INDUSTRIAL VISIT OF VARUN BEVERAGES

8/7/2019 INDUSTRIAL VISIT OF VARUN BEVERAGES

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INDUSTRIAL VISIT OF VARUNBEVERAGES

Submitted in partial fulfillment for the

MASTER OF BUSINESS ADMINISTRATION1st Semester (2010-2011)

Submitted By

Raziur Rehman

Mohd. Danish

GYAN BHARTI INSTITUTE OF TECHNOLOGYPARTAPUR BYPASS ROAD MEERUT


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OVERVIEW PEPSICO

The PepsiCo challenge (to keep up with archrival The Coca-Cola Company) never

ends for the world's 2nd carbonated soft-drink maker. The company's soft drinksinclude Pepsi, Mountain Dew, and Slice. It owns Frito-Lay, the world's 1st makerof snacks such as corn chips (Doritos, Fritos) and potato chips (Lay's, Ruffles).Cola is not the company's only beverage: PepsiCo sells Tropicana orange juicebrands, Gatorade sports drink, and Aquafina water. PepsiCo also sells Dole juices(licensed) and Lipton ready-to-drink tea (licensed from Unilever). Its QuakerFoods division offers breakfast cereals (Life), pasta (Pasta Roni), rice (Rice-ARoni),and side dishes (Near East). Wal-Mart is PepsiCo's largest customer,accounts for 9% of sales.PepsiCo may be vying for more Pepsi-drinking people but its hefty snacks andjuice sales help to quench the company's thirst for bottom-line growth. Frito-Lay's

salty snacks rule the US market; the snack division accounts for about one-third ofcompany sales.The company announced a major restructuring in 2007, splitting its two businessunits (Pepsi-Cola North America and PepsiCo International) into three: one for USfood, a second for US drinks, and a third for food and drinks abroad. CEO ofPepsiCo Indra Nooyi said that due to the company's healthy growth in recent years,PepsiCo is approaching a size that can be better managed as three units ratherthantwo.The split looks like this: PepsiCo Americas Foods includes Frito-Lay NorthAmerica, Quaker, and the Latin American food and snack businesses; PepsiCo

Americas Beverages includes North American beverage sales, including Gatoradeand Tropicana; and PepsiCo International includes business in the UK, the rest ofEurope, Asia, the Middle East, and Africa.With a saturated soft-drink market, the company continues to try new iterations: In2007 the company introduced its first vitamin-enhanced water, called AquafinaAlive. It signed a licensing agreement with Ben & Jerry's in 2006 for the sale ofBen & Jerry's milkshakes in the US, as well as a deal with Starbucks for thedistribution of the coffee purveyor's Ethos water brand. Hot on the heels of Coke'sintroduction of Blak, in 2006 Pepsi launched a coffee-flavored cola, named, PepsiMax Cino, in the UK.Venturing further into the non-cola category, PepsiCo acquired sparkling juice

companies IZZE and Naked Juice in 2006. It also began selling Fuelosophy, asmoothie drink, at organic grocery store chain Whole Foods, and struck a deal todevelop products with juice maker Ocean Spray Cranberries.


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Bowing to the public's growing concern about childhood obesity, in 2006 Pepsi,along with Coca-Cola, Cadbury Schweppes, and the American BeverageAssociation agreed to sell only water, unsweetened juice, and low-fat milk to

public elementary and middle schools in the US. As for high schools, theagreement calls for no sugary sodas to be sold and one-half of the offered drinks tobe water, diet sodas, lemonade, or iced tea. The agreement was facilitated byformer president Bill Clinton.CEO Steve Reinemund stepped down as CEO in 2006 in order to spend more timewith his family. His replacement was Indra Nooyi, the company's president andCEO. Indian-born Nooyi, the 11th female CEO of a FORTUNE 500 company, hasbeen instrumental in strategic decisions at the company, such as the acquisition ofTropicana and merger with Quaker Oats.Shortly after her appointment, Nooyi restructured the top level of power at thecompany. She appointed John Compton, previously head of the Quaker-Tropicana-

Gatorade unit, to the newly created position of CEO for PepsiCo North America,reporting directly to her.


