Decoding Varun Beverages Expansion Strategy
Varun Beverages Limited (VBL) — Bottler for Pepsico
Varun Beverages Limited (VBL), a key player in the beverage industry, has been on a remarkable journey of growth and innovation. This journey has included acquiring franchisee rights and launching new products.
This three-decade-old company manufactures and sells carbonated soft drinks (CSDs), juices, water, and snacks (this segment contributes little to its topline). Click here to explore VBL`s product portfolio.
In CY18, VBL started to acquire franchisee rights from Pepsico to sell and manufacture the products in the northern, eastern and western states of the country. Though it started gradually from CY18 and CY19, the results of these acquisitions were seen from CY22.
The state-of-the-art production facility increased from 26 in CY18 to 40 in CY23. Due to increased demand and management`s laudable decision-making, all the plants operate at 100% capacity. In Q2CY24, no sugar beverages had 46% contribution to its sales volume for that quarter.
For this expansion, the company incurred INR 7,838 crores of capex which includes backward integration capex for setting up plants, forming joint ventures and acquiring new subsidiaries for manufacturing PET bottles. For a bottler like VBL sugar, concentrate, water and PET bottles are the key raw materials.
In CY23, the bottler acquired BevCo a South Africa based soft drink beverages company for INR 1,320 crore. VBL has expanded vigorously in domestic as well as in the international territories. It also has plants in Congo, Zambia, Zimbabwe and Morocco.
The fruits of this expansion are yet to be seen as the seasonality factor for most of the African territories is yet to be started except Congo. Congo is at the equator. Hence, it is least affected by the seasonality factor.
VBL has a market share of 71% in Zimbabwe, 30% in Morocco, 35% in Zambia and 2–2.5% in South Africa.
VBL has expanded its distribution channel from 1,500 distributors in CY20 to 2,500 distributors as of CY23. The company has come up with a strategy of setting up visi-coolers (refrigerators) at retail outlets. The number of visi-coolers set-up in CY20 was 8,00,000 and in CY23 it's at 10,20,000. The management plans to increase this by 10–15% every year.
In CY20, VBL launched its energy drink — sting at INR 20 per 250 ml which opened the gates for Sting to become its star product. Sting was launched in 2016 at a price point of INR 50 per 250ml. In CY23, sting contributed 15% to the bottler`s consolidated volumes of 913 million cases. Sting has INR 8 — INR 9 higher realization then other CSDs.
With all this it started to manufacture Cheetos (underway), Distribution of Frito Lay, Doritos and Cheetos in Morocco; Manufacturing & Distribution of Simba Munchiez (underway) in Zambia and Zimbabwe; co-manufacturing of Kurkure Puffcorn in India as on CY23.
The company also launched its own brand ‘Creambell’ under which VBL sells and manufactures milk-based products such as ice creams and more. In CY23, VBL had only one plant for dairy based in Pathankot. Now it has expanded to three new plants, which has increased its production capacity up to 200%.
Disclaimer: Please note, this article is only for educational purposes. I don`t recommend you to buy shares of the company on the basis of this article. Please do your research or consult a professional financial advisor before making such decisions.
