In India, as in the world over, there is a noticeable trend towards healthier products across all sectors, not just beverages. Indians are now well travelled and well informed thanks to the Internet, and they are asking for healthier products. Consumers are now always looking to discover and experiment with healthier and less processed options. As a result, importers, marketers and retailers are all rushing to fill that void.
The beverages category contributes 8-10 per cent of the total food & grocery (F&G) market in India. With the entry of major international beverage players over the past few decades, the market has evolved and has made way for many new products, which have found an instant connect with Indian consumers.
According to research conducted by IMAGES Group – the publisher of Progressive Grocer India – the overall market for beverages in India was close to Rs. 195,000 crore in 2016 and was growing at 20–23 per cent. Though confirmed market figures are not awaited, this growth rate was expected to take the beverage category to three-and-a-half times its size by 2020.
But even if that milestone were to be reached, India’s per capital consumption of non-alcoholic beverage drinks is just about 5 litre, which is very low in comparison to the global average of 85 litre. According to market intelligence and research firm Mintel, “for most packaged beverages in retail, India still remains a small market but one that is growing rapidly.”
Be that as it may, beverage products are gaining big traction among Indian consumers largely because of the convenience and hygiene offered by value-added non-alcoholic beverages. This is particularly true among those aged between 18 and 34 years as Indian consumers in this age group have either grown up consuming these products or have seen the market grow enough to be familiar with them.
For example, according to a study of 3,029 Indian adults by Mintel, over half the respondents said they had consumed juices and carbonated soft drinks (respectively) in the months of April, May and June, while 41% said they had consumed packaged ready-to-drink dairy drinks in the same time period. Consumption was higher among the younger adults and declined as the age increased.
Trade analysts observe that all constituent beverage segments have been witnessing growth at a healthy rate of 20–25 per cent, which is the highest among all food groups. This growth can be attributed to the fact that the market for beverages is getting more segmented and niche than ever before.
And with India’s population skewed towards younger consumers, each beverage category has significant growth potential in the coming years. Busy, on-the-move lifestyles will also have a positive impact on these categories as consumers look for easy solutions to satisfy their thirst and hunger while they go about their day.
The emergence of various brands in all the segments has also given an unprecedented thrust to the category. Consumers can choose beverages of almost all flavours, colours, ingredients, health and nutritional values. The expanding products range is fuelled by the food processing sector and, with the growth, the category is bound to carry forward the acceleration.
Major beverage segments
The category can be divided into four broad segments – tea and coffee, occupying the largest market share; juices and flavored drinks; packaged drinking and flavoured water; and other non-alcoholic drinks, including soft drinks, mango drinks, lemon drinks, chocolate drinks, etc. The lion’s share of tea and coffee confirms that the category is still ruled by the traditional beverages.
Another traditional segment having a significant share is juices along with other canned and bottled beverage options. In spite of the large financial muscle powers and unparalleled distribution advantage, the global beverage giants are able to hold just a five per cent share in the category. About four cent per cent of the total beverages market is formed of the juices segment, which is growing at 20–25 per cent and is expected to grow almost four times bigger in the next five years. Today, Indians are spending at an average just Rs. 6 per month on juices, which is less than what they are spending on other beverages.
The juice segment has been somewhat impacted by the emergence of other flavoured drinks, which have become an easy alternative. Three-fourths of the juice market is urbanised. The high consumption of juices in these markets is the result of higher health awareness, availability of branded juices, urban lifestyle, boom in modern retail and mall culture, and influence of globalisation in the F&B space. People today realise the importance of healthy food and they are demanding packaged juices, which can easily be carried along while on the go.
The juice segment has two components – packaged juices and fresh juices. The packaged juices component has a higher growth rate since it is easily available all the time. However, not more than 15 per cent of the segment is dominated by packaged juices. The packaged juices can be further classified into fruit drinks, juices and nectar drinks, which are recent additions.
Fruit drinks have one-third fruit content in them and sell the most. Fruit juices, on the other hand, are 100 per cent composed of fruit content, and claim a 30 per cent market share at present. In contrast, nectar drinks have anywhere between 25 and 90 per cent fruit content, but account for only about 10 per cent of the market.
The rising number of health-conscious consumers is giving a boost to the fruit juices segment; it has been observed that consumers are shifting from fruit-based drinks to fruit juices as they consider the latter a healthier breakfast or snack option.
The juices and nectars market alone is estimated to be over Rs. 2500 crore in terms of consumer spend. The category is largely urban-centric with rural contribution less than 10 per cent of the overall juices industry. Given that the consumers are increasingly moving towards branded packaged juices format, we see a huge potential in the category in the years to come. The category has been growing at a healthy double-digit CAGR in the recent years.
