The Indian Bottling Arm of the Coca-Cola Company - Essay Example

INTRODUCTION Hindustan Coca Cola Beverages Private Limited (HCCBPL) is the Indian bottling arm of the Coca Cola Company. Coca Cola international had its presence in India till the late 1970’s when it was shut down due to the socialist policies of the then government. The company re-entered the Indian market in 1993 through HCCBPL. This paper is about the collaboration between the logistic partners and HCCBPL and the challenges faced by them. We also focus on the response that these logistics partners evolved as a means of confronting the challenges and the resulting efficiency gains made by the company. CHALLENGES FOR BOTTLING OPERATIONS Coca Cola international has 24 company bottling plants and 26 franchisee bottling plants in India. These form the logistical base upon which the company operates in India. Coca Cola international supplies the closely guarded formula for making the bottled drinks and the bottling plants and the suppliers make the final product based on the concentrate that has been given to them. Over the course of several years, the bottling plants operated by HCCBPL as well as the franchisees have had to deal with several challenges. These primarily relate to the way in which the pricing of the bottled product, Coke has been done and the numerous protests that have accompanied the bottling operations in several states in India. Further there have been allegations of the pesticide content in the Coke brand of drinks that is beyond the permissible level. These allegations were made by a non-profit watchdog, the Centre for Science and Environment (CSE). If we take the first challenge listed above that is to do with the pricing strategy followed by Coke in India. As the prominent Business Daily, Business Line put it, “Coke has been facing difficulties on several fronts. The company unveiled its low-price, affordability strategy in 2003, which hinged on raising the overall consumer base by offering carbonated soft drinks in smaller pack sizes of 200 ml at Rs. 5. Initially, this strategy appeared to work wonders for Coke in India, with trials on the rise. It also forced arch rival PepsiCo to follow suit. However, before the peak summer season was out, Cokes bottlers, retailers and other stakeholders began to complain. They were up in arms against the low-price strategy because the trade margins were being severely squeezed, denting their bottom-line” (Business Line, 2005). This was the first of the challenges that the company faced as a result of its pricing strategy. Next, the company and the bottlers have been fighting protracted battles with several non-governmental groups over the usage of groundwater and depletion of the water table in the areas in which HCCBPL has bottling plants. This has mainly happened in the Waynad district of Kerala, a southern state in India. The contention of the activist groups is that HCCBPL pays an artificially low rate for the water that it uses for its products and also releases harmful effluents into the neighbouring areas where it has bottling operations. There have been instances of litigation in the courts over this dispute and there seems to be no resolution in sight yet for these charges. The other challenge that we discuss is that of the alleged content of the pesticides in the bottled drinks that HCCBPL markets in India. As Outlook India put it, “But even before the controversy appeared—and knocked back cola sales by over 10% in just a week—Coca-Cola India was a troubled company. Its sales have been falling drastically over the last two years (the 12% drop during April-June made it the eighth straight quarter of slide). A number of litigations across the country have shattered the credibility of the company—the charges levied against it include selling substandard drinks with high levels of pesticide content, polluting ground water and soil around bottling plants, causing severe water shortages in communities and distributing toxic waste as fertiliser to farmers” (Outlook India, 2006). RESPONSE TO THE CHALLENGES The logistical partners in India have responded to these challenges by shaking up the organisation structure and mounting a public campaign to counter the allegations levelled against them. For instance, the partners of HCCBPL have fought the court cases slapped against them in several states, notably Kerala, with facts and figures to prove their point and by implementing Corporate Social Responsibility (CSR) practices across the organisation. As Coke points out in its website, “Over the last two years, weve installed 300 rainwater harvesting structures spread across 17 states, including locations at schools and farms; the collected water is used for plant functions, as well as for recharging aquifers. We plan to have 50 more rainwater harvesting systems by the end of 2007. Today, a substantial amount of the groundwater we use in our operations is returned to groundwater systems, thereby helping to replenish groundwater resources” (Cokefacts. Com, 2008). The other response that the company has come up with is to do with the restructuring of the company that led to the splitting of bottling operations and corporate operations. This has resulted in greater focus on branding by the corporate side and the thrust on increasing efficiency in the supply chain by the bottling operations. This restructuring was accompanied by a change in management at the top of HCCBPL that resulted in the divisions being split to make way for the new structure. EFFICIENCY IMPACT The responses to the challenges that Coke has faced in India meant that the company has recovered some ground, though there is considerable distance to cover in its efforts to gain a lead over arch rival Pepsi in India. The measures taken by the company have paid to the extent that volumes have grown in the years after 2006 (when the changes were introduced) compared to the previous years. As Business Today puts it, “On April 21, it became officially known that January-March 2009 was Coke India’s best quarter ever in its 17-year-history in terms of annual sales volume growth. This was the company’s 11th consecutive quarter of growth—another record” (Business Today, 2009). CONCLUSION It is apparent that the strategy adopted by HCCBPL to counter the challenges posed to its operations seems to be paying off. Though it is still too early to say whether these responses would have measurable long term impact, it is clear that the company is out of the woods for now and can focus on its core competence of making and distributing its flagship products. Now that the “distractions” to the operations in terms of litigation and other issues is reduced, the company can concentrate on another aspect that is the mindshare of the Indian consumer. In the Indian market, though Coke is the market leader, it is Pepsi that has greater brand recall. In conclusion, this might be something that the company’s top brass may think over and conquer. Sources Pande, Shamni. 2009. The Fizz is back. Business Today website. Retrieved 01 Aug 2009 from: http://businesstoday.intoday.in/index.php?option=com_content&task=view&id=11371&issueid=§ionid=22 Bhattacharya, Sindu. 2005. Coke’s challenge. The Hindu Business Line website. Retrieved 01 Aug 2009 from: http://www.thehindubusinessline.com/catalyst/2005/07/14/stories/2005071400060100.htm Kaul, Pummy. 2006. The real trouble. Outlook Business Website. Retrieved 01 Aug 2009 from: http://business.outlookindia.com/newolb/article.aspx?101045 Responses to allegations. 2007. Coke Facts website. Retrieved 01 Aug 2009 from: http://www.cokefacts.com/India/facts_in_qa.shtml Read More