Coca-Cola India’s coffee trade generates fizz and foreign exchange

By Aparna Datta

Coca-Cola and coffee?

To the average person on the street, the name ‘Coca-Cola’ would evoke an image of an hourglass-shaped bottle, with a dark, fizzy liquid. Perhaps the only common ingredients in that product and our own dark, devil’s brew are water, and the caffeine component! In Japan, though, the Georgia range of ready-to-drink coffees has been around for over 20 years and is hugely popular.

But that’s still FMCG business. The surprise card is Coca-Cola in green coffee trading!

It’s something the general public has little knowledge about, but an item that industry insiders, those who keep tabs on the export and import statistics issued by the Coffee Board of India, have been aware of for some years. And have watched, with keen interest, the emergence of The Coca-Cola Company as a formidable player in the Indian coffee arena – in less than a decade.

Coca-Cola’s green coffee connection came about as a unique agreement between the Government of India and the Coca-Cola Company. In 1993, when Coke was negotiating its return to the carbonated beverages market in India, one of the commitments the Company made was that for every dollar spent on imports it would generate three dollars by way of foreign exchange. This obligated the Company to purchase products from India, for which it would pay in hard currency. Coca-Cola therefore buys as a foreign entity (earlier it was the Atlanta-based Coca-Cola Trading Company, since April 2002 the purchase is effected by Coca-Cola Far East, Hong Kong) with the Indian team providing the ground support in terms of sourcing and quality control.

Initially, Coca-Cola India (CCI) sourced a variety of products, even trucks and tires, apart from commodity items. Over the last five years, the Company has focused primarily on coffee and tea. The reason, says I B Bopanna, Director – International Trade, “is because India is a large producer of both these commodities, and the Coca-Cola Company worldwide is an end user of these items as essential ingredients for some of their value-added products”. However, since the bulk of the purchases are traded in the global coffee markets, CCI has become a brand ambassador for Indian coffee! Happily, Coke’s reentry coincided with the liberalization of the Indian coffee industry and CCI was thus able to maximize the opportunities.

A fresh trajectory and a strategic shift came about in 1998, when, instead of relocating from Mumbai to New Delhi with the rest of the CCI team, the international trade group decided to base itself in Bangalore. The Company invested in infrastructure, with an in-house cupping facility. “Cup-tasting made a significant and positive impact on our business”, says Bopanna. “Cupping is routinely carried out at several stages: on negotiating the sale, pre-shipment, and sample tests before the containers leave the port. These reports are shared with our customers, who tally the data with sample tests at their end.”

The move to Bangalore also saw the addition of new team members with expertise in the coffee sector, people who had knowledge and experience in the auction trade and could develop strong relationships with planters. CCI sources coffee directly from large growers as well as independent suppliers, and the team has developed a consistent profile within the industry for the quality of interaction, the professional approach, quite apart from the large volume offtake.

Starting with 2000 to 3000 tonnes per annum, the trading volumes during the past few years has grown and now ranges between 14,000 – 18,000 tonnes per annum. “The performance could vary on account of the crop, due to rainfall or other internal factors, or the competitiveness of Indian coffee in the international market in a given year, due to external factors” says Bopanna. This gives a clue to the volatility of the trade, and the market pressures that arise from the crop sizes/output of other origins. For instance, in the recent past, there was a demand for so-called “Vietnam-type” coffees – read robusta of a certain profile.

Staying on top of such situations is a continuous challenge, requiring speed of response and the ability to retain customers without compromising on quality standards. CCI believes that this is one area in which it has contributed – by holding its ground in the international market and keeping the flag flying for India by offering coffees of a particular quality and refusing to trade in lower grade coffees. At the same time, the business imperative, to maintain the inflow of foreign exchange at the desired ratio, has remained constant. CCI has regular transactions with some 30-40 customers around the world.

Interestingly, CCI operates the only green coffee trading platform in the entire Coca-Cola system! Despite Coke’s massive brand equity and salience, in the start-up years it was inevitable that roasters and importers overseas were initially skeptical about Coca-Cola’s pitch on commodity trading. So while the Coke name gave them a foot in the door, convincing and persuading buyers to take that “leap of faith” meant establishing credentials purely on the basis of professional capabilities relative to the coffee business.

This called for aggressive marketing and innovative approaches. Being a new player, CCI has had to get off the beaten tracks and venture into new territories to carve out its share of market. This has benefited India by way of access to new markets, and new market interventions, often geared to refurbishing the image of Indian coffee in certain countries where availability had been erratic. CCI has also actively worked with growers to upgrade their coffees so as to obtain a better price. For example, CCI persuaded suppliers to conform to a particular screen size for a certain contract, thereby achieving a more premium product. This worked as a competitive strategy vis-à-vis a similar grade from another country origin, with the result that CCI was able to secure yet another slice of business, and set a new trend for the industry.

An important milestone in 1998 was the product launch of ‘Georgia Madras Blend’ by Coca-Cola (Japan) Company (CCJC). While CCJC regularly sources Indian green coffee for its ready-to-drink coffee products which are sold both hot and cold through its network of more than 900,000 vending machines across Japan, the Georgia Madras Blend linked the brand with Asia for the first time. The product, a blend of coffee beans from Coorg and Chikmagalur, was developed jointly by CCJC and CCI, with extensive research going into the name selection to arrive at one that would closely identify with India, yet resonate with the Japanese consumer. With ‘Emerald Mountain’ from Colombia, ‘Ipanema’ from Brazil, ‘Mocha Kilimanjaro’ from Tanzania also in the Georgia Signature line-up, the launch of ‘Madras’ served to put India on the roster of an international brand.

Packing in this experience, with a concentrated dose of market expertise in the tea and coffee categories, the international trade group of CCI in Bangalore now constitutes a strategic knowledge/resource center for the entire Coca-Cola Company worldwide. The team is playing a pivotal role in the launch of new coffee and tea products in domestic and foreign markets.

To be sure, all this activity has manifested in the foreign exchange earnings that have been generated: till December 2003, CCI has facilitated an inflow to India of over US$ 200 million, paid by its affiliate companies overseas, predominantly for purchases of green coffee from Indian exporters and coffee producers. In the bargain, it has earned its place in the annals of Indian coffee.

Coca-Cola and coffee? Oh, yes. An outcome of globalization and liberalization, Coca-Cola’s international trade in green coffee is a success story that’s ‘Made in India’.

First published in September 2002 in “Indian Coffee” magazine published by the Coffee Board of India