Pepsico's India story is getting crunchier. After beverages and chips, the US major is now betting big on the biscuits market in India - last week, Frito Lay, its foods division, launched what it called a baked savoury cracker brand called Aliva.
The stakes are high indeed for the Frito Lay India team led by Gautham Mukkavilli. Aliva is entirely an Indian creation as Pepsico is not present in the biscuits segment anywhere else in the world. Besides, the segment is already crowded with three well-entrenched players - Britannia, ITC and Parle - and a huge unorganised sector that has almost 60 per cent market share.
The track record of big multinationals hasn't been inspiring either - Hindustan Unilever, for example, had flirted with biscuits under the Max brand in 2005, but exited in a hurry. One of the major reasons for this has been the extremely price-sensitive Indian market.
But Pepsico isn't willing to play the pricing game. Example: Aliva has been priced at Rs 12 for a 60-gram pack. And that's just an invitation price - the printed price on the packs will be Rs 14. Compare this with similar brands in the Indian market. Britannia's 50-50 sells at Rs 7 for a 65-gm pack while ITC's Sunfeast Snacky is available for Rs 10 for 100gms.
But Mukkavilli is unfazed: "We want Aliva to get as big as Kurkure (the company's popular snack brand)," he says. So what makes the company so confident of success that it has set up a separate plant at Ranjangaon near Pune and plans to spend about Rs 500 crore (Rs 5 billion) on marketing Aliva over the next three years?
Mukkavilli, who is also the president of PepsiCo India, has an answer. Aliva, he says, is an important milestone in Pepsico's portfolio transformation journey. "With Aliva, we have created a new category altogether," he says.
The company started with potato chips between 1996 and 1999. This was followed by the second phase where it focused on products that bridged the gap between western and traditional salty snacks vis-a-vis Kurkure.
This year, it has entered the third phase where Pepsico is looking at bridging the gap between namkeens and biscuits by creating a new baked savoury cracker category, which borrows ingredients and textures from biscuits and flavour from namkeens, says Deepika Warrier, director, marketing, Frito-Lay India.
There are other more compelling reasons too. The domestic salty snacks and biscuits market is estimated to be over Rs 10,000 crore (Rs 100 billion) and is growing at over 12 per cent per annum.
But the per capita consumption of biscuits is less than a kg in India compared to 6.5 to 7.5 kg in the developed markets of Western Europe, North America and Australasia. This means there is a huge potential for growth and that's exactly what Pepsico wants to exploit. Pepsico executives say another major advantage the company has is its formidable distribution system in India, made robust by being in the complex bottling business.
Will the company look at lowering the prices of Aliva at some point? Mukkavilli only says the company operates at different price points. "We activate the lower price points only when we anticipate instances of downtrading, or even for providing options down the value chain," he says.
What gives PepsiCo confidence in experimenting with new products is also the strong performance of its core business. Its beverage business, for instance, witnessed a double-digit volume growth over the past nine quarters. "PepsiCo's beverage business has seen around 30 per cent growth in volume in the current year," PepsiCo India Chairman and CEO Sanjeev Chadha says.
And the growth has been across categories. "While last year, rains had watered down the beverage sales to some extent, this year summer is on track with temperatures averaging over 40 degrees fueling demand for hydration products," notes Purnendu Kumar, associate vice-president, Technopak.
All that will come in handy at a time when Pepsico is going off the beaten track by venturing into biscuits.
