NEW DELHI: Local soft drink players who suffered a sharp rise in the GST on fruit-based carbonated drinks last year have come up with a new way to stay afloat in the Indian beverage market.
For the first time in the industry, most of them are moving to the 160ml pack size from the standard 200ml bottle which is priced at Rs 10. Also, they lightened the PET pre-form from 11.5g to 10g which is expected to result in another approximately 15% cost savings.
“We were in dire straits when the GST hike was announced due to the huge investments we had made in machinery for the production of fruit-based soft drinks,” said the owner of the Haryana Beverage Manufacturing Company. "While the big players could afford the extra cost, the juniors were about to go out of business."
According to the previous regulation, if the drink has a fruit content greater than 10% (2.5% / 5% in the case of lime/lemon), a tax of 12% is imposed. Soft drinks without fruit such as Pepsi or Coca-Cola are subject to 40%.
Last year, after a series of raids by the authorities discovered that many local players had not added fruit pulp but were still taking advantage of lower taxes on drinks, the tax was increased to 40%, which includes 28% GST with an additional addition 12% of compensation cess.
“The Small players have no choice but to switch to a smaller package. There too, the margin is barely 1-2% because the formation price has gone up so hard because of the war in Ukraine,” said Akhil Gupta, owner of Fresca Juices. Larger package sizes, such as one-liter bottles, give us a 7-8% margin."
The trend towards making fruit soft drinks started in 2014 when Prime Minister Narendra Modi urged companies to add 5% natural fruit juice to their drinks to help farmers. Not only have foreign beverage manufacturers, including Coca-Cola, pushed to release fruit-based soft drinks under well-known brand names, but domestic manufacturers have done the same as well.
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