Beverages and Their Classification:

Beverages are potable drinks which have thirst -quenching, refreshing, stimulating and nourishing qualities. By refreshing, one means the replenishment of fluid loss from the body due to perspiration. Simulation results in increase of the hear t beat and blood pressure. This is due to the intake of spirits (alcohol) or tea (thein) and coffee (coffein). Nourishment is provided by the nutrients in the beverages, especially fruit juices. Most of the beverages supply energy in the form of sugar or alcohol. They also provide other nutrients like mineral salts and vitamins. For example, milk gives calcium and citrus fruits give vitamin C. Generally, people drink for one or more of six reasons; to quench thirst, to get drunk, to enjoy a social setting (social drinking), to enjoy the taste of the beverage, to feed an addiction (alcoholism), or as part of a religious or traditional ceremony or custom (proposing toast). A beverage is a liquid formulation specifically prepared for human consumption. The word Beverage has been derived from the Latin word bever meaning rest from work. After work, one tends to feel thirsty due to fluid loss through perspiration and one is inclined to drink water or other potable beverages to compensate fluid loss. Beverages can be broadly classified into two. They are Alcoholic Beverages Non-alcoholic Beverages.

A non-alcoholic beverage is a beverage that contains no alcohol. Such drinks are generally drunk for refreshment, or to quench people's thirst. Non-alcoholic beverages can be mainly classified as hot and cold beverages. A soft drink (also called soda, pop, coke, soda pop, fizzy drink, tonic, or carbonated beverage) is a non-alcoholic beverage that typically contains water (often, but not always carbonated water), a sweetener, and a flavoring agent. The sweetener may be sugar, highfructose corn syrup, or a sugar substitute (in the case of diet drinks). A soft drink may also contain caffeine or fruit juice. Pure juice and other beverages not considered to be soft drinks are hot chocolate, hot tea, coffee, milk, milkshakes, and schorle. Drinks like Gatorade and Powerade may meet the definition of soft drink but are more commonly called sports drinks. Soft drinks are called "soft" in contrast to "hard drinks" (alcoholic beverages). Small amounts of alcohol may be present in a soft drink, but the alcohol content must be less than 0.5% of the total volume,if the drink is to be considered non-alcoholic.

Widely sold soft drink flavors are cola, lemon-lime, root beer, orange, grape, vanilla, ginger ale, fruit punch, and sparkling lemonade. Soft drinks may be served chilled or at room temperature. They are rarely heated.

Soft Drinks Industry in India:

After subdued performance in 2006, soft drink industry bounced back in 2007 recording double digit volume growth. Its Bottled water and fruit/vegetable juice the star performers with record double digit growth. Carbonates registered single digit growth. CocaCola India and PepsiCo India marginally slip in shares focus on non-carbonates with increased consumer expenditure towards Naturally Healthy beverages. Retail Industry booming creating more opportunities for soft drink players. An industry analysis through Porters Five Forces reveals that market forces are favorable for profitability. Both concentrate producers (soft drink manufactures) and bottlers are profitable. Defining the industry: These two parts of the industry are extremely interdependent, sharing costs in procurement, production, marketing and distribution. Many of their functions overlap; for instance, soft drink manufactures do some bottling, and bottlers conduct many promotional activities. The industry is already vertically integrated to some extent. They also deal with similar suppliers and buyers. Entry into the industry would involve developing operations in either or both disciplines. Beverage substitutes would threaten both Soft Drink manufactures and their associated bottlers. Because of operational overlap and similarities in their market environment, we can include both Soft Drink Manufactures and bottlers in our definition of the soft drink industry. In 2009, Soft Drink manufactures earned 29% pretax profits on their sales, while bottlers earned 9% profits on their sales, for a total industry profitability of 14%. This industry as a whole generates positive economic profits.

