Parle Agro, 1990-PresentFinal Presentation for course Strategic Management, Term IV

Understanding the Case• By the beginning of 1990, Thums Up was already a market leader• In 1993 Coca-Cola re-entered India after a prolonged absence, spurring a three-

way Cola War with Thums Up and Pepsi• Overwhelmed by Coke’s seemingly endless cash reserves, Parle Agro sold out it’s

carbonated drinks business to Hindustan Coca-Cola Beverages Private Limited• When it was sold, Thums Up had over 85% market share• Post the buyout, Coke assessed that if it killed Thums Up – it’s market share will

nosedive from 60% to a mere 28%• In the next 18 minutes, we will explore how the firms in discussion used

competitive and non-competitive strategies to their benefit

A brief History in Time

1929 – Parle Agro begins operations

in Vile Parle, Bombay

Presidency

1949 – Riding high on the

success of Parle-G, the company launches Gluco Cola amidst a

copyright infringement

battle with Coke

1970 – Gold Spot and Limca are

established brands in the

market

August 1977 – Coca-Cola leaves India. Opens gate for substitutes like Campa Cola and

Double Seven

1978 – Thums Up launched in the

market

1980-1989 – Salman Khan signed as the

brand ambassador of Thums Up by Parle. Market leader in it’s

category

1993 – Coke returns to India,

buys out 3 brands from Parle

including Thums Up

External Analysis for StrategyFive Forces, PESTEL, Force Field and SWOT

PESTEL AnalysisPolitical

Economic

Social

Technological

Ecological

LegalWith a view to study the various factors that have led to growth or decline of the organizations during the specified time period

PESTEL Analysis• Political

• The swadeshi stance of the post-emergency government led to exit of corporations like IBM, HUL and Coke from the India

• This led to local players like Parle cashing into the void thus created

• Economical• 40% local shareholding as a mandate

was not acceptable by most MNCs• Post liberalization, this changed since

global players wanted a lion’s share in the indian consumer’s wallet

PESTEL Analysis• Social

• The post-emergency Indian society was on the brink of a paradigm shift. It was becoming intellectually liberal and was willing to own nothing but the best available in the market

• Technological• Soft-drink companies were aware of

customer preferences across segments and deployed technologies that could turn around a product plan to launch in the quickest possible time

• Technology and knowledge were accessible easily which led to certain suppliers turning into competitors (eg. Campa Cola)

PESTEL Analysis• Ecological

• While the most important function of soft-drink production is access to water, this has been a moot point for various social action groups against bottlers of both Parle and HCCBPL

• Legal• Various legal statures during the time

prohibited export of technology from abroad

• Archaic patent laws also required multi-nationals operating in India to share trade secrets with the Government

SWOT Analysis Strengths• Strong Brand

Image• Good Marketing

Tools• Robust

Distribution• Brand Loyalty

Weaknesses• Negative Publicity• Decline in Cash• No Autonomy

Opportunities• Growing Markets• Acquisitions• Innovation• Creative Marketing

Threats• Cut- throat

competition• Government

regulations• Economic

instability

Of the flagship brand Thums Up for the time period 1990-present

Porter’s Five Forces ModelWill help us study the level of competition within an industry and business strategy development

Competitors including the ones in the past have been Pepsi, Campa Cola, Double 7, Torino and

Duke

Porter’s Five Forces Model

Bargaining Power of Suppliers• Sugar Manufacturers• Packaging Service Providers• Bottling Plants owned by private

entities that operate on the franchisee model of business

Bargaining Power of Buyers• In marketing channels like

Supermarkets and Mass Merchandisers, the bargaining power of customers is predominantly high• Due to the low profitability of the

unit product and intense competition from global rivals like Pepsico, bargaining power of buyers will never be non-existent

Porter’s Five Forces Model

Threat of New Entrants• Preferential treatment meted by

the Government and policy makers• Ability to pool in the substantial

investment required• Existing FMCG players diversifying

into the beverages market• Aggressive poaching of bottlers

Threat of Substitutes• Strategy that both Parle and

HCCBPL followed is to cover all categories in the soft drink industry with at least one product viz.• Carbonated (targeted at Youth and

Males) – Thums Up, Coke• Orange Flavoured (targeted at

Children) – Gold Spot, Fanta• Lemon Flavoured (targeted at

Women) – Limca, Sprite

When Parle Sold out to Coca-Cola – Force Field Analysis

Selling the carbonated

beverages business to Coke

Consolidate focus on core businesses

Ready cash-in-hand

Putting the warring bottlers to rest

Plug the bleeding due to competition

Loss of an iconic brand in a liberalized market

Losing out on a network of loyal suppliers

Giving away the distribution network that was built ground up

Forces for change Forces against change

3

4

2

3

3

2

5

Total Score : 12 Total Score : 10

Internal Analysis of Organization for StrategyCore Competence, BCG, Resource Based View, Dynamic Capabilities and Diversification

Core competence of the firm• Identifying customer requirements

and ability to build the right product portfolio around it• Experience of Parle-G biscuits (which

had very low profit margin due to cut-throat competition) had taught that price wars were never ending battle• Ability to use great marketing and

branding as weapons to gain over 60% market share• Not competing excessively

BCG Matrix for Parle Agro, circa 1990-93

Stars – Thums Up, Frooti

Problem – Citra

Cash Cow – Parle Gluco

Dog – Appy Classic

Parle Agro

Cash Generation (High to Low)

Cash

Use

(Low

to H

igh)

Resource Based View of the firmTangible Assets Intangible Assets Organizational Capabilities

Existing Manufacturing capabilities Iconic Advertising Campaigns Capability to indigenously produce concentrates

Financial prowess from Parle-G Sales

Market reputation of flagship brand

Ramesh Chauhan and team’s exemplary leadership

Nationwide distribution network Connections with the government and policy makers

Access to bottlers

Dynamic Capabilities• One of the most expensive ingredients in cola drink back was

the Kola nut extract.• Due to EXIM regulations by the Indian Government, it was

impossible to be exported from Africa• Parle decided to use an alternative like Tea extract to produce

concentrate indigenously• Team experimented with ingredients like cinnamon,

cardamom, lemon oil, nutmeg, vanilla and orange oil (used in other products manufactured by Parle) since Indian consumers were accustomed to spices• The product was tuned for Indian conditions in a such a way

that it would taste the same even when not so cool.

Diversification as a Strategy• Both Parle Agro and Coca-Cola have been companies that have

diversified themselves to make their presence felt not just in the domain category but also in the category of substitutes

Substitutes Parle Agro Coca-Cola

Tea Fuze

Milk Vio

Coffee Café Cuba Georgia

Juice Maaza, Frooti, Appy, LMN Minute-Maid

Alcoholic Drink

Bottled Water Bisleri, Bailey, Vedica Kinley

Energetic Drinks Bisleri Urzza Schweppes

Other refreshments Hippo (snacking)

From long term to intergenerational performanceHow did Parle manage to sustain in an hostile environment

Balanced Scorecard ApproachFinancial Lower Cost of production Increase and retain

market shareIncrease contribution to cash pool

Customer Launch new products Subdue competitor trials by aggressive marketing

Internal Processes Ramp up production by signing up bottlers in the franchisee model

Strengthen distribution network

Organizational Capacity Innovate indigenously to manufacture caffeine based drink

Identify customer requirements

Questions?