Thums Up - India's Cola Revolution

Thums Up as a brand needs no introduction in India. It has earned a strong position in the carbonated beverages industry, being a product that most Indian consumers prefer over others. Recently, it became the first beverage product to reach 1 billion in sales (that's $1B) in India as part of Coca-Cola's portfolio.

Thums Up and Coke are often seen as synonymous since both are cola products and Coca-Cola owns Thums Up, but the history is different. Would you believe if I said Thums Up started as a counterpart/competition to Coca-Cola in India before eventually being acquired by Coca-Cola? That's the history dating back to 1993.

I will be covering the following content in this write-up:

1. Origin of Coca-Cola as company
2. Context of India and beverages in 1950's post Independence
3. Entry of Coca-Cola to India
4. Coca-Cola exit from India
5. Birth of Thums Up
6. Reentry of Coca-Cola
7. Demystifying its Operations and Profits
8. Latest news on Coca-Cola in India

Origins of Coca-Cola

This dates back to 1886 when an Atlanta pharmacist named John Pemberton created Coca-Cola by developing a syrup and mixing it with carbonated water. When shared with others for feedback, people loved it, saying it was "delicious and refreshing"—this is when he found the product-market fit. The name Coca-Cola was given by John's close aide Frank, saying "Coca-Cola" as a name fits well with two C's and provides a unique brand identity. Following Pemberton's death in 1888, Asa G. Candler acquired ownership of the formula and established The Coca-Cola Company in 1892. It's reported that Asa bought the formula and the brand for $2,300 in 1889 and incorporated it as The Coca-Cola Company in 1892.

Like many other companies from these times, Coca-Cola isn't a family business. Early on, from 1919, it transitioned into a full-fledged corporate ownership.

Context of India and beverages in 1950's post Independence

During this time, India was no stranger to carbonated beverages, as Schweppes was available in India from the early 1900s, primarily catering to British colonels and wealthy Indians as a luxury commodity. There were few other players like Rogers—during this time, the Rogers name became synonymous with soda in India. There were a few other local players limited to different regions in India, but still, there wasn't a brand that captured a major footprint in this industry as a singular brand—that was definitely missing.

From the political lens, the Indian government was leaning towards the left in encouraging local entrepreneurs and trying to limit foreign exchange and ownership in favor of local Indian ownership. As the Nehru era and following prime ministers started, India supported socialism as everyone was still figuring out what worked in the best interest of the country's economic growth. In parallel, many countries across the world were in similar dilemmas and transitions.

Entry of Coca-Cola to India

The 1950s era was just after Independence in India. The world started viewing India as a potential market with huge growth potential, and many multinational companies entered India with their products and services. During this time, to be precise, in 1955, Coca-Cola officially made its entry by partnering with Pure Drinks Group, a Delhi-based company, to operate the manufacturing and distribution. Right from day zero, Coca-Cola entered India with full force.

Within its first five years, Coca-Cola made a remarkable mark in India as the most desirable and aspirational brand. The overall branding, packaging of curved red glass bottles were making a statement and providing societal value. This is no different from today—people want to be early adopters of what's cool, and they see social status in showcasing it to the world.

By 1970, Coca-Cola needed no introduction. The overall branding, market presence, and superior quality of the product made it stand out from other products, and it was expanding rapidly with volume and consumer base growing many-fold during this time.

Exit of Coca-Cola from India

Though Coca-Cola's entry was a big success and its growth was manifold with lot more potential, the path didn't continue as one would expect. In 1973, the Indian government introduced FERA (Foreign Exchange Regulation Act) to limit foreign ownership of companies operating in India. The policy required that foreign nationals and companies should not own more than 40%, with the other 60% stake to be owned by Indian entities. The act also demanded sharing of Coca-Cola's secret formula with the Indian government.

Though the policy was introduced in 1973, it came into action in 1974. From 1974 till 1977, Coca-Cola as a company was negotiating terms with the Indian government to get some flexibility with FERA policy. Coca-Cola wanted to create two subsidiaries: one for the bottling plant and the second as the technical arm. Coca-Cola was willing to comply with the 40% ownership cap for the bottling plant but insisted on maintaining 100% ownership of the technical arm—that is, the brand and secret formula of the product. However, the Indian Government didn't agree to Coca-Cola's terms, resulting in a sudden exit of Coca-Cola from India.

None expected this to happen or saw it coming—a brand that had become a household name in India now had to exit, leaving a big void in the carbonated beverages industry. This created a big opportunity for players wanting to enter this market in the absence of Coca-Cola in India.

