Varun Beverages in talks with partner PepsiCo for its foray into hard drinks

New Delhi: PepsiCo and Varun Beverages Ltd (VBL), its largest bottling partner outside the US, are in discussions to expand their partnership to distribute and sell alcoholic drinks in India.

“We are talking to PepsiCo if we can start with some of their ready-to-drink, low-alcohol products,” said Ravi Jaipuria, chairman of VBL's parent company RJ Corp. “They (low-alcohol products) are becoming large all over the world. There is a good scope here also (in India),” he said.

Jaipuria’s comment comes soon after VBL announced a distribution partnership with Danish brewer Carlsberg Breweries for select markets in Africa.


Also Read: Why Pepsi could be seeking a 'high' in India

PepsiCo has global partnerships with beer maker AB InBev and spirits maker Diageo through its various subsidiaries.

It partnered with Labatt Breweries, AB InBev’s Canadian subsidiary, to introduce SVNS Hard 7Up, which combines alcohol with 7Up. At the time of its launch early last year, PepsiCo had said “consumer demand for premium RTD (ready-to-drink) products is undeniable.”

With Diageo, PepsiCo introduced an alcoholic drink combining Captain Morgan rum and sugar-free Pepsi Max, for the UK market.

Jaipuria clarified that the talks on RTD cocktails are exploratory. “We are looking at it. We have free cash flows. We have to utilize our cash. We have to grow the business,” he told analysts at a post-September quarter earnings call late last week.

If they decide to go ahead, it will be the first time VBL and PepsiCo go beyond soft drinks in their three-decade-old partnership.

PepsiCo’s rival Coca-Cola, too, has partnerships with Pernod Ricard for Absolut vodka and Sprite, and with Brown-Forman for Jack Daniel’s and Coke.

In India, Coca-Cola made its first move into the alcohol segment two years back with Lemon-Dou, a global alcoholic ready-to-drink beverage.

VBL, in a stock exchange filing, said it will “test opportunities for expansion into ready-to-drink and alcoholic beverages, including beer, wine, liquor, brandy, whisky, gin, rum and vodka in India and abroad.”

Jaipuria said the firm will go slow and one by one in countries. “We are starting with Africa and let's see what we can do in India,” he said.

“We feel it'll be much easier for us” to grow in other categories in markets where they have stable business, he said.

While not advertised in the mainstream, the RTD category involves complex distribution separate from the mass soft drinks business, industry experts noted.

“Also, with significant regulatory compliances needed, the companies will seed the market only gradually, despite it being a growing category,” an industry executive said.

Demand for RTD alcoholic beverages in India is projected to expand at a CAGR of 6.0% between 2025 to 2035, above the global average and second only to China, a September report by research firm Future Market Insights noted.

“Growth is concentrated in metropolitan areas including Mumbai, Delhi, and Bangalore, where rising disposable incomes and Western lifestyle adoption are driving consumption,” the report said. “Urban millennials and Gen Z consumers are increasingly seeking convenient, premium alcoholic beverages for social occasions and home entertainment. Regulatory challenges and taxation policies remain market constraints, but gradual liberalisation supports long-term growth.”

This comes at a time when soft drinks sales have seen a steady decline in India this year, amid a rained-out summer and heightened competition from newer and regional players.

Coca-Cola said its India unit “underperformed expectations in volume terms” in the July-September quarter because of inclement weather, but has “huge potential” overall.

PepsiCo noted that "growth in India slowed due to weather and the competitive situation.”