Growth in nectars and juice drinks is estimated to be at a faster pace vis-à-vis 100% juice as higher prices and stressful lifestyles may restrict the demand for the latter. Owing to this, there could be a bigger demand for fruit-based aerated drinks/ beverages from the consumers. Lately, there has been the trend of a resurgence of traditional drinks. In the coming days, these factors will influence the beverage market in India.
Trends in retail stores
“One of the most important emerging trends in the category is the consumer awareness of the sugar content in the drinks. Consumers are becoming more conscious of consuming less sugar in drinks,” says Nishant Choudhary, who as General Manager leads the food categories at Le Marche, a gourmet food retailer with five flagship stores in Delhi-NCR, which is known for stocking fresh beverages that are curated as per the needs of the consumers.
“Our menu includes fresh juices, quenchers, smoothies and wellness beverages to name a few, whereas juices & drinks, water (value-added), tea & coffee are the fastest- moving beverage products at our stores in terms of their sales value,” adds Choudhary, while pointing to another emerging trend in the category. “Consumers today are keener on buying smaller or single-serve packs in comparison to the bigger packs. This is because consumers don’t want to open the seal and save the drink for consuming later; rather the mindset is to consume it at one go.”
At Magson stores, which operates 23 shops across 10 cities in the States of Gujarat, Maharashtra & Rajasthan, beverages constitute an important part of its product mix contributing about 5% of its overall sales. The retailer expects this number to go up in the coming years, fuelled by a steady rise in health awareness and the demand for natural, healthy, organic and premium food & beverages in Tier 1 & 2 cities.
While this trend to discover and experiment with healthier and less processed options has caught on like a wildfire in the West, it is now becoming visible in India as well. There is an increased demand for functional beverages in the mature markets. Beverages that are positioned as ‘sheer fun’ are seeing a decline. At the same time, there is an increased demand for ‘better for you’ alternatives.
“Over the years, we have observed a consistently good demand for juices, cold-pressed juices, imported water, almond milk, tonic and ginger ale across our stores. Monin Syrups and RAW Pressery cold-pressed juices continue to be amongst the most popular beverage brands at MagSon,” says Rajesh Francis, Managing Director, Magson Retail and Distribution Pvt. Ltd.
“People have started to shift towards drinks with no sugar, and hence almost all brands in the beverage category have introduced no-sugar alternatives to their classic drinks,” states Aryan Aggarwal, Director of Delhi-NCR based Yess Superstores, adding that mineral drinking water and soft drinks are the fastest moving beverage products at its 11-store chain network “Bisleri and Coca-Cola are the most popular beverage brands at our stores and the contribution of the beverage category is about 10% of the overall sales in the stores.”
In a scenario where the trend towards healthier food products has now become a rage, especially in the wake of the Covid crisis, naturally health beverages – which include 100% fruit juice, natural mineral water, green tea and malt-based hot drinks – have emerged as a high-growth segment in the beverage category.
“After the Covid outbreak, we’ve seen an upward trend in the consumption of 100% natural, organic, healthy and sugar-free beverages. More customers are now opting for healthy & health-friendly beverage alternatives than before, especially in Tier 1 & 2 cities. It is great to see brands like Evocus focusing on healthier alternatives like their Black Alkaline Water,” observes Francis.
In south India where SPAR Hypermarkets is a leading retailer across the major urban centres in the region, there is a perceptible trend in beverage consumption. “With the advent of an assertive and aggressive social media, shoppers are becoming more health-conscious and hence their choices are skewed more towards healthier options,” says Solai Sakthivel, Senior Vice President & Head of Buying & Merchandising (Food Business) at SPAR Hypermarkets.
Known for carrying the widest possible beverage assortment, SPAR stocks about 600 SKUs in the beverage category – ranging from carbonated (PET bottle and Cans), fruit drinks, fruit juices, concentrates, functional drinks, drink mixes, health drinks, tea, coffee, among others – with health drinks and juices being the outperformers in the category.
“With all the awareness through various social and media platforms, shoppers are more inclined towards health now and, therefore, there is good movement towards the lite and diet segment. However, the carbonated category has also become very vibrant as it has seen a lot of innovations over the past few quarters such as no-sugar variants in CSD, which have gained traction in the carbonated market,” reveals Sakthivel.
VajirAli Momin, Group CEO and MD at Hearty Mart, which runs 15 supermarkets across Gujarat, agrees that the market trend is for natural and healthier drinks. “People in the cities are becoming more health-conscious. In comparison, the rural segment isn’t so much aware about the benefits of health drinks or organic products. But what cannot be missed is the growing perception against aerated soft drinks. This trend is creating a great opportunity for beverage manufacturers to generate awareness about the benefits of health and natural fruit-based drinks even at the rural level and come up with a range of products that meet the health needs and aspirations of both urban and rural customers.” The new beverage products gaining consumer traction at his Hearty Mart stores are milk shakes (Hershey’s & Amul), flavored soya milk (Sofit), Yakult health drink, masala chhaas (Amul), haldi doodh (Amul), Tang, basil drinks, chia seed drinks, sugar-free juices and sherbet.
