For India's Consumers, Pepsi Is the Real Thing

Coca-Cola India (KO) offered to buy Rajesh Yadav a refrigerator for his New Delhi store if he would sell only the company's drinks. He kept his part of the bargain, and lines of Coke and Diet Coke cans glisten behind the fridge's glass front. A red-and-white banner, featuring Bollywood film star Aishwarya Rai chugging a bottle of the cola, adorns his storefront. Yet Yadav doesn't mention his partner when he describes his shop. "I sell Pepsi and cigarettes," said Yadav in Hindi, elongating the first syllable to pronounce the word "Pay-psee."

Yadav isn't reneging on his deal with Coke. Pepsi became a common synonym for cola in India's most widely spoken language after having the market to itself in the early 1990s. PepsiCo's (PEP) linguistic advantage translates into higher sales for its namesake cola. Atlanta-based Coke has larger total beverage sales in India because it owns a host of non-cola drink brands there. Yet the 4.5 percent share of India's beverage market held by Pepsi's cola market share eclipses the 2.6 percent share of Coke's flagship drink, says consultant Euromonitor. That's a notable exception to much of the rest of the world, where Coke's cola roundly beats its rival.

History explains part of the imbalance. Coke had a small presence in India before pulling out in 1977 after new government regulations would have forced it to partner with an Indian company and share the drink's secret formula. In 1988, PepsiCo formed a joint venture with two Indian companies and introduced products under the Lehar brand. (Lehar Pepsi was introduced in 1990.) Coke re-entered the market in 1993, after Indian regulations were changed to allow foreign brands to operate without Indian partners.

Coke's time out of India cost it dearly. "Pepsi got here sooner, and got to India just as it was starting to engage with the West and with Western products," said Lalita Desai, a linguist at Jadavpur University who studies how English words enter Indian languages. "And with no real international competition, 'Pepsi' became this catch-all for anything that was bottled, fizzy, and from abroad."

In much of the Hindi-speaking belt of northern India, home to three of the nation's five most populous states, children begging at street corners will point to bottled juices and plead for "Pepsi." Mahipal Singh, a 42-year-old truck driver who plies a route between New Delhi and Bihar, calls his rest stops "Pepsi-wepsi" breaks, regardless of what he is drinking. "Saying 'Pepsi' connotes getting a soft drink," said Kiran Bhushi, an anthropologist at Indira Gandhi National Open University who researches consumption patterns of India's middle class and who has consulted for both companies. "How exactly does someone like Coke dislodge this idea from a consumer's brain?"

Coke aims to accomplish the feat by broadening its stable of products to take advantage of the growth of the entire beverage category in fast-growing India. When it returned to the country in 1993, Coke acquired three local brands: Thums Up cola, a lemon drink called Limca, and an orange drink known as Gold Spot. It has since added more drinks to its portfolio. Today, Coke's top three products in India by sales volume are Kinley bottled water, Thums Up, and Sprite, according to Euromonitor. The Coca-Cola brand, which fuels the company's market share growth in much of the rest of the world, ranks No. 5 among its Indian products. "Pepsi is bigger than Coke as a brand [in India], but Coke as a company has very smartly introduced other brands that have done very well," said Harish Bijoor, who runs a brand strategy consulting firm in Bangalore.

Atul Singh, Coke's president for India and South West Asia, says the blanket approach is a key part of the company's strategy. "We want every part of our portfolio to grow, so that any consumer, on any occasion, anywhere in India, makes a choice to drink a Coca-Cola product," he said. That approach to beverages is in sync with Indians' overwhelming preference for noncarbonated drinks. About 90 percent of India's beverage market is composed of tea, milk, and coffee-based drinks, with bottled soft drinks at less than 5 percent, according to Bijoor. Coke has introduced tea- and milk-based drinks, and is also making headway in sodas. Sales by volume in India surged 31 percent in 2009, Coca-Cola Chief Executive Officer Muhtar Kent said in February. And Indian sales of Coca-Cola, Diet Coke, and Coke Zero grew 25 percent last year, according to the company's annual report. Coke last year turned a profit in India for the first time since re-entering the country in 1993, according to Kamlesh Sharma, a New Delhi-based spokesman.

Meanwhile, PepsiCo Chief Executive Officer Indra Nooyi, who was born in India, says she will invest "aggressively" in emerging markets including the subcontinent. Retail sales of the company's products in India, including Frito-Lay potato chips, Quaker Oats, and fruit juices such as Tropicana, totaled $1.5 billion last year. "The Pepsi brand becoming the default name for the cola category is certainly a big positive," said company spokesman Sandeep Arora. "It can also be a double-edged sword if the marketer is not able to differentiate the brand from the rest of the category."

Perhaps that's why Coke seems to be playing the local linguistics game as well. Coca-Cola has run an advertising campaign called "Thanda Matlab Coca-Cola," which translates to "Cold Means Coke." North Indians speaking in Hindi regularly use "thanda," the word for cold, as a noun when offering someone a drink. "It was definitely a good idea," said Bhushi, the anthropologist. "If Pepsi means cola, then emphasizing that a 'thanda' means Coke is perhaps the best way to gain control of the vocabulary."

The bottom line: In much of India, the Pepsi brand has become synonymous with cold beverages. Coke uses a portfolio of drinks to counter that advantage.

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