Coca-Cola and PepsiCo are supplying the concentrates of their trademark beverages to bottling partners on credit, instead of the standard practice of taking payments in advance, three industry executives said.
Selling concentrates to franchise bottling partners has been a profitable business for both companies. This is the first time that the two soft drinks companies are supplying these ingredients on credit, the executives said. The move comes after weak sales in two consecutive summer seasons.
The soft drinks makers have seen sales fall by a fourth in the peak April-June quarter this year compared with pre-Covid numbers, with hotels, theatres and restaurants shut, and grocery stores operating within restricted hours. Restrictions are now being slowly eased with a respite in the second wave of the pandemic, but the industry doesn’t expect any immediate turnaround in sales.
“The early onset of monsoon and slow reopening of malls and restaurants despite lockdowns easing will also delay recoveries of soft drinks,” one of the executives said.
The April-June quarter accounts for more than half of the j20,000 crore annual sales in the packaged beverages sector.
“Extending and easing credit is to help bottling partners tide over slump in sales in the peak April-June quarter for two seasons now,” the executive said.
“We continue to conduct our business as normal on existing terms with our bottling partners and have not extended any special line of credit,” a Coca-Cola India spokesperson said in an emailed response to ET’s questions. An email to PepsiCo seeking comment remained unanswered.
A report by credit ratings firm Crisil released last month said revenues of soft drinks companies could decline by 10% over 2019-20 in India, amid the second wave of pandemic. Crisil said it based its commentary on an analysis of 13 rated bottlers of Coca-Cola and PepsiCo.
The two US-based soft drinks companies dominate India’s non-alcoholic packaged beverages sector. While both had staged recoveries in the quarter ended March 2021 on the back of improved in-home consumption and graded unlocking from the second half of last year, the second wave of Covid-19 hit the country right in the peak season.
PepsiCo had reported mid-single digit organic revenue growth in its international markets including India for the January-March quarter, riding on its snacking business. However, it reported mid-single-digit decline in the India beverages business. Coca-Cola had reported that its soft drinks business grew 4% riding on China and India in the March quarter.