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HISTORY OF PEPSICO

1893--Caleb Bradham, a young pharmacist from New Bern, North Carolina,begins experimenting with many different soft drink concoctions; patrons andfriends sample them at his drugstore soda fountain.

1898--One of Caleb's formulations, known as "Brad's Drink," a combination ofcarbonated water, sugar, vanilla, rare oils and cola nuts, is renamed "Pepsi-Cola"on August 28, 1898. Pepsi-Cola receives its first logo.

1902-- Bradham applies for a trademark with the U.S. Patent Office, WashingtonD.C., and forms the first Pepsi-Cola Company.

1905--Pepsi-Cola's first bottling franchises are established in Charlotte andDurham, North Carolina. Pepsi receives its new logo, its first change since 1898.

1934--A landmark year for Pepsi-Cola. The drink is a hit and to attract even moresales, the company begins selling its 12-ounce drink for five cents (the same costas six ounces of competitive colas). Caleb Bradham, the founder of Pepsi-Cola and"Brad's Drink," dies at 66 (May27th, 1867-February 19th, 1934).

1941--The New York Stock Exchange trades Pepsi's stock for the first time.In support of the war effort, Pepsi's bottle crown colors change to red, white, andblue.

1960--Young adults become the target consumers and Pepsi's advertising keepspace with "Now it's Pepsi, for those who think young."

1963-- Pepsi-Cola continues to lead the soft drink industry in packaginginnovations, when the 12-ounce bottle gives way to the 16-ounce size.Twelve-ounce Pepsi cans are first introduced to the military to transport soft drinksall over the world.

1965--Expansion outside the soft drink industry begins. Frito-Lay of Dallas,Texas, and Pepsi-Cola merge, forming PepsiCo, Inc.Military 12-ounce cans are such

a success that full-scale commercial distribution begins.

1970--Pepsi introduces the industry's first two-liter bottles. Pepsi is also the firstcompany to respond to consumer preference with light-weigh, recyclable, plasticbottles.

1984--Pepsi advertising takes a dramatic turn as Pepsi becomes "the choice of aNew Generation."


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1985--After responding to years of decline, Coke loses to Pepsi in preference testsby reformulating. However, the new formula is met with widespread consumer

rejection, forcing the re-introduction of the original formulation as "Coca-ColaClassic."The cold war takes "one giant sip for mankind," when a Pepsi "space can"issuccessfully tested aboard the space shuttle.

1991-- Pepsi introduces the first beverage bottles containing recycledpolyethyleneterephthalate (or PET) into the marketplace. The development marks the first timerecycled plastic is used in direct contact with food in packaging.

1992-- Pepsi-Cola and Lipton Tea Partnership is formed. Pepsi will distribute

single serve Lipton Original and Lipton Brisk products.

1994-- Pepsi Foods International and Pepsi-Cola International merge, creating thePepsiCo Foods and Beverages Company.

1997-- PepsiCo. announces that it will spin off its restaurant division to formTricon Global Restaurants, Inc. Including Pizza Hut, Taco Bell, & KFC, it will bethe largest restaurant company in the world in units and second-largest in sales.

1998-- Pepsi celebrates its 100th anniversary.


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Introduction and Origin of PepsiCo

In 1965, PepsiCo, Inc. was founded by Donald M. Kendall, president and chiefexecutive officer of Pepsi-Cola and Herman W. Lay,chairman and chief executiveofficer of Frito-Lay, through the merger of the twocompanies. Caleb Bradham, aNew Bern, N.C. pharmacist, created Pepsi-Cola in the late 1890s.No single foreigninvestment project has been the center of much attention and controversy in thelate 1980s and early 1990s as the Pepsi Co project in India. The project, PepsiFoods Limited, was cleared by the Indian government in September