Rivalry: Revenues are extremely concentrated in this industry, with Coke and Pepsi, together with their associated bottlers, commanding 90% of the case market in 2009. Adding in the next tier of soft drink companies, the top six controlled 96% of the market. In fact, one could characterize the soft drink market as an oligopoly, or even a duopoly between Coke and Pepsi, resulting in positive economic profits. To be sure, there was tough competition between Coke and Pepsi for market share, and this occasionally hampered profitability. For example, price wars resulted in weak brand loyalty and eroded margins for both companies in the 2005s. The Pepsi Challenge, meanwhile, affected market share without hampering per case profitability, as Pepsi was able to compete on attributes other than price. Substitutes: Through the early 1960s, soft drinks were synonymous with colas in the mind of consumers. Over time, however, other beverages, from bottled water to teas, became more popular, especially in the 1980s and 1990s. Coke and Pepsi responded by expanding their offerings, through alliances (e.g. Coke and Nestea), acquisitions (e.g. Coke and Minute Maid), and internal product innovation (e.g. Pepsi creating Orange Slice), capturing the value of increasingly popular substitutes internally. Proliferation in the number of brands did threaten the profitability of bottlers through 1986, as they more frequent line set-ups, increased capital investment, and development of special management skills for more complex manufacturing operations and distribution. Bottlers were able to overcome these operational challenges through consolidation to achieve economies of scale. Overall, because of the soft drink manufactures efforts in diversification, however, substitutes became less of a threat. Power of Suppliers: The inputs for soft drink products were primarily sugar and packaging. Sugar could be purchased from many sources on the open market, and if sugar became too expensive, the firms could easily switch to corn syrup, as they did in the early 1980s. So suppliers of nutritive sweeteners did not have much bargaining power against Coke, Pepsi, or their bottlers. NutraSweet, meanwhile, had recently come off patent in 1992, and the soft drink industry gained another supplier,

With an abundant supply of inexpensive aluminum in the early 1990s and several can companies competing for contracts with bottlers, can suppliers had very little supplier power. Furthermore, Coke and Pepsi effectively further reduced the supplier of can makers by negotiating on behalf of their bottlers, thereby reducing the number of major contracts available to two. With more than two companies vying for these contracts, Coke and Pepsi were able to negotiate extremely favorable agreements. In the plastic bottle business, again there were more suppliers than major contracts, so direct negotiation by the soft drink manufactures was again effective at reducing supplier power. Power of buyers: The soft drink industry sold to consumers through five principal channels: food stores, convenience and gas, fountain, vending, and mass merchandisers (primary part of Other in Cola Wars case). Supermarkets, the principal customer for soft drink makers, were a highly fragmented industry. The stores counted on soft drinks to generate consumer traffic, so they needed Coke and Pepsi products. But due to their tremendous degree of fragmentation (the biggest

chain made up 6% of food retail sales, and the largest chains controlled up to 25% of a region), these stores did not have much bargaining power. Their only power was control over premium shelf space, which could be allocated to Coke or Pepsi products. This power did give them some control over soft drink profitability. Furthermore, consumers expected to pay less through this channel, so prices were lower, resulting in somewhat lower profitability. The least profitable channel for soft drinks, however, was fountain sales. Profitability at these locations was so abysmal for Coke and Pepsi that they considered this channel paid sampling. This was because buyers at major fast food chains only needed to stock the products of one manufacturer, so they could negotiate for optimal pricing. Coke and Pepsi found these channels important, however, as an avenue to build brand recognition and loyalty, so they invested in the fountain equipment and cups that were used to serve their products at these outlets. As a result, while Coke and Pepsi gained only 5% margins, fast food chains made 75% gross margin on fountain drinks. Vending, meanwhile, was the most profitable channel for the soft drink industry. Essentially there were no buyers to bargain with at these locations, where Coke and Pepsi bottlers could sell directly to consumers through machines owned by bottlers. Property owners were paid a

sales commission on Coke and Pepsi products sold through machines on their property, so their incentives were properly aligned with those of the soft drink makers, and prices remained high. The customer in this case was the consumer, who was generally limited on thirst quenching alternatives. So the only buyers with dominant power were fast food outlets. Although these outlets captured most of the soft drink profitability in their channel, they accounted for less than 20% of total soft drink sales. Through other markets, however, the industry enjoyed substantial profitability because of limited buyer power. Barriers to Entry: It would be nearly impossible for either a new CP or a new bottler to enter the industry. New CPs would need to overcome the tremendous marketing muscle and market presence of Coke, Pepsi, and a few others, who had established brand names that were as much as a century old. Through their DSD practices, these companies had intimate

