Previously, we had seen how Parle monopolized the softdrink industry with its brands in every segment by the mid 1980s:
Within a few months of assuming power in the mid 1980s, Rajiv Gandhi faced several challenges among which two (pertaining to this context) were as follows:
1) The socialist economy setup by Jawarlal Nehru was proving to be detrimental to India’s growth due to tight controls & widespread corruption.
For more details of how such an economy affected India:
2) The violence in Punjab (Khalistan movement and 84 riots) had endangered the state, crippled its industries and left the youth jobless.
One of the first decisions Rajiv Gandhi took was to begin the process of dismantling the socialist economy by decreasing Govt control in the private sector to address the first point.
The second point (jobless youth in Punjab) was tricky because hardly any private company wanted to setup a business due to the volatile situation there. One of the easiest methods to attract private companies in Punjab was to just open up the economy and restrict them only to Punjab, but a wiser option would be to invite only those companies which could really cater to the economy of Punjab. Since Punjab thrived on farming (thanks to the green revolution of 1960s), it was decided to allow only those companies which could utilize and enhance the agricultural prospects of the state.
Pepsi did not want to miss this opportunity and proposed setting up an Agro research centre to develop new varieties of seeds, invest in processing plants for potatoes (for chips) & tomatoes (for puree/ketchup) and in return, wanted the Govt to allow them to sell Pepsi softdrink in India. The company was ready to abide by all terms and conditions like collaborating with Indian companies, diluting their stake and exporting the produce which could bring in more foreign currency.
In 1986, Pepsi agreed to form a joint venture with the Govt run Punjab Agro and Voltas (a subsidiary of Tata), and the proposal was to be discussed in the parliament before approval. As one would have expected, this did not go down well with Indian cola companies like Parle & Campa Cola.
Over the next 2 years, there were about 20 debates in the Parliament of India over this proposal and 15 review committees were setup in quick successions to evaluate the feasibility. Finally, in 1988, the Govt of India cleared the proposal to open bottling & food processing plants in Punjab, in order to address the unemployment problem in the state.
As soon as the proposal was approved, George Fernandes (who had chased Coca Cola out of India in 1977) wrote a strong letter to Pepsi, threatening them to stay away from India or face the same consequences as that of Coca cola.
However, his influence had reduced considerably, and eventually Pepsi built the bottling & food processing plants without much hurdles within the next 18 months. As part of the agreement, Pepsi had to prefix “Lehar” (means wave in Hindi) to its softdrink brands to factor the “Swadeshi” sentiment. In the summer of 1990, the top 3 softdrinks of Pepsi (Pepsi, 7-UP & Mirinda) were launched in Jaipur.
How did Indians, who were already happy with local brands like Thums Up (which had become a cult) & Campa Cola, react to the global brand Pepsi? Did Indian companies fear competition from Pepsi or did they try to take it head-on? We shall find out in the next part tomorrow.
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