1988 as a joint venture of Pepsi Co, Punjab government-owned Punjab AgroIndustrial Corporation (PAIC) and Voltas India Limited. Before this project wascleared, PepsiCo made an attempt to enter into India as early as in May 1985,when it teamed up with Agro Product Export Ltd., a company owned by R. P.Goenkagroup, and sought permission from the central government to import colaconcentrate and to sell a PepsiCo brand soft drink in the Indian market, in returnfor the export of juice concentrate from Punjab. Under this proposal, the mainobjectives put forward by PepsiCo were 'to promote the development and export ofIndian made and agro-based products and to foster the introduction anddevelopment of PepsiCo products in India'. This proposal which was submitted to

the Secretary at Ministry of Industrial Development received rejections on thegrounds that the import of concentrate could not be agreed to and the use offoreignbrand names as domestic tariff area (DTA) was not allowed.Nevertheless, taking advantage of the ongoing political problem in Punjab at thattime, PepsiCo successfully played the 'Punjab Card' and again put forward aproposal in 1986 with stress more on diversification of Punjab agriculture andemployment generation rather than on soft drinks. The proponents of projectcalledit as a second 'Green Revolution' in Punjab and projected it as harbinger of ahorticultural revolution, which would end stagnation in Punjab's rural sector and

would help in promoting small and middle farmers. A strong argument was putforward that this project will create ample employment opportunities for theunemployed youth who has taken the path of terrorism and thereby will help inrestoration of peace in Punjab. This argument was well received in the politicalcircles in Delhi and Punjab, which finally led to PepsiCos entry into India in theform of a joint venture with PAIC, and Voltas as its partners. The equity of PepsiFoods Limited was divided among the partners with PAIC holding 36.11 percent,Voltas 24 and PepsiCo 36.89 percent. Coupled with the 'Punjab Card', PepsiCo


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also made certain commitments to Indian government, which also formed thebasisof its entry. Some important commitments made by PepsiCo included:

The project will create employment for 50000 people nationally, including

25000 jobs in Punjab alone;

74 percent of the total investment will be in food and agro- processing.Manufacturing of soft drinks will be limited to only 25 percent;PepsiCo will bring advanced technology in food processing and providethrust by marketing Indian products abroad;

State of the art technology would be provided in the fields of foodprocessing and soft drink manufacturing at no foreign exchange outflow;

50 percent of the total value of production will be exported;

An agro-research center will be established by PepsiCo in consultation withICAR and PAU;

o No foreign brand name will be used for domestic sales;

The export-import ratio will be 5:1 over 10 years, which means that forevery dollar spends in foreign exchange on this project, the company willensure an export earnings of 5 dollars for 10 years;

25 percent of the total fruits and vegetable crops in Punjab will be processed

in the project;

A substantial increase in government revenue due to consumer marketexpansion and tax collection.


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PEPSICO IN INDIA

PepsiCo entered India in 1989 and in the span of a little more than a decade itbecame the country's largest selling soft drinks company. The Company hasinvested heavily in India making it one of the largest multinational investors. The

group has built an expansive beverage, snack food and exports business and tosupport the operations are the group's 43 bottling plants in India, of which 15 arecompany owned and 28 are franchisee owned.PepsiCo stays committed to providing its consumers with top quality beverages. Itsdiverse portfolio of brands include the flagship cola brand - Pepsi; Diet Pepsi; 7Up;Mirinda; Mountain Dew; Slice fruit drink; Tropicana brand 100% fruit juices invarious flavours; Aquafina packaged drinking water; Gatorade plus local brandsLehar Evervess Soda, Dukes Lemonade and Mangola.PepsiCo is also a dominant player in the snack food segment in India. PepsiCo'ssnack food company Frito-Lay is the leader in the branded potato chip market. Itmanufactures Lay's Potato Chips; Cheetos extruded snacks, Uncle Chips;traditional namkeen snacks under the Kurkure and Lehar brands; and Quaker Oats.PepsiCo is one of the largest MNC exporters in India and its export businessconsist of three categories - agri business, commodities and Pepsi system sales.PepsiCo has made significant investments with the Punjab Agriculture Universityto develop a comprehensive agro-technology program that has helped thousandsoffarmers across India improve the yield of their farms and the quality of theiragricultural products. PepsiCo has leveraged its knowledge in contract farming todevelop seaweed cultivation in Tamil Nadu and has partnered with theGovernment of Punjab to help farmers of the state through the utilization ofdeveloped technology for citrus farming. As part of its sustainable developmentinitiatives, PepsiCo India has been acommitted leader in the promotion of rain water harvesting, water conservationrecycling and the reduction of effluent discharge. PepsiCo has also establishedzerowaste centers and PET recycling supply chains and assisted victims of naturaldisasters. PepsiCo stays dedicated in its endeavor to develop community outreachprograms by supporting rural water supply schemes, administering medical camps


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in villages, providing computers to rural schools and creating opportunities forwomen in rural areas through vocational training as an alternate means oflivelihood.