Birth of Thums Up

The Chauhan brothers from Parle group—Ramesh Chauhan and Prakash Chauhan—came up with Thums Up as a product to fill the void left by Coca-Cola in India. They created Thums Up with a unique flavor, being strong and spicy compared to Coke, which resonated with and was liked by the Indian audience. The overall branding of Thums Up was carried out with masculinity and adventure as its theme to quickly penetrate the Indian consumer market.

The Parle group had an edge with their manufacturing and distribution network across India, as by this time their flagship Parle-G biscuit was already a quick success and had emerged as one of the most famous biscuits in India. However, Thums Up came with unique challenges in dealing with bottling plants and distribution networks. As beverage manufacturing requires many other ingredients and setup, catering to growing needs after its initial success became a nightmare in keeping up with growing demand.

Parle operated the supply chain very differently from Coca-Cola, using the franchise model which helped them grow quickly by offloading bottling and distribution to franchises. Parle was focused on supplying the concentrate and earning money from concentrate sales, and they would also charge royalty fees for volumes sold (this information isn't publicly available, but it's believed that royalties were also involved). Out of total 62 bottling franchises, Parle owned 4 while the remaining 58 were franchised to other bottling entities.

Parle did a phenomenal job in positioning Thums Up well with ad campaigns, attaching its brand closely to Bollywood. And one thing that all Indians rallied behind—or there was nothing that India didn't ignore or brought all Indians together like—was cricket, and Thums Up made sure to advertise and attach itself to both Bollywood and cricket.

As Thums Up was born, during the same year, Campa Cola was introduced by Pure Drinks Group, which had initially partnered with Coca-Cola for local manufacturing. With Coca-Cola's exit, they introduced their own cola. Interestingly, the government also introduced a new cola called Cola 77, marking the significance of the year 1977. Both of these brands didn't manage to become as big as Thums Up by early 1990s.

The same franchise model worked as a vulnerability later in time, which we'll discuss in more detail in the next section.

Re-entry of Coca-Cola

In 1993, economic liberalization policies were introduced by then Prime Minister P. V. Narasimha Rao to encourage foreign investment and trade. By this time in history, it was clear that for rapid growth in economics and world trade, India required more flexible and open policies. This provided an opportunity for Coca-Cola to reenter India.

Coca-Cola had always wanted to tap into the Indian market, having already tasted the Indian consumer market and its growth potential, and was eagerly waiting for its comeback. In 1993, the time came, and it officially reentered India. Being Coca-Cola, it didn't do a soft launch but instead came again with full force by acquiring Parle's carbonated beverages, including Thums Up, Gold Spot, Limca, and Maaza. The deal included the purchase of all these brands and products.

This wasn't a smooth acquisition for Coca-Cola from Parle. It shows Coca-Cola's desperation—when it entered, it started acquiring the franchises that Parle was dependent on for bottling and distribution. This left Parle with no option other than selling its beverages arm to Coca-Cola. The deal was reported to be valued at 180 crores (6 million USD) between Coca-Cola and Parle. This was definitely a big figure during those times. The same adjusted for inflation and change in currency exchange rates is 22 million USD. Looking at the success of Thums Up as a product, this was definitely way less compared to how the product stands today.

During Coca-Cola's reentry, its product line included:

1. Coca-Cola
2. Thums Up
3. Gold Spot
4. Limca
5. Maaza
6. Citra

Five out of its six products joined Coca-Cola from its acquisition of beverages from Parle.

An interesting fact post-acquisition is that Coca-Cola attempted to discontinue Thums Up in favor of Coca-Cola, their flagship product. But soon they realized Thums Up as a brand was well-recognized and had penetrated so deeply that Indian consumers were preferring Thums Up over Coca-Cola, which made Coca-Cola revert their decision on discontinuing and restart Thums Up as one of their product offerings. You can notice the fantastic job that Parle had done both in branding and superior product quality, and its resonance with Indian palate made Thums Up what it was in the past and what it is today.

A fun fact: in 2022, Thums Up became the first product of Coca-Cola in India to cross one billion in annual sales. This is a tremendous milestone for the brand—from its origins, to its attempted shutdown, to competing with Coca-Cola's own cola, to becoming a billion-dollar sales product, to now being launched in the US and other countries. Born in India and now being offered in other parts of the world.

Demystifying its Operations and Profits

Operations

To sell consumer-based products in markets like India, it takes a village to get it right and keep going. This is no different for Coca-Cola—the operations are mainly managed by bottling partners in India.

