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Introduction
For Neeraj Kakkar, a first-time entrepreneur, a big decision was looming. For five years,
he and a small founding team had worked long and hard to identify potential paths for growth at
their start-up, Hector Beverages. The team had churned its way through various drinks categories,
from soy protein to energy, before coming on the idea of Paperboat, a line of beverages based on
traditional Indian recipes. The products proved an almost instant success, going viral among a
young generation of Indians who craved the nostalgic flavors of childhood but appreciated the
drinks' convenience and the company's modern ethos.
Paperboat beverages enjoyed a loyal following in India’s urban centers and was known for
its commitment to authenticity, working hard to make the drinks as generations before had done.
However, early successes had brought about tough choices. As the product grew in popularity, the
company found itself struggling to source ingredients and scale its facilities. Alternative
production methods employed by bigger beverage companies would improve speed and bring
down costs but represented a departure from Paperboat’s “authentic” approach, and could well
affect the taste of the drinks.
Neeraj found himself staring at two strikingly different charts one afternoon in Delhi:
projections of financials for each of the possible routes his company could take – either steadfast
commitment to authenticity at a high cost or the embrace of efficient production methods that
helped the income statement but abandoned the founding vision. Neeraj started to pace the room.
The Early Evolution of Paperboat: Searching for the Right Product-Market Fit
The First Functional Beverage: Soy Protein
Given these market indicators and trends, Neeraj and Suhas focused first on developing a
beverage that would be perceived as healthy. By chance, Suhas met a DuPont representative who
hoped to promote soy protein across the country. Persuaded by the rep’s pitch, the duo formed
Hector Beverages and began selling soy protein beverages across Delhi. In their view, the potential
consumer market for soy protein was large, especially in light of the rapid adoption of the
ingredient across the United States a few years earlier. Moreover, India provided a compelling use-
case story: in a country whose citizens had high levels of protein-deficiency, where many
vegetarians resided, and which was witnessing a growing interest in fitness, consumer interest
would surely be strong. Suhas and Neeraj frequented Delhi’s gyms – where they suspected the
product would be more readily adopted than in the general market – to offer free samples.
Yet despite early enthusiasm, consumer interest stagnated a few months into free sampling.
Category creation – teaching consumers about soy protein and convincing them that it provided
health benefits – proved to be extremely tough. Some people who had tried the samples complained
that they had not seen results after only a few days, while others worried that consuming soy
protein led to impotency. Neeraj and Suhas quickly realized that they had misread the market.
They had neglected local market and consumer research, focusing instead on a preconceived drink
and trying to mimic the American growth story. Learning from the experience, they explored other
functional beverages that would have a stronger appeal among Indian consumers. After some
research, they settled on energy drinks.
The Second Functional Beverage: Energy Drinks
By this time, Neeraj had also invited James Nuttal, one of his classmates from Wharton, to
join the nascent Hector Beverages team. Prior to business school, James had spent six years
developing low-cost, flexible packaging at Dow Chemical. The two met on their first day at
Wharton and discovered a common interest: the potential for low-cost packaging in a cost-
conscious environment like India’s. After much deliberation, upon graduation from Wharton,
James moved his three children and pregnant wife to Delhi. The team also brought on Neeraj
Biyani, another former manager at Coke.
The market for energy drinks seemed attractive from all angles. Again, the team hoped that
the story here would mimic that in the United States, where energy drinks had recently taken off
($14.3B market in 2016, growing at 8% YOY). India lacked options beyond Redbull and a few
knock-offs, which were all priced at 85 rupees or higher for a 250 ml (~8.5 oz) drink. In contrast,
a can of Coke was sold for less than 15 rupees. The team figured that if they could provide a tasty
energy drink at no more than a 30% premium to a regular soft drink, they would capture a large
share of the energy drink market. They also figured that the necessary cost savings could be
achieved by using flexible packaging. The team named the product Tzinga.
Catamaran: Narayan Murthy’s Investment
Much of the Tzinga game plan required heavy investment: product differentiation stemmed
from lower packaging costs, and as the technology was new and there would be no third-party
provider, the company would have to set up its own manufacturing facilities. Thus a series of
execution-related steps needed to be accomplished even in order to launch: designing the pouch;
establishing a manufacturing facility; achieving in practice the theoretical packaging cost goal; and
then marketing to the consumer. As such, the team needed a deep-pocketed investor with a strong
local network and substantial influence.
During the development of protein drinks and in the early formation of Tzinga, the team
had already managed to line up funding from Kanwaljit Singh, one of Helion’s venture partners,
and Footprint, a small fund focused on Israeli and Indian companies. They also approached N.R.
