Mergers & Acquisitions

Coca-Cola Acquires ThumsUp

Background: During the late 1970s, the American cola giant Coca-Cola abandoned

operations in India rather than make a forced sale of 60% of their equity to an Indian Company.

Following this, the Parle brothers, Ramesh Chauhan and Prakash Chauhan, along with their CEO Bhanu Vakil, launched Thums Up as their flagship drink.

When Pepsi entered India in 1991, it tried to suppress the competition of ThumsUp and Goldspot or merge with it.

Coca-Cola re-entered the Indian Market on 26th October, 1993 after 16 years. An agreement with the Parle Group gave the company instant access to the

ownership of the top softdrinks brands of India. With access to 53 of Parle’s plants and a well set bottling network, an

excellent base for rapid introduction of its International Brand was formed. The company acquired soft drinks brands like Thums Up, Goldsopt, Limca,

Maaza and they became a part of Coca-Cola’s range of products. Coca-Cola’s turn-around in India came after a period of heavy investment

from 1993-2002. The company invested $1 billion in India. In 2003, Coca-Cola had 17 manufacturing Units, 60 distribution centers

catering to 5,000 distributors and 1,00,000 retail outlets. Coca-Cola directly employed 10,000 people.

On Acquisition: After acquiring Thums Up, Coke’s intention was

to scrap the Thums Up brand, as it did with other brands it has bought in the past.

But in order not to lose market share to Pepsi, Coke kept Thums Up alive for greater sales.

Despite marketing blitzes that appealed to Indian taste buds, Coke could not gain a foothold until it realized that it wasn’t the marketing strategy that stopped its profitability from taking hold.

The simple factor preventing its success was that the drink wasn’t refrigerated, as many rural areas lacked electricity and refrigeration.

In electricity-deficient areas, such as some of the hinterland in Uttar Pradesh, the Coca-Cola Company then provided shops with coolers that operate with brine solution so its products can stay chilled up to 12 hours without electricity.

In other places, it had trade agreements with local ice makers.

Advantages: Hindustan Coca-Cola Beverages (HCCBPL) was

created and invested $ 836 million in infrastructure, while setting up 10 new greenfield bottling sites in rural areas.

The rural location had several advantages including low-cost labour force, special subsidiaries and tax breaks from government.

Also, the rural market was largely untapped and lacked safe drinking water, encouraging those who had sufficient income to drink Coke.

All new plants were fully automated with only 38% permanent workers, others were local contract workers hired at low wages.

The capacity of the new plants was much higher than the older semi-automated ones.

The company also tries to buy out the plants controlled by its franchise partners formerly associated with Parle.

They also closed some low-capacity bottling plants bought from Parle.

Manifesto for Growth: Values:

Coca-Cola is guided by shared values that both the employees as individuals and the company will live by, those being:

Leadership: The courage to shape a better future

Passion: Committed in heart and mind

Integrity: Be Real

Accountability: If it is to be, it’s up to me

Collaboration: Leverage Collective Genius

Innovation: Seek, Imagine, Create, Delight

Quality: What we do, we do well.

Quality Policy & Vision:

Quality Policy: To Ensure Customer delight, we

commit to quality in our thoughts, deeds and actions by continually improving our processes... Every time

Vision: To provide exceptional Strategic

Leadership in the Coca-Cola India System – resulting in consumer and customer preference and loyalty, through Coca-Cola’s commitment to them and in a highly profitable Coca-Cola Corporate branded beverages system.

Vision for Sustainable Growth: Profit: Maximizing return to share-holders while

being mindful of our overall responsibilities People: Being a great place to work where

people are inspired to be the best they can be, Portfolio: Bring to the world a portfolio of

beverage brands that anticipate and satisfy people’s desires and needs.

Partners: Nurturing a winning network of partners and building mutual loyalty.

Planet: Being a responsible global citizen that makes a difference.

Values: The values that the employees in the Company are expected to keep up to and wok by regularly are: Leadership Innovation Passion Teamwork Ownership Accountability

Strengths & Weaknesses:

Strengths: Strong Distribution Network:

Its distribution Network has 700,00 retail outlets and 8,000 distributors. The distribution fleet includes different modes of distribution from 10-

tonne trucks to open-bay 3-wheelers. Strong Brands:

The Coca-Cola Logo is one of the most recognized logo all over. It has been named the world’s top brand for 4 consecutive years. The brand is estimated to be worth around $70.45 Billion.

Low Cost of Operation:

Weaknesses: Low Export Levels:

The brands produced by the company are brands produced world-wide. In 2003, the CSE, said that waters produced by Soft drinks

manufacturers contained toxins which contribute to cancer and breakdown of immune system.

Small scale sector reservations limit the ability to invest and achieve economies of scale.

The company finds it very difficult to invest in technological advancements.

Opportunities & Threats:

Opportunities: Large Domestic Market:

Coca-Cola claims 58% market share of the Soft Drinks Market. In Bangalore, Coca-Cola amounts to 74% of the beverage market.

Export Potential: Coca-Cola can come up with new products which are not manufactured

abroad like Maaza. Higher Income Among People:

Economic development has lead to an increase in per capita income.

Threats: Imports:

Increase in per capita income of people and relaxed import policies have given the consumers a wider choice of products.

Tax & Regulatory Sector: Renewing and updating a license is cumbersome.

Slowdown in Rural Demand: Lower per capita income and dependence on vagaries of nature makes it

a very unpredictable market. Increased Competition

Implications: Coca-Cola acquiring ThumsUp in 1993, gave

it an edge over its rival Pepsi, which even though was in the country since 1988 was struggling with a 25% market share as opposed to Parle’s 60%.

Coke was not only able to use Parle’s bottling and marketing network, but even its brands which are still popular and outsell Coke’s own brand of soft drinks.

Subsequently, taking a cue from the entry strategy of Coke, Pepsi acquired Duke to build its market share.

Hindustan Lever acquired Dollops, Kwality and Milkfood to get into the ice-cream market with the help of their marketing networks and production facilities.