Coca Cola India's Thirst for the Rural Market

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Themes : Advertising and Promotion
Period : 2002-2004
Organization : Coca Cola India
Pub Date : 2004
Countries : India
Industry : Food & Beverages

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Case Code : MKTG081
Case Length : 10 Pages
Price: Rs. 300;

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CCI's Rural Marketing Strategy Contd...

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Once CCI entered the rural market, it focused on strengthening its distribution network there. It realized that the centralized distribution system used by the company in the urban areas would not be suitable for rural areas. In the centralized distribution system, the product was transported directly from the bottling plants to retailers (Refer Figure I).

However, CCI realized that this distribution system would not work in rural markets, as taking stock directly from bottling plants to retail stores would be very costly due to the long distances to be covered. The company instead opted for a hub and spoke distribution system (Refer Figure II).

Under the hub and spoke distribution system, stock was transported from the bottling plants to hubs and then from hubs, the stock was transported to spokes which were situated in small towns. These spokes fed the retailers catering to the demand in rural areas.

CCI not only changed its distribution model, it also changed the type of vehicles used for transportation. The company used large trucks for transporting stock from bottling plants to hubs and medium commercial vehicles transported the stock from the hubs to spokes.

For transporting stock from spokes to village retailers the company utilized auto rickshaws and cycles.

Commenting on the transportation of stock in rural markets, a company spokesperson said, "We use all possible means of transport that range from trucks, auto rickshaws, cycle rickshaws and hand carts to even camel carts in Rajasthan and mules in the hilly areas, to cart our products from the nearest hub."⁷ In late 2002, CCI made an additional investment of Rs 7 million (Rs 5 million from the company and Rs 2 million from the company's bottlers) to meet rural demand.

By March 2003, the company had added 25 production lines and doubled its glass and PET bottle capacity⁸. Further it also distributed around 2,00,000 refrigerators to its rural retailers. It also purchased 5,000 new trucks and auto rickshaws for boosting its rural distribution. Through its rural distribution initiatives, CCI was able to increase its presence in rural areas from a coverage of 81,383 villages in 2001 to 1,58,342 villages in August 2003. Apart from strengthening its distribution network, CCI also focused on pricing in rural market.

Affordability
A survey conducted by CCI in 2001 revealed that 300 ml bottles were not popular with rural and semi-urban residents where two persons often shared a 300 ml bottle. It was also found that the price of Rs10/- per bottle was considered too high by rural consumers. For these reasons, CCI decided to make some changes in the size of its bottles and pricing to win over consumers in the rural market.

In 2002, CCI launched 200 ml bottles (Chota Coke)⁹ priced at Rs 5. CCI announced that it would push the 200 ml bottles more in rural areas, as the rural market was very price-sensitive. It was widely felt that the 200 ml bottles priced at Rs. 5 would increase the rate of consumption in rural India. Reports put the annual per capita consumption of bottled beverages in rural areas at one bottle as compared to 6 bottles in urban areas.

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7] Shashidhar, Ajit, Colas' Countryside Crusade, The Hindu Business Line - Catalyst, July 3, 2003.
8] Apart from the rural markets, CCI also began to focus on the home segment, by introducing - 1 litre, 1.5 and 2 litre PET bottles.
9] Small Coke