Urban India has become the key growth driver for naturally healthy beverages. Understandably so, with lifestyle diseases and conditions such as hypertension and diabetes, experiencing an exponential rise in the country. In view of the lifestyle-related epidemic of diseases, retailers think that brands and manufacturers should not only focus on creating differentiated products but should also take up the responsibility of spreading customer education on the benefits of differentiated products.
“Manufacturers should innovate on launching more healthy drinks with lower sugar level and sweetener, and natural-based fruit drinks that are preservatives-free. Introducing multipacks is one area where there is a huge potential for upsizing the category. While we see the launch of many new brands every month, manufacturers should focus more on customer engagement and education as well. With the advent of an assertive and aggressive social media, shoppers are becoming more health-conscious and hence their choices are skewed more towards healthier options,” opines Sakthivel.
On their part, beverage manufacturers too agree that an increasing number of Indians are opting for healthier options, such as naturally healthy fruit/ vegetable juice, fruit-based drinks and nectars. Many manufacturers say that they have adapted to this trend and have become focused on producing functional beverages that can become part of a consumer’s daily lifestyle. With a large number of urban consumers opting, for instance, a vitamin-flavored water drink in the morning, a protein-based drink after a workout, and a green tea-based drink with meals, the preference for functional, healthy beverages is staring in the face.
In line with this trend, Mintel research reveals that recent launches of beverages stand out for their no-added sugar claims as well as the emphasis on no artificial additives. The launch of products like cold-pressed juices is on the rise and there is also a growing interest in the value-added dairy drinks space, due to the health halo that surrounds dairy in India. Among consumers of juices and dairy drinks, 66% and 64%, respectively, associate them with being healthy.
Strategies for raising beverage category sales
Since the beverage category is highly elastic and also seasonal in nature, Modern Trade will continue to play a big role in influencing the category’s sales performance. It is therefore, all the more important that brands partner with retailers to come up with innovative ways of driving penetration, like through loyalty programs and activations on digital platforms, among other strategies.
One should also not lose sight of the fact that beverages being a lifestyle product category, packaging is the most critical part of the retailing strategy. “Although, the consumption is more structured in the category, the decision-making process involved in choosing a product over the other is based impulse. Hence, there should be a constant engagement in the category by way of activities involving product sampling, visibility of new launches and changes in packaging, which are the most the important things that brands should focus on with retailers in this category,” avers Choudhary.
Elaborating further on the importance of packaging as a retail strategy, he adds: “Consumers associate a lot with the imagery that the brand carries. Even the likes of Pepsi & Coke constantly update their designs and packaging in order to make sense for the changing lifestyle of the consumers. Hence, there should be a good amount of investment going into the packaging of beverage products.” In this context, he points to some more specific instances where brands have been able to ramp up their sales on the back of innovative packaging. “Indian brands in tonic water have done a very good job in designing their products. Their packaging elaborates the lifestyle appeal of the category and hence they have reasonably outperformed and left behind some of the oldies in the business.”
Joint efforts by brands and retailers to promote 100% natural, organic, healthy and sugar-free beverages in Tier 1 & 2 cities can result in good payoffs for both sides. “With better health awareness, customers are now more open to understanding and adopting health & lifestyle concepts such as ‘Drink Your Food’, with the focus on balanced diet and complete nutrition through consumption of health drinks,” observes Fancis of MagSon.
Francis’ assessment of the category assumes importance in view of the fact that although the beverage category is moving decisively towards health and wellness drinks, many MNCs and bigger brands have not been able to fully exploit this shift in consumer behaviour. This market gap offers a tremendous opportunity for brands to come up with their own range of healthier products. “Manufacturers can introduce a wider range of health drinks, while brands can focus on advocacy marketing campaigns and credible celebrity endorsements to educate consumers, stimulate demand and incentivise adoption in Tier 1 & 2 cities,” says Francis.
Some companies, in fact, have been quick to pounce on the opportunity. Not too long ago, Amul launched haldi doodh and masala chhaas, which nobody had thought of until then. Similarly, Hershey’s milk shakes in tetra pack have been able to capture the market more effectively. “Brands that act fast on this trend towards health & wellness will be able to win market share for their products,” opines Momin of Hearty Mart.
Pointing to instances where brand-retailer collaboration can help raise consumer awareness and brand visibility, resulting in stepped up sales for the product, Francis of Magson says: “Recently, we came across the cold green tea sold by Arizona Beverages. It is interesting to see this simple yet effective innovation gain traction at a time when its counterpart – the hot green tea – is still widely popular.” As a retailer, Magson has been organized free sampling initiatives at its stores in association with its beverage partner brands such as RAW Pressery and Brew House. “On such occasions, we’ve found brand-retailer partnerships to be a win-win, ultimately augmenting value for customers of both brands,” observes Francis.