relationships with their retail channels and would be able to defend their positions effectively through discounting or other tactics. So, although the CP industry is not very capital

intensive, other barriers would prevent entry. Entering bottling, meanwhile, would require substantial capital investment, which would deter entry. Further complicating entry into this market, existing bottlers had exclusive territories in which to distribute their products. Regulatory approval of intrabrand exclusive territories, via the Soft Drink Interbrand Competition Act of 1980, ratified this strategy, making it impossible for new bottlers to get started in any region where an existing bottler operated, which included every significant market.

Key Trends and Developments:

Naturally Healthy Soft Drinks Benefit From Growing Health Consciousness Localisation of Flavours Accelerates Product Diversification Gathers Pace Packaging Important for Brand Differentiation Soft Drinks Players Enhance Below-the-line Marketing Activities

Growing Health Consciousness:

Consumers opting for healthier lifestyles - Prefer Naturally Healthy products like Juices and Bottled Water. Increasing number of working women - Less time to prepare fresh healthy food. Current Impact: Outlook: Indian consumers likely to show preference of fresh products over canned or bottled products Booming Indian economy - More Employments prospects - Less time to prepare food and beverages at home Future Impact: Manufacturers of naturally fresh products likely to do well. Emphasis on freshness of products will benefit companies. Demand for fresh products likely to permeate to second-tier cities Parle Bisleri Ltd. Introduced Bisleri Mountain Water in November 2006 Tata Tea acquired a majority stake in Mount Everest Mineral Water in 2007. Seabuckthorn Indage Ltd introduced Mountain Spring in June 2007 Sales of 100% Juices grew by 32% - Bottled Water grew by 21%

Localization of products:
National and Multinational companies attempted going local. Soft drink players accelerated pace of innovation in local flavours in 2007.

Current Impact : Soft drink companies face stiff competition from local players including street vendors Outlook: Vast amount of diversity in Indian consumer tastes in different regions Regional players expected to have better understanding of consumer preferences. Multinationals expected to experiment with local flavours using limited edition launches. Future Impact: Experimenting with local flavours expected to reach out to a wider range of target audience. Different flavours in different regions Mirinda Lemon was introduced with ginger flavour as a limited edition product in 2006 Bolder Fanta, with a stronger orange flavour, was launched in South India in 2007 Maaza Aam Panna test marketed in select areas of Uttar Pradesh and Madhya Pradesh Masala Limca, in flavours mint, ginger and jal jeera, was also test-marketed in North India. Position their products as more hygienic and better quality.

A new energy drink, Edge, launched in 2007 which has been especially formulated to suit the Indian palate

Product Diversification:
Soft drinks players expanding product lines to meet changing consumer needs Introducing healthier products Current Impact: Soft drink companies been able to capture larger share of consumers. Coca-Cola India and PepsiCo became total beverage companies Removing negative publicity surrounding them in 2006 Outlook: Product portfolios expected to diversify. Consumers becoming demanding Companies will need to continuously satisfy them. Future Impact: Carbonate players should re-balance portfolio Move towards healthier line-up. Bottled water manufacturers should differentiate products Offer more flavours. Juice players should offer more affordable and natural products. Soft drink players should add more local flavours. Coca-Cola India Pvt Ltd rolled out Minute Maid Pulpy Orange in 2007 PepsiCo India Holdings Pvt Ltd launched Tropicana Twister in October 2007.

Dairy giant GCMMF ventured into sports drinks with Stamina in 2006. Planning to launch bottled water in 2008.

Dabur India extended Real Activ to juice-based soy drinks in January 2007

Packaging for Brand Differentiation:

Retail Markets allow consumers to walk past products and choose what captures their attention. Young people prefer on-the-go packaging like Cans and Plastic Bottles.

