Can an Ethnic Beverage Brand Challenge Coca-Cola in India?
Paper Boat, a fledgling Indian brand from Bangalore-based Hector Beverages, is aiming to hold its own in the country against global giants like Coca-Cola and PepsiCo. But can traditional Indian drinks really give popular colas and juices a run for their money?
When Neeraj Kakkar, a former Coca-Cola executive, turned entrepreneur in 2010 and set up Hector Beverages, competing with the cola giants was the last thing on his mind. Bitten by the entrepreneurial bug, Kakkar zeroed in on the beverages market (after rejecting ideas in areas like education, child care and women’s empowerment) simply because it was familiar territory; he had worked with Cola-Cola in India for seven years and was part of its senior management in the country. As an entrepreneur looking at the growing popularity of functional beverages worldwide, he felt it had potential in India, too. It was just a business decision.
But today, Kakkar sees himself and Paper Boat as “protectors” of traditional Indian beverage recipes. “At Hector Beverages we believe that if we don’t do something now these recipes will disappear in the next 20 to 30 years.”
Management consultancy firm Wazir Advisors estimates that the unorganized market for ethnic beverages in India is around $200 million to $250 million, while the organized market is barely 1% of this. Paper Boat is the dominant brand in this segment with the largest portfolio of flavors. Others include Dabur India, PepsiCo, Coca-Cola and Parle Agro. These players have only the one or two flavors — primarily mango or lemon.
V.T. Bharadwaj, managing director at Sequoia Capital, an investor in Hector Beverages, considers Paper Boat to be a “path breaking” product which has the “potential to transform the beverages landscape in India.” He points out that unlike the U.S., which has traditionally been dominated by colas, India has a short cola history. “India has a rich history of traditional beverages and it’s a shame that no one has tried to present them in an attractive and aspirational manner.” According to Bharadwaj, branded ethnic beverages are a category that was “waiting to be created” in India. “It is category that is waiting to explode and has the potential to break the back of the cola market.”
According to market estimates, in the first half of 2016 Coca-Cola and Pepsi were pushed out of the top five highest sold beverages in modern trade outlets in India by fruit juices from Dabur and PepsiCo, and the decades-old rose drink Rooh Afza from Hamdard. Commenting on this in a media interview, Devendra Chawla, president, food and FMCG brands at Future Group, said: “Traditional drinks and tastes have come out of the shadows. The past few decades saw high decibel marketing and commitment of resources from global brands, but consumers are going back to favoring what they perceive are healthier and traditional flavors.”
“Branded ethnic beverages are a category that is waiting to explode and has the potential to break the back of the cola market.”–V. T. Bharadwaj
Global trends also show cola growth slowing down. In another media interview, Euromonitor India country manager Janaki Padmanabhan said: “Globally, cola carbonates have received a lot of negative publicity due to high sugar content and lack of nutritional value.”
On the Traditional Trail
Interestingly, Kakkar and his co-founders Suhas Misra and Neeraj Biyani (both former colleagues at Coca-Cola) and James Nutall (a packaging industry professional in the U.S.) thought of Indian beverages only after their first two product launches — Frissia, a protein drink (in 2011) and Tzinga, an energy drink (in 2012) — failed to create waves. Even as the co-founders were grappling with what to do next and exploring other functional beverages such as vitamin water and smoothies, they hit upon the idea of traditional Indian drinks serendipitously. (Misra and Nutall later exited the company in 2014 and 2015 respectively.)
In the summer of 2012, Nutall’s parents were visiting India and he wanted to buy Aam Panna for them — a refreshing raw mango drink that Misra’s mother used to send daily with his lunch to help him keep cool during the scorching heat of New Delhi. (Hector Beverages moved its headquarters from New Delhi to Bangalore in 2014.) While Nutall’s colleagues cautioned him against buying Aam Panna from street vendors to avoid “Delhi belly” (an upset stomach), despite searching in various shops Nutall couldn’t find a safe alternative. “This is when we realized that traditional Indian drinks could have a great market if produced and packaged hygienically. We didn’t do any formal market research. We just followed our instincts,” says Kakkar.
