Since 1991, when PepsiCo entered India and Varun Beverages started working with it, the company has come a long way to bottle all the Pepsi that India drinks today, growing by acquiring other bottlers as well as bagging more territories from PepsiCo. Today, it has franchisees for various PepsiCo products across 27 states and seven Union Territories in India and is responsible for nearly 90% beverage sales volume of PepsiCo India. India is the largest market and contributes nearly 80% to its revenues.
PepsiCo’s carbonated soft drinks (CSD) brands produced and sold by Varun Beverages include Pepsi, Pepsi Black, Mountain Dew, Sting, Seven-Up, Mirinda Orange, Seven-Up Nimbooz Masala Soda and Evervess. PepsiCo’s non-carbonated beverages (NCBs) brands produced and sold by the company include Tropicana Slice, Tropicana Juices (100% and Delight), Seven-Up Nimbooz, Gatorade as well as packaged drinking water under the brand Aquafina. It also has the PepsiCo franchise for the territories of Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe. It has over 30 manufacturing units in India.
Total revenues of Varun Beverages, which follows the calendar year as its financial year, have grown from Rs 5,127 crore in FY16 to Rs 13,211 crore in FY22. Profit after tax has grown from Rs 293 crore to Rs 1,497 crore in the same period while net profit margin has grown from 5.73% to 11.36%.
From one bottling plant to national giant
Ravi Jaipuria, the Chairman of Varun Beverages, which is named after his son and is a subsidiary of his company RJ Corp, had started out with one bottling plant which he inherited from his father. Ravi Jaipuria’s father Chunilal Jaipuri had co-founded the Bank of Rajasthan which he later sold. He got the bottling franchise for Coca Cola in the 1960s. When the American soda maker left the country in the late 1970s, Chunilal started bottling local brand Thums Up. Ravi went to New York to study business management and settled in Montreal in Canada where he started his textile and real estate business. The death of his wife in a plane crash in 1985 brought him back to India. Two years later, when his father divided the business between his three sons, Ravi got one bottling plant in Agra. In 1991, when PepsiCo entered India, Ravi aligned with the American company and has never looked back.
What lies ahead for Varun Beverages
After bagging PepsiCo’s India territories, what lies ahead for Varun Beverages and how can it sustain its growth momentum? The future for Varun Beverages seems promising. The soft drinks industry in India is expected to report healthy growth across categories on the back of better demographics, improving retail penetration across markets, better macroeconomics, and a rising trend of in-home consumption. India’s per-capita soft drink consumption of 24 bottles, is much lower than 271 bottles in China, 1,496 bottles in the US, and 1,489 bottles in Mexico, offering massive growth headroom, according to Axis Securities.
When the company got the franchise for South and West regions in 2018, Ravi Jaipuria said it would enable the company to acquire a national bottling and sales footprint. “This development will help us acquire greater scale, operational productivity and efficiency leading to higher revenues and profitable growth,” he said.
Due to COVID-19 disruption, it lost significant market share amid integration challenges right after acquiring new southern and western territories in 2019. However, the company intends to increase the number of reach per route by 40%. Keeping this in view, it seems to be well-placed to increase its lost market share.
Besides energy drink Sting, which contributed around 10% of the company’s 2022 sales, there are other promising products. The company has turned its focus on expanding its value-added dairy, sports drinks (Gatorade) and juice segments. Currently, it is present in certain markets but plans to expand pan-India post commencement of two new facilities in Maharashtra and Uttar Pradesh in 2024.
The African Safari
While India offers the company ample scope for penetration in new territories and margin growth through inhouse manufacturing, backward integration and emerging product categories, it is hunting for new territories abroad.
As people in the West grow more health conscious, markets in developing countries become more promising for carbonated drinks. After India, Varun Beverages now eyes growth in Africa where it already has a small footprint as a PepsiCo bottler in Morocco, Zambia and Zimbabwe.
A few days ago, the Varun Beverages announced it would buy South Africa-based The Beverage Company in a deal valued at Rs 1,320 crore, enabling it an entry into Africa’s largest market. The Beverage Company bottles and distributes PepsiCo-branded non-alcoholic beverages in South Africa and has five manufacturing facilities in the country, in addition to operations in Lesotho, Eswatini, Namibia, and Botswana.
Bevco has five manufacturing facilities – two in Johannesburg and one each in Durban, East London and Capetown. South Africa is the largest soft drinks market in the African continent, which is expected to grow at a CAGR of 5.3 per cent for the next four years till 2027. “The rising affluence of South African households has resulted in urbanization, coupled with longer workdays and emerging interest from female consumers, which has contributed to the growth in the industry,” Varun Beverages said.