Current Impact: Outlook: Emergence of supermarkets/ hypermarkets mean consumers will have more to choose based on visual attractiveness and convenience. Packaging expected to emphasize freshness of the product and its natural ingredients. Future Impact: Larger packs of water should come with small cups to make it easier to consume and share. Juice packs should be transparent so consumers can know what is inside. Consumers may not be willing to pay a premium for packaging PepsiCo India launched 250ml slim cans for cola and non-cola carbonates. Real Activ is available in Prisma-style cartons which helps differentiate it from other 100% juice. Attractive packaging helps create unique positioning in minds of consumers.

In 2007, Dabur India relaunched Real Twist as a juice drink in 600ml plastic bottles.

Juice-based carbonate Appy Fizz is available in Champagne-style black plastic bottles

Below-The-Line Marketing:
Soft drink manufacturers paying greater emphasis on below-the-line marketing Price Promotions, Point-of-Sales displays, Value Offers. Media advertisements focus more on safety of product and umbrella branding

Current Impact: Below-the-line activities help reach to target audience Helps reduce the exposure to events that are beyond the control of the manufacturers Indian teams early exit from the Cricket World Cup and the pesticides controversy Outlook: Expected to be used more relatively inexpensive means of securing consumer attention More direct and personal form of communication with consumers Future Impact:

With retail industry coming up, below-the-line activites will provide more scope for impulse buying. For new products in particular, such as sports drinks and RTD tea, manufacturers should focus on consumer promotions. PepsiCo India has placed a greater emphasis on organising school cricket events rather than simply relying on celebrity endorsements. Dhariwal Industries conducted massive sampling sessions for Oxyrich outside offices and during the festival season in 2007

Carbonates

players

shifting

focus

to

corporate

social

responsibility initiatives such as Coca-Cola Indias Elixir of Life project which aims to provide potable water solutions in 1,000 schools by 2010

Competitive Landscape across Regions of India:

North:

Companies expanding Product range Juices and Bottled Water Coca-Cola Minute Maid Pulpy Orange PepsiCo Lime and Lemon 7Up, Slim My Cans Dabur Real Twist in three flavours Major sales from North

Market Leaders : 1. Coca-Cola India 2. PepsiCo India 3. Parle Bisleri East and North East:

Low Purchasing Power Higher distribution costs Political Problems Regional Players eg. Tashi Group Good brand recall Priya Yours, Prutina Fruit/Vegetable Juices Mother Dairy Bottled Water Coca-Cola PepsiCo Good distribution. Promotion limited to Kolkata

 West: High consumer traffic Strong demand for bottled water Number of regional players Very competitive industry Low margins, Price Cutting Private Labels making mark Big Bazaars Fresh & Pure Local flavoured Concentrates very popular

Market Leaders: 1. Coca-Cola India 2. PepsiCo India 3. Parle Bisleri Ltd. 4. Dabur India Ltd South: Juices Tropicana more popular than Dabur, national leader Regional Players Kali Mark Drinks, Balan Natural Foods, Jagdale Industries Making presence felt Bottled Water Number of unorganized brands Testing ground for Limited Edition trials Use of regional celebrities endorsements

Rural Vs. Urban:

Trends:

Rural Areas: Highest Penetration Carbonates Mango flavored juices popular More focus on irrigation water rather than drinking water Low demand for concentrates Lack of chilling equipment

Urban Areas:

Juices, Bottled Water more utility than luxury products Functional Drinks, RTD demand only in urban areas Bottled Water and Concentrates enjoy popularity

Prospects:

Along with lifestyle changes, weather conditions also favour soft drink industry Different approach to product format in rural and urban areas required Tremendous scope for growth in both areas

Competitive Landscape:
Rural Areas:

Not much demand of Juices, though, Parle Agro Ltd. Has increased its Coca-Cola India and PepsiCo have good reach - Focus on carbonates Smaller packs of Rasna available Significant competition from unorganized sector

presence

Urban Areas:

Major players focus on these areas All companies offer wide portfolio Juices, Water, Carbonates enjoy popularity

Strength of Soft Drinks:

Soft drinks taste good. That is the main advantage. Another advantage is, it is readily available just about anywhere. According to HealthLine, it aids in digestion and weight loss, and is used for treating migraine headaches, because of the amount of caffeine it contains. There are many individuals who feel refreshed and hydrated after drinking a soft drink. This is because of the high water content, as carbonated water is one of a soft drink's main ingredients. It also can help settle an upset stomach Calcium is the main component of stone. Drinking too much caffeine in carbonated beverages, the urine of calcium will increase substantially, making them more prone to stones.

