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Pepsi's coup de franchise against Coke in Goa

The global war between Coca-Cola and Pepsi Cola has taken an interesting turn in Goa where Coke's local franchisee has changed sides to join hands with Pepsi.

The desertion has left Coke in total disarray, putting under threat its slightly less than 70 per cent stake in the market just as the tourist season has begin. Tourism is, of course, Goa's main industry.

The Goa Bottling Company, a franchisee of Coca-Cola and Parle, has struck an alliance with Universal Beverages Limited, Pepsi's local franchisee, on the basis of the theme "Produce separately, Market jointly."

Though Coke managers are tight-lipped over the developments, an advertisement war has already begun in Goan newspapers. Goa Bottling Company chairman Avdhoot Timblo, who also controls the Fomento mining group, describes the move as a reaction to the way Coke tried to force him to sell his bottling unit and buy equity in a $ 70 million joint venture which Coca-Cola is planning to float shortly.

Giving advice to Coca-Cola, he added, "Don’t ask the farmer to sell his land; tell him to produce more efficiently." Timblo says he is happier with the new deal as Pepsi respects local talent and Indian-ness.

The official reason cited for the split is prices. GBC said when Coke raised the price of its concentrate, it refused to fall in line and submitted a 90-day termination notice to end the contract on June 18. However, the date was extended, but finally expired on November 22.

Coca-Cola India director Rahul Dhawan told Goan newspapers that Coke had offered two choices to all its 53 bottlers in the country once the contracts end in 1999: either sell the bottling plants to Coca-Cola or become partners in the new joint venture.

Pepsi's marketing tactic is different. "We believe in franchise bottling," says P M 'Suman' Sinha, chairman, Pepsi Foods Ltd. "We have nothing foreign except our product," Sinha says, adding that Pepsi will never buy out a local franchisee unless the bottler wishes to sell the unit.

To maintain its 66 per cent marketshare in Goa, Coke has now stocked around 100,000 crates in a local godown, transported from different bottling units in neighbouring states. Coke has also lured a large number of GBC employees on lucrative terms. But marketing one of the world's most famous brands in Goa has become an extremely difficult job for the company, with a lack of vehicles for distribution and a shortage of bottles. Most of the bottles are in GBC's custody.

The per capita consumption of soft drinks in Goa, at 62 per year, is the highest in the country compared to the national average of around 52. GBC, with a capacity of 3.5 million cases (of 24 bottles each), sold 1.6 million cases of Coke, Fanta and the Parle products (Thums Up, Gold Spot, Limca, now owned by Coca-Cola), whereas Pepsi was able to distribute only 0.8 million cases.

Pepsi has now set a target of five million cases for the coming year besides expanding into the markets of neighbouring southwest Maharashtra and northwest Karnataka. To achieve the same, Pepsi has struck franchise deals with three more bottling units.

One of them is with Nectar Beverages Ltd, situated in Dharwar district, northwest Karnataka. The Nectar bottling unit, also controlled by Timblo and with a capacity of three million cases, bottled Parle products until recently. Its loss is another blow to Coke.

The other two bottling units are owned by Dempo, a leading Goa businesshouse which owns UBL, a beverage company, and with stakes in mining. UBL is already the bottler for Pepsi in Goa. Reacting to the GBC-Coke divorce, Dempo vice-chairman V V Dempo said: "We see it happening even in developed countries like Japan while fighting American aggression."

Dempo has welcomed the Pepsi-GBC alliance which will make Pepsi a clear market leader in the beachside state, especially as Dempo's bottling capacity is only 1.8 million cases.

GBC has also staked its claim to the Coke and Parle bottles and crates, worth Rs 130 million. This has forced Coke to market its brands without taking empty bottles in return. "Let them quote a price to buy the bottles," says Timblo.

To hold on to its market share, Coke has deputed six managers from Delhi to take charge of the marketing and distribution while senior Coke managers from the US are also currently in Goa to resolve the crisis.