Paper Boat has sailed a long way since then. From two flavors in 2013 — Aamras (sweet mango) and Jalzeera (cumin and lemon) — Paper Boat currently has a portfolio of 13 flavors, each comprising specific Indian spices and condiments. The flavors include Aam Panna (raw mango), Jamun Kala Khatta (Indian black berry), Kokum (a berry belonging to the mangosteen family), Anar (pomegranate), Chilli Guava (guava), Neer More (curd-based) and Thandai (milk-based). While all these flavors are available in 250-milliliter doy packs (sealed flexible plastic bags designed to stand upright), the company recently launched Aamras and Anar in 500 milliliter tetra carton packs also.
All Paper Boat drinks are made without preservatives, added color or carbonation, and on average it takes the firm 18 months to develop a flavor from idea to launch. Currently, 11 flavors are in the pipeline in different stages of development and are scheduled to be launched by the end of 2017.
Hector Beverages has two manufacturing plants — one in Manesar near New Delhi and the second in Mysore near Bangalore. Manufacturing capacity has increased from one million packs per month in August 2013 to eight million packs per month at present, while distribution has increased from 20,000 outlets to 120,000. Kakkar and Biyani are looking to double capacity by the end of 2017.
Last year, the company partnered with Indo Nissin Foods for distribution and with this they expect to further ramp up their distribution substantially. Funds, they say, are not a constraint. So far, Hector Beverages has raised $42 million from angels and venture funds like Sequoia Capital, Catamaran Ventures and Foothills Ventures. While Kakkar is tightlipped about sharing any details on revenue and profitability, he says the company has been “growing more than 100% year on year.”
Making Traditional Contemporary
So what is the secret of Paper Boat’s success? Kakkar lists authentic recipes right on top. In food, he notes, the central piece is getting the recipe right. “The traditional way to develop a product is at the center of different nodal points. But in a country as diverse as India, trying to satisfy all groups doesn’t work. So when we develop a recipe we try to get it as close to any one group as possible,” says Kakkar. Adds Biyani: “We are extremely strong in product development. Whether it is identifying the right vendors, sourcing at the right time or establishing the right processing standards, we have developed a very strong knowledge base.”
“Paper Boat has used differentiation as the cornerstone of its brand strategy.”–Harish Bijoor
Biyani cites an example. For making Aamras, the firm uses only naturally ripened mangoes in order to produce the most authentic taste. This requires that each mango must be monitored individually from when it should be plucked to whether it should be put on hay or on coconut leaves for ripening to deciding when it is ready for processing. All this in turn depends on natural factors like temperature, humidity, rainfall and so on. “We buy thousands of tons of mangoes and for every single mango to be individually monitored not only requires a large and trained manpower but also passion and dedication. This is true for each of our products,” says Biyani.
The other key pillars of Paper Boat’s success are its design, packaging and messaging. Infusing tradition and authenticity with a contemporary feel has been central to Paper Boat’s philosophy. Shripad Nadkarni, formerly director of MarketGate Consulting, a strategic business and market consultancy firm and creator of Paper Boat’s brand DNA, recalls that right at the beginning the firm realized that “traditional” and “authentic” had the inherent danger of being perceived as “old and stodgy.” To safeguard against this, they added the concept of “alive.”
“The balance between ‘alive’ and ‘authentic’ is very important,” Nadkarni says. “We were clear that whatever we do must connect with today’s consumers. So while the product itself is traditional and the recipe and ingredients are all about authenticity, the packaging, design elements and communication, etc. are all contemporary.”
Nadkarni, too, is a former Coca Cola executive. From 2000 till 2005 he was vice president of marketing and head of new beverages at Coca-Cola India. After quitting Coca-Cola, he set up MarketGate, which he later sold to the Publicis Groupe. Nadkarni, who is an angel investor in Hector Beverages, set up Fingerlix, a ready-to-cook food startup earlier this year.
Nadkarni believes that India is “at the cusp of a taste revolution.” He notes that as a society, India has long suppressed the need to indulge. “It is only now discovering the whole aspect of indulging in taste and we are seeing this in food and beverages.” Adds Bharadwaj: “Products like Paper Boat are also tapping into a sense of a confident India that is now comfortable with its roots and product history.”
Harminder Sahni, founder and managing director of Wazir Advisors, agrees. “Indians are now proud of being Indians. I see this trend gaining ground especially with xenophobia becoming stronger in the Western world. Also, India has so much diversity and therefore variety in all things ethnic — food, drinks, clothes, handicraft, music, etc. This offers a huge opportunity.” Sahni adds that Paper Boat is on the right track in tapping into the “ethnic mood” of the Indian market. “Paper Boat has a unique positioning and a great understanding of consumers leaning towards ethnic products with modern packaging and hygiene. Haldiram’s in sweets, snacks and fast food, and Patanjali Ayurved in FMCG [fast-moving consumer goods] are on the same track.”