Weakness of Soft Drinks:

Sweet carbonated beverages come from sweeteners, sugar content is more people with diabetes itself, try not to drink. Soda drink too much on the stomach can not help, but will also greatly affect digestion. Too much sugar in carbonated drinks the children's tooth development is very negative, are particularly vulnerable to loss of tooth decay.

Health Effects:
The consumption of sugar-sweetened soft drinks is associated with Obesity, Diabetes, Dental cavities, Low nutrient levels.

Government Policies and Norms towards the Soft drink Industry:

According to the PFA Act 1945, A01.01CARBONATED WATER means potable water impregnated with carbon dioxide under pressure and may contain any of the following singly or in combination. Sugar, liquid glucose, dextrose monohydrate, invert sugar, fructose, Sorbitol, honey, fruit and vegetables extractives and permitted flavouring, colouring matter, preservatives, emulsifying and stabilising agents, acids, (citric acid, fumaric acid, tartaric acid, phosphoric acid, lactic acid, ascorbic acid and malic acid), edible gums such as (guar, karaya, arabic, carobean, furcellaran, tragacanth, gum ghatti, edible gelatin, albumin, licorice and its derivatives) salts of sodium, calcium and magnesium, vitamins, caffeine. Carbonated water constitutes a defined and homogenous range, designated by a generic denomination and utilizing some common list of additives. Carbonated water includes the beverages which comply with this definition, which utilize these additives and which do not claim to be part of adjacent categories such as fruit juices and nectars, dairy drinks, mineral waters, etc The Market: As per a note furnished to the Committee, globally, carbonated soft drinks are the third most consumed beverages. Per-capita annual consumption of carbonated soft drinks is nearly four times the per capita consumption of fruit beverages. Soft drink consumption is growing by around 5% a year, according to Global Soft Drinks 2002 (Zenith International, 2002). Total volume reached 412,000 million litres in 2001, giving a global per-capita consumption of around 67.5 litres per year. According to Government estimates soft drinks marketed in India were 6540 million bottles in March 2001. The market growth rate, which was around 2-3% in 80s, increased to 5-6% in the early 90s and is presently 7-8% per annum. Consumption: Per capita consumption in India is among the lowest in the world at 6 bottles per annum ompared to 80 bottles in Thailand and 800 bottles in USA. Delhi market has highest per capita consumption in the country with 50 bottles per annum.

Types: Non-alcoholic soft drinks beverage market can be divided into fruit drinks and carbonated water. Soft drinks available in glass bottles, aluminium cans or, PET bottles. Carbonated water can also be divided into cola products and non-cola products. Cola Products like Pepsi, Coca Cola, Thums Up, and Diet Coke, Diet Pepsi etc. Non-Cola products based on the types of flavours available can be divided into Orange, Cloudy Lime, Clear Lime and Mango. Soft Drinks Ingredients: As per a note furnished to the Committee, the major ingredients of soft drinks include the following: Water: The major ingredient of soft drinks is water and it accounts for 86%-92% of the soft drink composition. Aromatic Substances: Aromatic substances are added to soft drinks to give a pleasant taste and better stability to the taste. These could be natural aromatic substances like caffeine obtainable from a variety of leaves, seeds and fruits. Identical aromatic substance can be obtained more simply and cheaply, in purer forms from raw materials other than plant raw materials and have characteristics which correspond exactly with their natural equivalents. Sweeteners: There are many different types of sweeteners like sugar (sucrose). It is highly nutritious and is the invaluable carrier of the fruit aromas. It is made from sugar-beet or sugar cane or sweeteners found naturally in many fruits and vegetables. Two simple types of sugars found in fruits are fructose (fruit-sugar) and glucose (grape-sugar). There are also low-calorie artificial sweeteners like saccharin and aspartame (nutra-sweet). Saccharin, is a non-nutritious sweetener which is extremely sweet, stable, gives no energy (no calories).