New beverage brands and entrants should look to target and introduce newer flavours in the market rather than try to compete with the established national and regional brands of this industry. The new players should put in their efforts in conducting and organizing sampling tests for their new beverage flavours, which can help to drive higher customer engagement and brand recognition. That’s because people tend to buy the flavours that they have already tried in this category, opines Aggarwal of Yess Superstores. In this context, he cites two examples – Jimmy’s Cocktail and Gunsberg – targeted at the niche market of cocktail mixes and tonic water. “From our retail perspective, we can see that the two brands have been hot sellers compared to the other new products and they have also been able develop and widen this niche category within the industry,” he adds.
At Le Marche stores, where beverages contribute about 11% of the overall sales, the strategy for boosting sales is two-pronged. “The first priority is to maintain the consistency in availability of the core articles and the second is to introduce new products and innovations in the high growth nascent categories. This approach has worked very well for us and we have been able to clock almost triple-digit growth numbers in some of the categories like tonic water, ginger ale, kombucha, and flavoured coffee,” informs Choudhary.
While seasonal boosts along with better in-store merchandizing, product placement and stacking are helping retailers to improve sales of their beverage category, Magson believes that there are other macro factors driving up sales and that it is important for brands and retailers to capitalise on these trends. Among the more important and major growth drivers for the category are: awareness about the health benefits of consuming these products; increase in disposable incomes; and urbanization.
But the most obvious challenge lies in ensuring the availability for seasonal SKUs in terms of demand and growth. For instance, multipacks of colas are bulky with a low shelf life, which makes it a challenge for the retailers to maintain inventory at stores.
“We offer a wide variety of SKUs and to boost our beverage sales further, we stock newer products available in the market, thus adding to the variety on offer. Also, our stores have a lot of chillers and we keep all beverages at a cool temperature,” informs Aggarwal.
According to Sakthivel of SPAR Hypermarkets, “timely alignment between retailer and brand owners, which covers product and activations in detail as well as maintaining consistent stock availability are the critical areas, especially during the peak season, as the category demand is highly elastic.”
Future prospects and the road ahead
With more and more Indians open to the idea of trying out newer and different flavours, it is a good time for beverage companies to launch new differentiated products, flavours and variants. In the current scenario, recreational beverages are finally making their way into India, as consumer demand moves towards more of functional and recreational RTD beverages from the regular beverages and syrups. Market research reports suggest tonic water and ginger ale industry to be worth Rs. 6,500 crore each in India.
Looking for a differentiated marketing plank for their products, manufacturers have jumped on to riding on health- and special condition-diets as a value differentiator. From juices to energy drinks, functional beverages have not only found a place for themselves on supermarket shelves, but also in the future plans of private label manufacturers, distributors and retailers. With the larger chunk of demand still being catered to by hundreds of unbranded, local players, this is only the early phase of the branded beverage transformation in India.
On their part, beverage companies are looking at a number of areas in order to maximize growth: leveraging consumer insights, focusing on rapidly expanding emerging markets and looking for acquisition opportunities. In an emerging market like India, the search for growth is accelerating, driven in part by the booming population and the rapidly expanding middle class. The increasing prominence of digital media is a factor everywhere.
To grow, companies need to understand the changes in the consumer landscape and bring greater focus to their marketing efforts. New demographic groups are being identified as companies try to capture changing consumer behaviour. Consumer shopping habits are changing. Beverage companies need to capture those insights to maximize the growth opportunities across all market segments. Emerging markets like India present significant opportunities as well as complexities. Companies need to adapt products to suit local tastes, wallets and buying preferences.
The challenge for beverage companies is therefore to leverage these insights to identify the core brands, which have the greatest relevance and maximize growth opportunities at every level across economy, mass and premium markets. While some companies are reworking the same core product across different market segments, others are focusing on emerging entry-level products to draw in new consumers, or adapting existing brands into new geographic territories. This includes widening product appeal by identifying new drinking occasions or tailoring products to the needs of specific consumer segments.
With an influx of beverages in the market in terms of brands, usage, content and quality, the category is growing every year. There are many national and regional brands that have created a niche market for themselves by targeting different consumer segments. With the surge in innovation and product introductions, the beverage market in India is set to become more dynamic and vibrant than ever.
Since the beverage category is highly elastic in nature, Modern Trade will continue to play a big role for brands that need to partner with retailers through innovative ways of driving penetration like through loyalty programs and activations on digital platforms. But despite the challenges, the category will continue to grow and the market potential is huge.