create products for every price point, it excludes the alcoholic beverages market completely.
The important point to note here is that there is already a dedicated shelf space that is available. Though this may not all be available for an alcoholic beverage. This shelf space can provide advertisement space for a tangential product with the same brand name and non-alcoholic by nature such as branded bottled water or soda.
With Coca-Cola the alcoholic beverage segment is not new. They had investments in wine that they eventually sold. The recent launch of an alcoholic drink in the Chu-Hi category in Japan, is in the test phase for Coco-Cola. These have a 3 to 8 percent alcohol and come in a range of fruit flavours. On closer examination this category of drinks is called ‘breezer’ in India.
The base is a locally brewed distilled beverage called shochu. This is sometimes replaced with vodka. In the Indian markets Bacardi has made similar beverages and is already present. It would be a first for Coca-Cola to get in to production of alcoholic beverages.
On a linear outlook, we do have an interesting convergence between Coca-Cola, Kingfisher and other alcoholic beverage makers. Kingfisher Radler has the potential to become a lemon flavoured alcoholic beverage and so does Coca-Cola by going back to its original formula. Given the marketing muscle both of these have in the market, it sure looks like its going to be a slug fest that might down a few established players.
Coca-Cola has already moved into the coffee business purchasing Costa Coffee and that by logical progression leaves out the alcoholic beverages market. Pepsi also made a similar move by buying SodaStream.
As markets consolidate there will be intense competition to gain market share and wallet share.
The real question to ask is if this strategy is unique. Alcoholic beverage makers have been making non-alcoholic beverages with specific attention to the markets that they serve.
With Coca-Cola and Pepsi, there is added complexity that they are already invested in the packaged foods business.
There is a bit of a challenge here for companies such as Coca-Cola and Pepsi. They will have to build alcoholic beverage brands from scratch and create some separation between their existing brands to ensure there is no cannibalisation. This challenge changes from market to market.
In large markets such as India there needs to be a new brand as a backlash has to be expected due to any confusion, real or perceived, that may occur. In Islamic countries maintaining the same brand could mean market rejection at the extreme. This makes it tougher for companies such as Coca-Cola and Pepsi.
They may also have to deal with consumer consternation and at times anger when there is confusion about brands and their packaging.
The alcoholic beverage companies such as Kingfisher have it a bit easier as people have an expectation of an alcoholic beverage from their stables but a non-alcoholic beverage is a healthy surprise and it is a bit easier to work with this kind of consumer expectation.
At a global level too, it is better to have some hyphenation between established brands and new experiments.
Social media is playing quite a new role in this shift. The number of videos that show the effect of a mint candy on colas and the number of videos that have showcased the use of colas as bathroom cleaners or the ones where they have been boiled to highlight the sugar content, are just as damaging.
The veracity of the above videos may have to be taken with a healthy bit of salt but a fair amount of scientific studies have highlighted challenges in the making process. The other challenge is the spread of knowledge with respect to a healthy lifestyle and how to go about living such a life without too much loss in the taste. All of the above and healthy life campaigns and social media groups which have healthy living and exercise as basis, is bringing about a small but perceptible change in the lives of people. This is impacting the bottom line for alcoholic and non-alcoholic beverage makers.
Given the shifts in consumer preferences, it makes sense that the beverage makers add products into the value chain that helps them maintain or increase margins and stay relevant to the times.
When one looks at the global market as a whole along with specific countries, the shift towards a healthy living is fairly huge. This makes the slump of soda sales see a further downward trend in the years to come.
Though the story is all about alcoholic and non-alcoholic beverages; it is just the tip of the iceberg. The larger story is the directly linked to packaged foods industry, Pepsi and Coca-Cola have huge investments in the packaged foods market too. This market too is seeing turbulence based on healthier options and lifestyle changes. While both the giants have already made a play in the health food and snacks market, consumer shift to all natural and fresh products is eroding the top and bottom line gradually in all segments.
Considering these shifts in global consumption patterns, it does make it a good strategy to explore new product markets and variations. The test market behaviour will give the global giants a better idea about what works and then add adaptability into the concept and deploy it globally as a new strategy.
Packaging norms too are changing and we have already seen a court battle on labelling of frozen desserts explicitly in India. The existing food and beverage markets for Pepsi and Coca-Cola may have to contend in a similar manner and could further dent profits, more so, if they have to advertise about the same explicitly.
Given these challenges in the tangent markets of Pepsi and Coca-Cola, one can only hope that they have it in them to weather it out by expanding their product portfolio with a sound strategy for long-term survival and growth. Without a sound strategy and the prevalence of social media, we can predict with reasonable margin of error that there will be erosion of profits and market share.