Coca-Cola in the US produces the concentrates that are sold to Indian bottling manufacturers alongside HCCB (Hindustan Coca-Cola Beverages Pvt Ltd), Coca-Cola's own subsidiary in India for manufacturing and distribution. The bottling plant handles manufacturing—bottling partners combine the concentrate with filtered water, sweeteners, and other ingredients according to Coca-Cola's specifications. The product manufacturing now uses 3D printing technology, and after thorough quality checks, the products are ready to be shipped to consumers.

The manufactured products are sent to warehouses for storage, from there shipped to delivery centers and retail stores where the products are consumed by customers.

Profits

Talking about revenues from Indian subsidiaries and the global parent company requires analysis of numbers at micro and macro levels. In financial year 2023, HCCB (Hindustan Coca-Cola Beverages Pvt Ltd) revenue was 12,840 crores with a net profit of 812 crores, purely from the bottling distribution subsidiary in India. Meanwhile, Coca-Cola India Pvt Ltd, which deals with branding, marketing, and other operations (it appears they sell concentrate to other bottling partners, though this isn't exactly clear), reported annual revenue of 4,500 crores and net profit of 722 crores. Profit increased by 116% from ₹375.43 crore in FY22 to ₹809.43 crore in FY23. Revenue grew by 40% compared to the previous year.

Coca-Cola in the USA, the parent company, had revenue of 45 billion in 2023, an increase of 6% from the previous year. The gross profit reported was 27 billion, an increase of 9% from 2022.

How does US parent company extract profit from Subsidiaries in India?

The US parent company is the technical arm for overall manufacturing—it owns and sells the concentrate, the base from which all Coca-Cola products are manufactured, including Thums Up. It's reported that by selling the concentrate to local subsidiaries and bottling, it makes decent money. Secondly, Coca-Cola in India pays the parent company royalty fees for using its brand and trademark. These are usually calculated based on the revenue generated.

Coca-Cola uses transfer pricing to allocate profits strategically between countries, optimizing its tax liabilities. Transfer pricing has come under increased scrutiny from tax authorities and regulators worldwide. This is because:

• It can be used to shift profits from high-tax jurisdictions to low-tax ones
• There's potential for abuse if not properly regulated
• It impacts tax revenue collection for various countries

What's the state of Coca-Cola today?

Coca-Cola is the majority market shareholder of carbonated beverages in India, owning 50-55% market share, with their rivalry competitor PepsiCo having 35-40%. In market segmentation across Coca-Cola products, Thums Up is the largest cola brand in India, owning more than 40% market share, Sprite accounting for nearly 20%, while Coca-Cola's Coke product is third in the list after Thums Up and Pepsi. Other products of Coca-Cola—Maaza, Minute Maid, and Kinley soda water—also hold a decent percentage of market share.

Competition

The competition from cola since the beginning has been consistently neck-to-neck with PepsiCo, not only in India but in other countries as well. It's not just competing in cola as a product, but also with lemon drinks (7Up competing with Sprite), and the same is seen across all products. Still, Coca-Cola leads the way with PepsiCo being second.

Competition has been emerging in waves for Coca-Cola ever since its beginning. Lately, there have been some local brands positioned as more health-conscious beverages offering safe and healthy alternatives to cola: Paper Boat, a rising star with fruity drinks and local traditional flavors like jaljeera and others; B Natural by ITC competing directly with Maaza by offering a wide range of fruit juices; and there are other local players trying to make their way to the top three. For example, Campa Cola has recently been acquired by Reliance from Pure Drinks for 22 crores—who wouldn't want another success like Thums Up in the modern era if they are able to pull it off!

Latest News!

In December 2024, HCCB (Hindustan Coca-Cola Beverages Pvt Ltd) is selling a 40% minority stake to Jubilant Bhartia Group. This comes as a surprise given HCCB's impressive recent performance—revenue of ₹12,800 crores and net profit of ₹800 crores in the last two years. The deal values HCCB at ₹31,000 crores approximately $4 billion, with the "40$1.47 billion".

Coca-Cola is implementing an asset-light model globally, divesting bottling operations in various markets. This strategy aims to:

• Streamline operations
• Reduce capital-intensive assets
• Focus on brand management and concentrate production

This move to sell a stake in the bottling arm and operate with an asset-light model echoes Thums Up's earlier approach with bottling partnerships. Coca-Cola is now structuring a similar arrangement in India, though it will maintain control by retaining a 60% majority stake.

That's all about Thums Up, from 1955 to 2024. Cheers!