Pepsi-Cola Back in Indian Market After a 28-Year Absence : Marketing: The U.S. soft-drink firm cracked the tightly controlled market, in part, by promising to invest $1 billion in the country.
Pepsi-Cola went on sale in India for the first time in 28 years Wednesday after a bitter six-year battle to sell the U.S. soft drink in the tightly controlled Indian market.
Pepsi, Seven-Up and Mirinda, an orange soda, hit the market in Jaipur, capital of the western state of Rajasthan, said Christopher Sinclair, president of Pepsi-Cola International.
In the coming weeks, the drinks will be sold throughout the country, he said.
As part of an agreement with the Indian government to “Indianize” the soft drinks, they will carry the prefix Lehar, meaning “wave” in Hindi.
To sweeten the pot, Sinclair also promised that the company would invest $1 billion over 10 years in bottlers, distributors and other small businesses in India.
He also released a copy of a letter written to U.S. Trade Representative Carla A. Hills, in which he urged the U.S. government not to take action against India for alleged unfair trading practices.
The compromises are expected to pay off, say analysts, who believe that Pepsi is poised to dominate the market.
India’s $350-million-a-year soft-drink industry is controlled by three domestic soda kings, but industry analysts say there is room for growth. Indians consume an average of only three bottles of soft drinks a year, compared to 13 in neighboring Pakistan, 38 in Thailand and 550 in the United States.
Indians view Western products as superior to their own. And their domestic soft-drink market currently faces turmoil because the government recently banned an additive, brominated vegetable oil, used by all three domestic producers.
Pepsi’s position also is enhanced by the absence of its principal foe, Coca-Cola. In March, the Indian government turned down a Coke proposal to build a $3-million plant.
“The agreement,” Sinclair said, “shows that India can be a vital part in the system of world commerce and that it can accomplish it on its own terms and not on terms dictated by the West.”
But many view the Pepsi announcement as the last good news for foreign investment in India, at least in the near term.
With the fall of Prime Minister Rajiv Gandhi in November, India appears to have ended its brief economic liberalization and is again closing its markets to foreigners. Prime Minister V. P. Singh recently said India is interested only in foreign investment in high technology.
Last year, foreign investment totaled only $200 million and this year isn’t expected to be much better.
Pepsi’s experiences testify to the difficulties of investing in India, analysts say.
Pepsi has been accused of paying bribes, unfair business practices and even possible links to terrorists. Its investment proposal faced more than 20 parliamentary debates and 15 committee reviews.
In a last-minute move, the government forced Pepsi to change the name of the soft drink from Pepsi Era to Lehar Pepsi because Era wasn’t considered sufficiently “Indian.” The action cost Pepsi $150,000 in bottle fees.
Indian newspapers hypothesized without proof that Pepsi might want to destabilize the Indian government because its operations are based in Punjab state, the site of a bloody separatist movement led by members of the Sikh religion.
“Our project here has been an unprecedented experience on all fronts,” said Ken Ross, spokesman for Pepsi-Cola International. “It’s been very tough sledding all the way.”
The Pepsi project began in India in 1985 when Pepsi-Cola International submitted a proposal to the Indian government, which immediately rejected it. Pepsi then joined with a state-run company, Agro-Industries Corp., and the privately owned Tata Group. In February, 1990, the first products--potato chips under the Hostess brand name and cheese-flavored Cheetos snacks--hit the market.
The project, based in the northern state of Punjab, includes agricultural research, crop diversification, processed fruits and vegetables along with soft-drink concentrate and snack foods.
Pepsi’s share in the $15-million project is 39.9% because of an Indian law that restricts the holding of foreign partners in a joint venture to 40%.
According to the government’s terms, soft-drink production will be restricted to 25% of the project’s turnover and exports of food items will have to be five times the value of imports.
Indians were cut off from U.S. soft drinks in 1977 when Coca-Cola was forced to leave because it would not agree to the 40% ownership rule. Pepsi left India in 1962 because of slow sales.