₹10, ₹20 cola bottles heating up soft drinks fight this summer

Competition is heating up in the soft drink category this summer. Market share of newer entrants, who are targeting impulse purchases through popular price points such as Rs 10 and Rs 20 bottles, has increased to an estimated 6-7% last fiscal, from 2% in fiscal 2024, according to a Crisil Ratings report. The rising competition is expected to see established multinational players ramping up marketing and distribution spends while also expanding capacity and distribution infrastructure.

"In India, taste is deeply regional and cultural. What works in one state may not work in another. As a homegrown brand, we understand the nuances which multinational companies often struggle to replicate at scale," said Prabhu Gandhikumar, founder of food and beverages maker TABP.

"We are seeing strong traction and gaining market share across key regions and in a market as diverse as India, being local is both an advantage as well as our core strategy," he explained.


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Even though the competition is intensifying between the established multinational players and the newer entrants, soft drink bottlers are poised to see revenue rebound to their long-term average growth of 15% this fiscal after a subdued last fiscal, driven by hotter summers—the summer months account for 40% of overall sales—and deeper penetration into untapped domestic territories, the Crisil report released on Tuesday said.

A sharp rise in crude prices due to the West Asia conflict has driven up packaging costs, too. These will negatively impact the industry’s profitability by up to 250 basis points (bps).
However, the impact will be lower for bottlers with nationwide presence, due to their higher pricing power and better economies of scale. Cash flows of the players will remain healthy, ensuring stable credit profiles. Crisil's observations are based on the analysis of 13 bottlers in the non-alcoholic beverage industry, which includes carbonated soft drinks (70% of the market), juices (12%) and packaged water (18%).

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Shounak Chakravarty, Director, Crisil Ratings said “Players have not only increased their bottling capacities by 30-35% over the past two fiscals but also expanded their distribution network and cold chain infrastructure. This will drive a healthy double-digit volume growth. The higher volume, coupled with 2-4% price hike in a competitive environment will help players revert to their long-term revenue growth trajectory.”

Added Rucha Narkar, Associate Director, Crisil Ratings, “Intensifying competition, leading to reduced pricing flexibility amid rising crude-linked packaging costs (20-22% of overall cost), will cause a moderation in profitability this fiscal. However, marginal price hikes and increasing focus on zero-sugar variants may limit the overall impact to 200-250 bps, keeping margins healthy at 15-16%. Further, bottlers with pan-India presence are expected to negotiate better pricing terms with suppliers and distributors through bulk raw material purchases and high-volume offtake respectively, thereby partially offsetting the impact on profitability.”

Overall, cash flows will remain healthy for the players, allowing them to continue spending on expanding bottling capacities and increasing visi-coolers at outlets, keeping capital expenditure (capex) intensity elevated. The capex intensity—which had surged last fiscal owing to acquisitions—will, however, be lower this fiscal. Consequently, aggregate
debt/Ebitda and interest coverage ratios of players may improve to 0.9-1.0 times and 10-11 times, respectively, this fiscal, from 1.1 times and 9 times last fiscal.