Devangshu Dutta, chief executive of consulting firm Third Eyesight, points out that food flavors are “deep-rooted in our psyche” and “familiarity and habit” attract us to flavors that we grew up with. He believes that Paper Boat has “very successfully tapped into this need for familiar flavors, while riding on smart branding and modern packaging for convenience, safety and shelf life.”
Ramesh Kumar, professor of marketing at the Indian Institute of Management Bangalore, says: “Paper boat entered into the psyche of consumers in a unique manner — nostalgic emotions associated with cultural origins and ingredients. The brand’s strengths are associated with ethnic taste and recipes of the bygone era that are vanishing in a world of fast-foods.” Pointing out that Paper Boat “implicitly” offers a “healthy lifestyle,” Kumar adds that the brand’s pouch-style packaging and other design elements definitely give it a “contemporary appeal.”
Harish Bijoor, brand-strategy specialist who runs his own firm, Harish Bijoor Inc., also thinks that Paper Boat’s strength is that “it is different in every way. It has used differentiation as the cornerstone of its brand strategy. Ethnic drinks was a rebel space — a rebel space against the carbonated cola beverages for sure. The packaging, which is unique, functional and efficient, led in this space. The pricing is premium and the advertising stance with conversations with consumers is unique as well.”
“We are way ahead in product development and are working on products others would not even been thinking of.” –Neeraj Biyani
Bijoor, however, inserts a note of caution. Pointing out that more than 60% of India’s population is below 35 years, he suggests that Paper Boat’s evoking of memories and its nostalgia for a simpler, carefree life is risky and could result in its being perceived as “geriatric.” He adds: “Classy and conversational is nice, but the volumes are not there. And while margins may be there for now, these will be under pressure as mass distribution needs will eat into them.”
Coping with Headwinds
Having tested the waters well, the challenge now for Paper Boat is to sail full steam ahead. Nadkarni observes that at present the brand value of Paper Boat is much more than its business value. “The brand value makes one think that it is a Rs. 1,000 crore ($150 million) brand whereas it is only a fraction of that. The big challenge for the team is to commercialize the strong bond that consumers have with the brand and bridge this gap,” he says.
Distribution will play a key role in this. Juices and cold drinks have a universe of around five million outlets in India. Paper Boat is available in only around 2.5% of those. For an impulse purchase such as Paper Boat, visibility and accessibility are very important.
This is even more critical as other players with strong distribution networks have spotted the potential in the segment and are making their moves. Dabur, a leading Indian FMCG firm and a leader in fruit juices, for instance, has recently launched traditional drinks under the brand Hajmola Yoodley. Hajmola is a popular brand of digestive tablets from Dabur comprising traditional Indian herbs, spices and edible salt and is estimated to have around 50% of market share in this segment. Interestingly, like Paper Boat, Hajmola Yoodley is also sold in doy packs with colorful graphics. While Yoodley is yet to make its mark, experts feel that it is only a matter of time.
“What was unique to Paper Boat has been usurped by others and has closed the several windows of differentiation it had opened,” Bijoor says. “The brand now needs to think differently to grow and stand apart from the rest.”
Paper Boat co-founders however are not fazed. Says Biyani: “We are way ahead in product development and are working on products others would not even be thinking of. Our processes are very different and are a strong competitive advantage. We are at a great place and the sky is the limit. We believe that we can actually give a run to the currently dominant beverages.” Adds Nadkarni: “There is no doubt that the category will grow dramatically. But Paper Boat has the first mover advantage and being the leader will benefit the most.”
Meanwhile another challenge is the price point. At Rs. 30 for a 250-milliliter pack, Paper Boat is a premium beverage and priced more than double that of Pepsi and Coca-Cola’s products. Pointing out that Paper Boat’s price is intimately linked to the product quality, Bharadwaj says the company needs to address this challenge with ingenuity. According to him, if Paper Boat continues as a premium, aspirational category it can certainly grow to become a Rs. 1,000 crore brand. However, if it can break the price barrier it has the real opportunity to break open the cola market. “But you can’t break the cola market at this price point,” he notes.