During the 2022 Annual General Meeting (AGM), Reliance Industries Ltd. (RIL) announced its plan to enter the FMCG segment in 2022. Immediately following the AGM, RIL acted and acquired Pure Drinks and its brand Campa Cola, an iconic soft drink brand with a cult following.
This move has caught the attention of many, as Campa Cola was once a household name in India, but had disappeared from the market in the 2000s. The relaunch has generated curiosity and excitement among consumers, but what are the reasons behind Reliance’s decision to bring back Campa Cola?
An unusual choice
If Reliance wanted, it could have gone for other fast-growing Indian brands like Paperboat or Bovonto. Despite being new, these brands have managed to gain market share in a sector that is fiercely competitive and is controlled by the US giants Coca-Cola and Pepsi. Instead, RIL bought a brand that was essentially dormant in the Indian market. For its latest acquisition, the Indian conglomerate is relying on consumer psychology to succeed.
The Nostalgia effect
Campa Cola has a rich history in India and was an iconic 1970s soda brand in India that ruled the non-alcoholic beverages market in India before popular brands such as Coca-Cola and Pepsi, took over. Even though its American rival Coca-Cola was introduced in India in the 1950s, the popular American brand had to withdraw from the market within two decades when the Indian government introduced a regulation requiring it to reveal its formula. This void in the market was filled by its Indian alternative, Campa Cola, which enjoyed mass popularity and soon became the country’s top beverage brand.
In the years that followed, it rose as the desi option that filled the void left behind by the exit of Coca-Cola. However, the economic liberalisation of 1991 paved the way for cola giant Coca-Cola’s re-entry with renewed fervour in the Indian market. Due to various other factors, the brand gradually lost its market share and eventually disappeared from the market. RIL’s decision to relaunch the brand can be seen as an attempt to revive a nostalgic brand that was once loved by many.
Tapping into growing FMCG market
Secondly, RIL plans to enter the $110 billion-strong FMCG segment in India. Unlike most companies in the space, Reliance wants to acquire small and medium brands instead of building these brands from scratch. This explains why they acquired a recognised soft drinks brand, Campa cola, to start its acquisition spree. RIL paid ₹22 crores to acquire the Campa cola brand and the company that owns it, Pure Drinks. While a substantial sum, this acquisition amount represents less than 0.001% of the quarterly profit of RIL.
According to a report by Report Linker, the sales of Indian beverages are projected to reach $47.6 billion by 2026, up from $41.4 billion in 2021.
Another report by economic policy think tank Indian Council for Research on International Economic Relations found that the non-alcoholic beverages market in India could grow at a compound annual growth rate of 8.7% to be valued at Rs. 1.47 trillion by 2030.
With the relaunch of Campa Cola, Reliance is tapping into this growing market and is looking to capitalize on the demand for local and regional brands.
Diversified product portfolio
Furthermore, the relaunch of Campa Cola can be seen as a strategic move by RIL to diversify its product portfolio. The diversified Indian major is primarily known for its businesses in the petrochemicals, refining, and telecommunications industries. However, the company has been expanding into new sectors such as retail and e-commerce in recent years. The relaunch of Campa Cola can be seen as a move to enter the soft drink market and diversify its product portfolio further.
Reliance’s Revival Roadmap
The cost to make a litre of cold drink typically runs between Rs. 1.50 and Rs. 2, with the main ingredients being water, cola or another flavouring, and sugar. In India, a 750 ml bottle of soft drink costs Rs. 40.
Because it was unable to match the advertising and marketing budgets of companies like Coke and Pepsi, Campa Cola lost its appeal during its first run. Together, PepsiCo India and Coca-Cola India spent Rs. 924 crore on advertising in FY21, according to data from Tofler. The indigenous cola brand would have needed this kind of financial strength to compete with them and stay in business.
RIL derives value in the market because of the pricing power that it brings. Currently, according to online listings, a 2-litre Campa Cola bottle is priced at Rs. 49 while Coke and Pepsi are priced at Rs 85 for the same quantity. Reliance’s financial muscle allows it to opt for price cuts to make the product more appealing to price-sensitive consumers.
Coca-Cola’s India unit is only 2% of its business and it has plans to amp up in the next five to seven years. To achieve that goal, Coca-Cola India and its bottling partners are investing around $1 billion (around Rs. 7,990 crore) to expand the production capacity. It has more than 55 manufacturing units in the country.
PepsiCo operates through 37 bottling plants—17 company-owned plants and 20 owned by franchisee partners. It also has three state-of-the-art manufacturing units in India.
“There are talks in the market that, say, if tomorrow Reliance offers a good premium to the bottlers of Coke and Pepsi, it may also be successful in taking out people from that system and putting them in Reliance’s system. It merely requires a central bottling kind of arrangement with the bottlers,” says Avinash Gorakshakar, head researcher at Profitmart Securities.
Reliance might have just added the fizz into the flat journey of Campa so far, but will it be able to dislodge the American cola giants? Only time will tell.