Different Product of PepsiCo

Pepsi

Diet Pepsi

Pepsi Aha

Slice

Mirinda

7-Up

Aquafina Mineral Water


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TYPES OF PRODUCTS:

Non-alcoholic soft drink beverage market can be divided into fruit drinks and softdrinks. Soft drinks can be further divided into carbonated and non-carbonateddrinks. Cola, lemon and oranges are carbonated drinks while mango drinks comeunder non-carbonated category. The soft drinks market till early 1990s was inhands of domestic players like campa, thumps up, Limca etc but with opening upof economy and coming of MNC players Pepsi and Coke the market has cometotally under their control. While worldwide Coke is the leader in carbonateddrinks market in India it is Pepsi which scores over Coke but this difference is fastdecreasing (courtesy huge ad-spending by both the players). Pepsi entered Indian

market in 1991 coke re-entered (After they were thrown out in 1977, by the thencentral government) in 1993.Carbonated soft drinks major Pepsi India is now putting together a cocktail totake a bigger slice of the fruit juice market. Close on the heels of the launch of itsglobal lemon drink Twist in an Indian avatar as Pepsi Aha, Pepsi, once again, is allset to roll out another global productin a localized version. Come June 2002, andPepsi will roll out the blends of its international fruit drink Twister in the country,albeit, with a difference. In India, Twister blends will be launched as mixed fruitcocktails under Pepsis existing juice brand Slice. Pepsi spokesperson, whencontacted, confirmed the launch but said the products will be launched on anexperimental basis for three to four months beginning June 2002. However,

confirmed sources said that the product has been test-launched and is ready for aformal launch in June. Globally, the proposed Slice fruit blends exist under Twisterbrand and are available in over 10 flavors and in various packaging options.However, in India, while the blends will be decided as per local tastes and as perthe availability of fruit pulp, packaging will be restricted to cartons only. Amongthe four to five flavors planned, strawberry-peach and kiwi-guava are some ofthem. However, the new product could be priced a little higher than Slice sinceTwisteroriginallyis believed to have more than 15 per cent juice content.


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Slice, on the other hand, is a 15 per cent juice drink positioned at the mass-end;against the 100 per cent fruit juice Tropicana, which is at the top-end. Pepsisdecision to launch Twister flavors as Slice variants rather than the original branditself follows the companys decision to make Slice the mother juice brand inIndia.

The company had at one time contemplated bringing Twister in its original self toIndia but the plan was later shelved. Internally we have been debating whether togo ahead with Twister or keep Slice as a mother brand for juices, the Pepsispokesperson said. The move, point out industry observers, is clearly aimed atsaving costs of launching an altogether new brand and instead cash in on thepotential of a existing juice brand. A Rs 200-crore brand, Slice was originallylaunched as a mango drink in returnable glass bottles. Last year, in fact, Pepsilaunched a new advertising campaign to rejuvenate the brands mangopositioning.

And early this year, it was launched in cartons and more recentlythree newflavorsorange, leechi and guavawere added to the brand.Burdened by high cost of production of returnable glass bottles, Pepsi India hasdecided to look at the most sought after packaging alternativeflexible packagingmore seriously. The company through one of its prime bottler Mr. Ravi Jaipuriaof Varun Beverages Ltd is now setting up a new carton line (tetrapack) at itsexisting bottling plant at Noida in Uttar Pradesh.The plant with a capacity of 5,000 to 7,000 cases per day will be used to packPepsis juice drink Slice and its new variants in 200-ml cartons. The product iscurrently being packaged at Varun Beverages at Boranada Road Jodhpur.TheNoida slim line carton plantwhich is expected to take off shortlywill cater to

the north market and will help the company cut huge transportation costs.