Carbon dioxide Carbon dioxide is another important ingredient added to the soft-drinks in liquid form. It makes the drink refreshing through its stimulation of the mouths mucous membranes adding a sensation that the soft drink is colder than it actually is. The carbon dioxide also brings out the aroma since the carbon dioxide bubbles drag with them the aromatic components. It also checks microbiological growth. Acids: The most common acids used in soft drinks are citric acid, phosphoric acid and malic acid. The function of acids in the drink is said to balance the sweetness. Coloring matter: Color is added to soft drinks to make them presentable and attractive to consumers. Brown drinks are coloured with caramel (when sugar is heated, its colour changes to brown, it becomes less sweet and acquires a burnt taste) or beta-carotin, which is also the dominant colouring agent in carrots and oranges. Preservatives: Preservatives like sodium benzoate and potassium sorbate are added to increase the life of the product. Sulphur dioxide can also be used as a preservative. Antioxidants: Antioxidants are substances, which prevent reactions that destroy aromatic substances in soft drinks. The most common antioxidant used is ascorbic acid, i.e. Vitamin C. Other additives: Emulsifying agents, stabilizing agents and thickening agents are also added so that the contents of the drinks remain evenly distributed. Examples of stabilizing agents and thickening agents are pectin, which is obtained from citrus fruits or apples, and alginates and carragenan, which is obtained from algae.

PROPOSED STANDARDS FOR SOFT DRINKS AS PER DRAFT NOTIFICATION ISSUED BY MINISTRY OF HEALTH AND FAMILY WELFARE:
After finding of pesticide residues in soft drink samples by Centre for Science and Environment (CSE) a draft notification was issued by the Ministry of Health and Family Welfare specifying the pesticides and heavy metals limits in soft drinks, fruit juice and other beverages. Draft notification no.GSR 685 (E) (Annexure-I) dated 26th August 2003, issued by the Ministry of Health and Family Welfare inter alia stipulates the amount of insecticide residues in carbonated water and soft drink concentrates (after dilution as per direction) as follows: Pesticide residues considered individually not more than 0.0001mg/litre Total pesticide residues not more than 0.0005 mg/litre The above norms are the same norms which have been made applicable for packaged drinking water w.e.f. 1.1.04. From the files of the Ministry of Health and Family Welfare pertaining to issue of Draft notification, it was noted that draft notification was approved by the Minister for Health and Family Welfare on 14.08.2003 and was sent to press on 25.08.2003. Asked by the Committee as to why issue of above draft notification was not stopped once it was decided that JPC was going to be constituted, the Ministry of Health and Family Welfare in a written note furnished to the Committee stated as under: The process for issue of draft notification was approved by Honble HFM before the constitution of the JPC, though the draft notification was issued thereafter, for inviting objections and suggestions. The draft notification is subject to re-examination in the light of comments received from various sources on such draft notification. The Chairman of the JPC, Shri Sharad Pawar wrote to the Union Minister of Health and Family Welfare to extend the date for inviting the suggestions and objections on the above draft notification. Consequently, the Ministry of Health and Family Welfare extended the time period of draft notification for inviting objections and suggestions till 31st December, 2003 i.e. by 127 days and issued a revised draft notification No.GSR 769(E) (Annexure-II) dated 29.09.2003.

Section 23 of the Prevention of Food Adulteration Act, 1954 lays down the procedure for amendment of Prevention of Food Adulteration Rules including procedure prescribing amending the standards of food products. As per this provision, any proposal in respect of initiation of a new standard under PFA Act is considered by the Central Committee for Food Standards, which is a statutory Committee under the Act. On the basis of the recommendation of CCFS, the draft notification is published for inviting comments. Composition of CCFS is given in Annexure-III.