Part 13: Thums Up Story: Ramesh Chauhan sells Parle brands to Coca Cola

Previously, we had seen how Coca Cola managed to get its plan approved within a few months, thanks to economic reforms by Dr Manmohan Singh under PV Narasimha Rao Govt:
http://guruprasad.net/posts/part-12-thums-up-story-coca-cola-enters-india/

In order to get a foothold in India, Coca Cola had 3 options:

  1. Gradually expand operations by building its own plants throughout India. This process would take several years.
  2. Poach bottlers (franchises) of other cola brands by offering them irresistible benefits.
  3. Acquire a company which already has all the facilities in place, so that Coca Cola can reach out to every nook and corner of India from day one.

Coca Cola started with the 2nd option i.e Poaching bottlers.
Altough Parle was the market leader with more than 80% of the market-share catered by 62 bottlers across India, it was a fragile business model because Parle owned only 4 bottlers while the rest (58 bottlers) were owned by franchises. Most of these franchises were not happy with Ramesh Chauhan’s autocratic leadership style and they preferred to work for foreign brands like Coke. Hence, it was very easy for Coca Cola to hunt down the top bottlers and poach them. Ramesh Chauhan was helpless because almost every week, there would be news of one more bottler switching to Coca Cola. If this continued, then Parle would end up with less than 10 bottlers (since 4 were its own and few were still very loyal to it), thereby losing significant marketshare and dying a natural death.

By September 1993, Ramesh Chauhan realized that there was no point fighting with the giant which was on a poaching spree and decided to “surrender”. It was a very tough decision to make because these brands (Thums Up, Limca, Gold Spot) were carefully nurtured by Chauhan like his own children and now he had to sell them off!!

With a heavy heart, he bid goodbye to his brands and sold them to Coca Cola. During the signing of the contract, Ramesh Chauhan turned emotional & cried incessantly.
coke_parle_agreementAlthough the details of the deal were confidential, it was speculated that it was a $60 million deal and there were mixed reactions from industry pundits since most of them could have never expected Chauhan to call it quits. However, considering the situation (bottlers being poached) & the practicality, everyone agreed that Chauhan did the best thing.
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It was double-bonanza for coca cola because firstly, it managed to 
instantaneously reach out to every part of India, and secondly, there was no significant competition (because the leader itself was acquired). On 24th October 1993, Coca Cola launched its drink with a bang symbolically in front of the Taj Mahal, Agra and distributed millions of coke bottles all over India for free.
1993_coke_returns
1993_coke_india1
While Coca Cola was celebrating its grand entry into India, Ramesh Chauhan, despite severing links with his brands was anxious about what would happen to them. His sources within Coca Cola had told him that the company was planning to kill his brands and promote its own brands instead. Although Ramesh Chauhan tried his best to convince Coca Cola that all his brands were catering to Indian customer tastes (and hence must be treated on par with their global brands), at the end of the day, it was in Coca Cola hands to take the final call.
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Did Coca Cola suppress or kill Parle’s brands or did it try to re-position each brand to different segments? We shall find out in the next part tomorrow.|

UPDATE:
Next Part:
http://guruprasad.net/posts/part-14-thums-up-story-coca-cola-tries-kill-parle-brands/

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