VARUN BEVERAGES: BEING IN A COOL SPOT
Dalal Street Investment Journal|October 11, 2021
Soft drink consumption in India is observed to be on a steady growth trajectory. Rising young population, low per capita consumption, improving retail penetration across semi-urban and rural markets, better agro-economics and rising trend of at-home consumption contributes to make it an attractive growth market. This is what gives Varun Beverages its healthy growth outlook

Varun Beverages Limited (VBL) is a key player in the beverage industry and one of the largest franchisees of PepsiCo in the world outside the USA. The company produces and distributes a wide range of carbonated soft drinks (CSDs) as well as a large selection of non-carbonated beverages (NCBs), including packaged drinking water sold under trademarks owned by PepsiCo. PepsiCo CSD brands produced and sold by VBL include Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Mountain Dew Ice, Seven-Up Nimbooz Masala Soda, Evervess, Sting, Gatorade, and Slice Fizzy Drinks.

PepsiCo NCB brands produced and sold by the company include Tropicana Slice, Tropicana juices such as 100 Per Cent Delight, Essentials, Nimbooz as well as packaged drinking water under the brand Aquafina. VBL has been working with PepsiCo since the 1990s and has over two and a half decades consolidated its business association with PepsiCo, enhancing the number of licensed territories and sub-territories covered by VBL, producing and distributing a wider range of PepsiCo beverages, introducing various stock keeping units (SKUs) in the portfolio and expanding the distribution network.

As of date, VBL has been granted franchises for various PepsiCo products across 27 states and seven Union Territories in India. VBL has 31 manufacturing plants in India and six manufacturing plants in international geographies with two in Nepal and one each in Sri Lanka, Morocco, Zambia, and Zimbabwe. VBL’s share of PepsiCo beverages’ volume sales increased from approximately 26 per cent in fiscal 2011 to more than 85 per cent now. Although India is VBL’s largest market, it has also been granted the franchise for various PepsiCo products for the territories of Nepal, Sri Lanka, Morocco, Zambia and Zimbabwe.

Sector Overview

In the beginning of 2020, the domestic soft drinks market witnessed improved consumption and reported broad-based growth across categories. However, in March 2020, the widening spread of the coronavirus led to significant uncertainty across the domestic and global markets. Lockdown measures and restrictions caused unparalleled disruption across economic and business activities in India, thus impacting overall demand and consumption in markets, particularly in the key season of summer. In addition, severe supply chain issues impacted soft drink volumes during the first half of 2020. The lockdown period witnessed a shift in consumer purchase patterns. Even if the at-home consumption expanded, out-of-home consumption, which historically contributes to higher volumes, was considerably impacted during the first phase of the lockdown.

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