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Products, Operations & Technology:

Nonalcoholic beverages include sodas (carbonated soft drinks, or CSD), bottledwaters, juices, and a large variety of mixtures. Sodas account for about 60 percentof the market. The manufacture and distribution of most national soda brands,including Coke and Pepsi, is a two-tiered process. The primary manufacturerproduces a flavored syrup called concentrate that is sold to local bottlers whomanufacture and distribute the finished product. In a typical bottling operation, theflavored syrup, corn syrup (sugar), and filtered water are mixed in appropriateproportions, carbon dioxide gas is injected, and the finished soda product is pouredinto bottles or cans, which are capped, labeled, and packaged.The two-tiered structure is most efficient for national companies with largevolume, because the manufacturing process is simple and because water, themainingredient of sodas, is expensive to ship and is available locally. Smallercompanies combine the syrup production and bottling operations in one plant. Forsoft drink bottlers, the major raw materials, aside from the flavored syrup, are cornsyrup and containers -- glass bottles, aluminum cans, or plastic bottles made frompolyethylene terephthalate (PET).Bottlers frequently operate sizable distribution systems, including warehouses andfleets of specialized delivery trucks. Production and distribution volume is usuallymeasured in cases of 192 ounces, although actual cases of 12-ounce cans nowcontain 288 ounces. Coca-Cola produces more than 4 billion cases of soft drinksper year PepsiCo, over 3 billion. In addition to producing canned and bottled softdrinks, large manufacturers sell sweetened syrups to restaurants and otherretailersthat produce the finished product at the point of sale by mixing the syrup withcarbonated water to produce fountain products. About 35 percent of Coca-Cola's


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US product is in the form of fountain sales and 60 percent in bottled sales.The manufacturing process for most non-soda beverages is usually morecomplicated than the mix-carbonate-and-bottle soda process and therefore isn'tusually handled by local bottlers. In most cases, non-soda products are bottled bythe manufacturer and distributed through the same types of channels--

wholesalers,distributors, brokers--used by food manufacturers, although bottlers may alsoparticipate. Bottled waters, a rapidly growing category of beverage, are eitherbottled at specific springs or made locally from filtered tap water.Manufacturers and bottlers typically operate under contracts, called BottlerAgreements that specify the territory within which the bottler has an exclusiveright to make, sell, and distribute the manufacturer's brand in bottles or cans.Fountain products are often sold separately through wholesalers, under DistributorAgreements. Bottle and fountain territories may overlap and bottlers may also befountain distributors. Coca-Cola sells products through about 80 local bottlers and500 fountain wholesalers.

Bottler Agreements usually require that container and packaging materials bebought from suppliers that are approved by the manufacturer, and that thebottlersnot handle competing products. Agreements also specify the price that the bottlermust pay for concentrate. The manufacturer has no control over the prices thebottler charges customers, and usually isn't obligated to spend money formarketing or promotions in the bottler's territory. Often, however, themanufacturer will provide marketing and promotion support. In one year, forexample, Coca-Cola provided about $600 million in marketing support to Coca-Cola Enterprises,its largest bottler. Many Coke and Pepsi bottlers hold perpetual contracts that can

be terminated only for breach of contract.The industry depends on technology for developing new products in the labsand packaging product at the plants. Most bottling plants are highly automatedwith a combination of mechanical automation and computerized robotics.


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Sales & Marketing:

Beverage manufacturers, bottlers, and wholesalers sell products through a varietyof channels, such as food and convenience stores, restaurants, vending machines,mass merchandisers, and institutions, including schools and colleges. Soda bottlerstypically own local vending machines. The marketing approach to each of thesechannels is quite different and often includes promotional spending. Largemanufacturers may also sell directly to national accounts and usually advertise onnational or regional TV and in print. Manufacturers typically produce a line ofbrands and often test and introduce new products into the market through theirexisting distribution channels.


