How to Fight a Cola War

During 1950, Coca-Cola first arrived in India and stayed until 1977. Then, asked to divest 60% of the shares it held in a partner company, Coke said yes. But when the deal also mandated revealing their secret formula, they refused. Unable to obtain the necessary import licenses, Coca-Cola departed.

Including a company called Campa, local brands (that reputedly were not as good) stepped in to fill the cola void with Pepsi arriving in the late 1980s. But, when Coke returned in 1993, India’s cola wars really began. For India’s new middle class, the brand was aspirational.

India’s Cola Wars

The First Battles

A BBC reporter recalls growing up in Delhi during the 1990s when you defined your identify by your loyalty to one of the two colas. Restaurants that carried Coke had no Pepsi (and vice versa). Crafting a messaging strategy, Coke said, “If you want a cold drink, then it has to be Coke.”

The Second Round

Now the war has returned with a new participant. Never a top brand but always a nostalgic one, Campa Cola is the Indian Cola. Around since the 1970s, it was never a major player, until Mukesh Ambani, reputedly Asia’s richest man, bought the brand for 220 million rupees ($2.2 million) through his company the Reliance Group. Consequently, for the first time, Campa Cola has the ammunition it needs to fight the big guys.

Reliance also got what it wanted. Selling its own cola brand at its own retail outlets, it has the size and affluence to support the predatory pricing–a whopping 50% cheaper– that will attract consumers. Correspondingly, it has the reach to take advantage of “hyperlocalization.” Here, all we really mean is using a vast number of existing local plants to cut transport costs and jumpstart projects.

On the retail side, the plan is to sell Campa in 10 million mom and pop shops. Positioned primarily in rural areas, the population is ideal for the low prices that will sell what has become an “uncool” drink. The geography that could touch 800 million people also will establish a foundation for new healthier products.

Rural India is new terrain for a cola war. Reliance knows it just needs to combine outlets in carnival parks and movie theaters with their super low prices and small retailer strategy. This time, though, the war is different because Reliance can afford it.

Our Bottom Line: Competition

As economists, we can use our competitive market structures continuum to understand India’s cola wars. While we like to say that there are four basic structures, it’s not quite that simple. But they can be signposts as we travel to the right along a scale that displays increasingly large and powerful firms like Reliance. On the far left, we start with the small firms that compose perfect competition. For them, the market’s supply and demand are the pricing bosses because firms are small and have minimal access to big money. Then, moving rightward (from where Campa used to be), firms get larger, acquire some pricing power. But they also have more difficulty entering and exiting markets. When we reach oligopoly territory, we run into Apple and Coke and Pepsi and a small number of companies competing against each other.

That takes us to Campa, Initially local, it had a smaller firm’s competitive ammunition. Now, buttressed by Reliance’s resources, it moved into oligopoly territory:

We should note that in cola wars elsewhere, Pepsi just moved down to #3 from the #2 spot, replaced by Dr. Pepper.

Our Bottom Line: Competitive Market Structures

My sources and more: Thanks to the BBC’s Business Daily for alerting me to India’s cola wars.