Narayan Murthy, the founder of Infosys, who is often credited with catalyzing the start-up
revolution in India by unleashing and inspiring an army of entrepreneurs hoping to replicate his
success.
Given the stature and importance of Murthy, the team was understandably nervous ahead
of their meeting: they arrived an hour and a half earlier than necessary. Once in front of him,
presenting their vision, they lingered on the slide that had sold all of them individually on the idea.
India, with a growing population already well over a billion, would be a huge market if the country
could match even half the per capita energy drink consumption of a more mature market, like the
United States. Murthy, arguably more intrigued by the combination of James and Neeraj – of
packaging versus local expertise – asked the team to name their undisputed leader. Despite having
never spoken about this within team meetings, even informally, all members pointed to Neeraj.
Murthy, apparently satisfied, asked for a demonstration of the flexible packaging. He worried that
it might spill easily. As if by fate, Neeraj accidentally spilled the drink over his shirt in front of
Murthy. Murthy laughed off the incident and, to the happy surprise of the team, invested in Hector
Beverages through his fund, Catamaran.
The Final Functional Beverage: Traditional Indian Drinks
The team moved quickly with Tzinga. After closing their round of funding at the end of
2009, they set up a plant by April. Launching with three flavors, the founders brought on a small
sales team and distributed the product across the city by offering free samples in as many locations
as possible – but primarily targeting office cafeterias and schools. They focused on younger
generations and emphasized the value of the energy drink – the quick ‘pick-me-up’ it offered at a
relatively cheap price.
Although they worked hard, the founding team always took hour-long lunch breaks. As if
bound by centuries-old tradition, James, a devout Mormon, and Suhas, an equally committed
atheist, fought over religion, politics, and almost everything else. During the summer, Suhas would
bring aam panna to these lunches, a traditional mango drink that Indian families made during the
hottest months. The rest of the team liked it so much that fights over who got the last drop added
to their already lively debates. When James’s parents came to visit, aam panna was meant to be
part of the tour he planned for them of Delhi – but he couldn’t find the drink at any of the
restaurants or food centers on their itinerary. It seemed no one was selling aam panna
commercially.
He brought up the problem to the team, and they immediately saw potential. But they also
worried about dividing their focus across multiple products. They wanted to make Tzinga a
category leader; they decided to shelve the aam panna idea.
Almost two years after the launch of Tzinga, in early 2012, the results were mixed. Trying
to maintain excitement for the product among customers was tough: there was some growth after
television campaigns and a variety of other advertising runs, but sales numbers usually fell back
to a somewhat disappointing baseline after a few weeks. Still, the team founding team felt they
should stick with Tzinga. Fortunately, a young former Unilever employee had just joined them;
they tasked him with exploring the market opportunities for traditional functional Indian drinks.
The data he came back with was just too hard to ignore. Hector Beverages wasn’t ready to give up
on Tzinga. But traditional beverages would be added to the stable.
Alive and Authentic: Delivering Paperboat’s Taste and Vision
Most traditional Indian beverages – aam panna, but also others including jal jeera, which
combines a lemonade base and assortment of spices, and aam russ, another variety of mango drink
– trace their roots back more than 800 years. Usually, they had come into existence primarily out
of necessity, either to bring Indian laborers relief from the hot summer sun, provide warmth during
winter, or offer some health benefit. They were intimately Indian, made from fruit that thrived on
the subcontinent and flavored to local tastes – while also serving a functional purpose. Unlike with
protein and energy drinks, category creation would not be a limiting factor: consumers were
already well aware of the product and many had drunk it in childhood. And yet as India’s
urbanization and modernization continued, access to such drinks fell: they took time and patience
to make, two things the new urban Indian middle class lacked.
After communicating their new idea to investors and soliciting feedback, the team decided
to build the brand around the themes of “authentic” and “alive”. They came up with the Paperboat
name – a reference to an innocent and memorable detail of childhood, thereby echoing a child’s
authentic love for life. The team decided they would respect the drinks’ long history by making
sure their products’ taste remained authentic – in fact, making this a top priority. At a deeper level,
they also realized how rare these beverages had become, and began to view themselves as
“superheroes” – protectors of historic drinks that were dear to so many people. Protectors of
tradition.
Finding Authenticity in Taste
The team began to visit kitchens of family and friends where the beverages were still being
made domestically. They established a shortlist of the recipes they wanted to launch first and set
about understanding the processes and the ingredients required. For some drinks, they figured the
back-end process would be easier than for others. Jal Jeera, for instance, with its straightforward
lemon base, could be made with standardized equipment/processes. Aam Panna, on the other hand,
was an operational nightmare if made correctly. It required unripe fruit, which, from the
perspective of a food processor, presents a difficult situation: whereas a ripe mango is soft and
easily peeled and processed, a green mango must be first boiled, then peeled and pulped. Finding
a processor ready to deal with green mangoes wasn’t easy, but the Hector Beverages team
succeeded, and in October 2013 they launched aam panna.
