India’s Window of Opportunity Most U.S. based multinational companies generate about 80% of their sales and profits in the U.S. and about 20% internationally. Since PepsiCo is currently skewed more heavily toward the U.S., where we generate about 90% of our sales and profits, we view the international market as an arena of great potential for us. So now that we have established ourselves in the Soviet Union and the People’s Republic of China, we’d like to turn our attention to India and make it our number one priority outside the U.S. Michael Jordon, Former President and COO, PepsiCo Inc, 1987 I still feel guilty filling a bathtub with water. We at home didn’t get much water growing up during the 1960s in the Indian coastal city of Chennai. I belong to a very middle class family wherein we had to rise every morning between three and five – the only hours that the valves to the municipal water supply were turned on – and fill every bucket in the house. Two buckets were set aside for cooking, and two each would go to me, my older sister and my younger brother. You had to think about whether to take a bath. As a matter of fact you learned to live your life off those two buckets. Indira Nooyi, Chief Executive, PepsiCo in Business Week, 2007 PepsiCo is facing and confronting the most exciting times and unprecedented challenges in 2008. The operating environment and contexts had evolved over a period of time. It was in November of 1987 when PepsiCo was granted an approval by the Government of India‘s Project Approval Board to enter the country. The challenge in the beginning was to enter into an un-evolved and a nascent market, create awareness of the product, penetrate into the rural and urban markets, capture market share, stabilize operations, capture the imagination of customers and set up a talented team that would lead to the success of PepsiCo in India. PepsiCo has built a respectable presence over the last two decades in the carbonated drinks and juice drinks category in India and now they are confronting formidable challenges that are unique to India. The foremost challenge in India is to increase per capita consumption of branded beverages. Despite a booming economy, young consumers, increasing disposable income, growth in per capita income et al Indian consumer is posing a unique challenge. The challenge is to make consumers adopt branded liquid refreshment beverages within their staple diet or to increase the per capita consumption, currently amongst the lowest in the world. In 2003 and then in 2006 PepsiCo and Coca Cola faced their toughest test in India. Both the Cola giants were embroiled into the pesticide controversy. The pesticide controversy created a negative image of Cola products in the mind of the consumer. The challenge mitigated to the level wherein Cola giants had to launch a consumer education campaign about the safety of the product. As PepsiCo was looking at moving into capturing the throat share in the scorching Indian market they faced new realities and had to brainstorm a few strategic questions. Could PepsiCo revive the flagging Carbonated Soft Drink Category? Should PepsiCo move into other categories i.e. new and innovative beverage that are particular to India and provide PepsiCo with new profitable revenue streams? What kind of positioning the products should have? How the competition will shape up in each of these categories? Was it that liquid refreshment beverages were a single competitive market or the competition was segmental? How would PepsiCo exploit the opportunities provided by the modern retail
Professor Amit Kapoor of Management Development Institute, Gurgaon prepared this case for the campus engagement program of PepsiCo International in India. You can contact Professor Amit Kapoor at amit@amitkapoor.com. No part of this publication may be reproduced without the permission of PepsiCo International. For copyright permissions and publications related queries kindly write to pepsicoindia.beveragestaffing@intl.pepsico.com.