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CHANNELS OF BEVERAGE INDUSTRY


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Analysis and Industry Challenges:


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In order to survive in this environment, companies must consider the markettrendsthat will likely shape the industry over the next few years. This will help soft drinkcompanies to understand the challenges they will encounter and to turn them intoopportunities for process improvement, enhanced flexibility and, ultimately,

greater profitability.Market trends for the soft drink industry can be summarized by six fundamentalthemes:

Changing consumer beverage preferences, featuring a shift toward healthoriented wellness drinks

Growing friction between bottlers and manufacturers in the distributionsystem

Continually increasing retailer strength

Fierce competition

Complex distribution system composed of multiple sales channels

Beverage safety concerns and more-stringent regulations

Consumers turn to wellness and healthy drinksIn much of the developed world, a significant portion of the population isoverweight or obese. This includes two-thirds of Americans and an increasingnumber of Europeans. Consequently, many people have started to activelymanagetheir weight and change their lifestyles, a shift that is reflected in their choices inthe beverage aisles:

Demand has increased for beverages that are perceived to be healthy

Energy drink consumption has also climbed, due to the increasingly activelifestyles of teenagers.


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This trend towards healthier drinks has created a number of new categories, andchanged the consumption trends of the beverage industry as a whole. Whilepreviously dominated by carbonated soft drinks, the industry is now more evenlybalanced between carbonates, and product categories with a healthier image, such

as bottled water, energy drinks and juice:

While carbonates are still the largest soft drink segment, bottled water is catchingup fast, with an average of 58 liters consumed annually per capita. Amongindividual countries, Italy ranks number one in bottled water consumption, with theaverage Italian drinking 177 liters per year. Overall, bottled water represents thefastest growing soft drink segment, expanding at 9 percent annually. This growthisbeing partially driven by increasing awareness of the health benefits of properhydration.The industry has responded to consumers desire for healthier beverages by

creating new categories, such as energy drinks, and by diversifying within existingones. For example, the leading carbonated soft drink companies have recentlyintroduced products with 50% less sugar that fall mid-way between regular anddiet classifications. Similarly, a South African juice company has recently releaseda fruit-based drink that contains a full complement of vitamins and nutrients.


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Sales and Marketing Hierarchy of PepsiCo India

MEMarketing Executive

CECustomer Executive MDC.Marketing Development Coordinator ADC..Area Development Coordinator MDM.Marketing Development Manager TDM..Territory Development Manager UM.Unit Manager MUM..Marketing Unit Manager


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RECOMMENDATION

Some of the important recommendations are as follows:

There should be and correct feedback from the retailers on the performanceof salesmen. This will help improve their efficiency and accountability.Moreover, this will also help in reducing the confusing that the retailers haveat times because the salesmen do not explain the schemes properly.

As already mentioned Vizicoolers are a major reason of dissatisfactionamong retailers. The periodical maintenance check of Vizicoolers is done atthree months. This should be done at an interval of 45 days or 60 daysinstead of the current practice of 90 days.

There should be incentives for salesmen for every display they enrollbecause they are assigned this task and if they get incentives for the samethen it will greatly increase the efficiency of the promotional activities.

Pepsi should also introduce a version of Diet Pepsi Cola as a sports drinkrange this is a completely new and untapped market which will help inproviding the impetus for Diet Pepsi.

Pepsi should start more aggressive marketing of its Diet Pepsi range ofproducts as they have very good growth and future prospects while there isnot much growth in the carbonated beverages sector.


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CONCLUSION

The Sales and Distribution Network of Pepsi is very strong and almost

flawless. PepsiCo India had the first mover advantage when it entered the market andit capitalized on that advantage to grab the market.

Franchisee based operations combined with the Companys operations addstrength to the overall presence of the Company in the market.

Promotional activities within every territory are under the territory officeand the officials of that office are responsible for the effectiveness andsuccessful implementation of these campaigns.

Because of fierce competition PepsiCo has spend heavily on Ads in order toincrease the brand recall and successfully face the competition.

Pepsi has good brand image and recall in the customers mind but the most

surprising thing is that when compared with Coke, Pepsi lags behind interms of brand image.

PepsiCo is finding it difficult to counter the competition from Coke incarbonated Beverages Segment but it has distinct advantage and upper inalmost all the other segments like snack food, non carbonated beverages,sorts drink, restaurants etc.

Diet Pepsi even though newly introduced hasnt yet caught up with DietCoke the way it should.

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INDUSTRIAL VISIT OF VARUN BEVERAGES