Still, the operational headaches persisted. Even Aamras, which the team had thought would
be relatively easy to make, proved challenging. Early iterations of the product lacked the right
aroma and depth of flavor. It turned out that food processors, in order to achieve scale and
efficiency, were placing mangoes in ethylene chambers to speed their ripening time. The fruit
matured more quickly but lost color and taste in the process. Larger companies added artificial
flavors and colors to make up for this change. The Hector Beverages team decided this would
betray their goal of authenticity; mangoes for their drinks would ripen naturally. Again, it wasn’t
easy to find a processor willing to work to their specifications, and when they did, it came at a
price.
Establishing a Brand
The presentation of the product would be just as important as its taste and quality. Given
James’s experience in flexible packaging and the need to reduce costs where possible, the team
had decided from the start that their drinks would be sold in pouches. Moreover, they had wanted
to make the packaging entirely white; this could prove a challenge in a dusty country where the
product could easily look dirty, but when it worked, it would make the drinks stand out from the
competition on supermarket shelves.
The team was similarly careful when it came to marketing and branding Paperboat; they knew that
hitting the right note would capture the attention of the market. In conjunction with a marketing
agency, they designed advertising campaigns that sought to flood consumers with memories of
their childhoods. The team wanted their brand to tap into the remembered innocence of a time
gone by. Moreover, Paperboat should resonate with a new generation of Indian: modern, cool, yet
authentic at heart – in touch with his roots and traditions. The company’s advertisements often
showed children in school uniforms happily sipping their favorite homemade drinks.
Early Successes
The team wanted to attract a wide range of customers. To help do so, they priced Paperboat
at a reasonable 20 to 30 rupees which, similarly to Tzinga, added a small premium to the average
price of a soft drink but was far from the Rs. 70 to 80 charged for energy drinks.
The hard preparatory work paid off quickly upon launch. Aamras, the first product Hector
Beverages introduced, got a great response. An email from Noida, a small city just outside New
Delhi, read: “This is one of the best drinks that I’ve ever had.” The author went on to note that the
last time he tasted the drink, it was made by his grandmother; and this flooded him with memories
of his childhood and the innocence of his youth. In representative fashion, probably with similar
experiences for a variety of consumers across the country, the brand gained a following among
social media influencers and the wider population. Much like the Airtel tune composed by A.R.
Rahman that gained rapid popularity after a successful television run during an Indian cricket
world cup campaign, the brand quickly took off.
James was often tasked with getting new business leads; the team hoped that his not being
Indian in the largely homogenous Indian business world would give them an edge. When working
to promote Tzinga, he had spent months slogging from distributors to retailers with no results.
Now the team sent out one sample of their product, to Indigo, a leading domestic airline. Within a
few weeks, the airline decided to offer it in-flight.
Six months into Paperboat, the brand was doing as well as Tzinga had done after a few
years. The message was clear. Paperboat became Hector Beverages’ primary brand. Tzinga was
dropped entirely.
Paperboat had by now realized that the biggest challenge to succeeding in non-metros is
price. Paperboat’s flagship product is the 250 ml pack of Aamras, which retails for Rs. 30.
Competitor brands, Dabur’s Real and Pepsi’s Tropicana, meanwhile retail single serve packs at
Rs. 15 to 20, depending on the market. As was expected, suburban consumers shunned Paperboat
and chose Real or Tropicana overwhelmingly, or soft drinks that retail for as low as Rs. 10.
Another challenge in Tier II markets was distribution. Till now, Paperboat had adopted a
two-pronged strategy: it developed its own distribution network in the top 6 metros where there
was sufficient demand and formed a partnership with Japanase food giant, Indo-Nissin Foods in
2015 to distribute its products to non-metro consumers. However, the partnership saw only
limited success, hampered by store owners’ limited liquidity and larger credit cycles. By 2018,
Indo-Nissin formed only 10-15% of Paperboat sales.
Appendix
Figure 1.0 – India’s historical and projected GDP growth, as per the World Bank
Figure 2.0 – India’s present and future wealth dynamics, as per Grant Thornton
Figure 5.0 – Indian food processing supply chain, as per Grant Thornton
Figure 6.0 – Regional share in market segments across beverage categories, according to NSSO
References Utilized
Business Today
Forbes
India Brand Equity Foundation
Live Mint, India
Private Companies
Times of India
Wall Street Journal
World Bank
The Ken
Economic Times