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Paper Boat, a fledgling Indian brand from Bangalore-based Hector Beverages, is aiming to hold its own in the country against global giants like Coca-Cola and PepsiCo. But can traditional Indian drinks really give popular colas and juices a run for their money?

When Neeraj Kakkar, a former Coca-Cola executive, turned entrepreneur in 2010 and set up Hector Beverages, competing with the cola giants was the last thing on his mind. Bitten by the entrepreneurial bug, Kakkar zeroed in on the beverages market (after rejecting ideas in areas like education, child care and women’s empowerment) simply because it was familiar territory; he had worked with Cola-Cola in India for seven years and was part of its senior management in the country. As an entrepreneur looking at the growing popularity of functional beverages worldwide, he felt it had potential in India, too. It was just a business decision.

But today, Kakkar sees himself and Paper Boat as “protectors” of traditional Indian beverage recipes. “At Hector Beverages we believe that if we don’t do something now these recipes will disappear in the next 20 to 30 years.

Management consultancy firm Wazir Advisors estimates that the unorganized market for ethnic beverages in India is around $200 million to $250 million, while the organized market is barely 1% of this. Paper Boat is the dominant brand in this segment with the largest portfolio of flavors. Others include Dabur India, PepsiCo, Coca-Cola and Parle Agro. These players have only the one or two flavors — primarily mango or lemon.

V.T. Bharadwaj, managing director at Sequoia Capital, an investor in Hector Beverages, considers Paper Boat to be a “path breaking” product which has the “potential to transform the beverages landscape in India.” He points out that unlike the U.S., which has traditionally been dominated by colas, India has a short cola history. “India has a rich history of traditional beverages and it’s a shame that no one has tried to present them in an attractive and aspirational manner.” According to Bharadwaj, branded ethnic beverages are a category that was “waiting to be created” in India. “It is category that is waiting to explode and has the potential to break the back of the cola market.”

According to market estimates, in the first half of 2016 Coca-Cola and Pepsi were pushed out of the top five highest sold beverages in modern trade outlets in India by fruit juices from Dabur and PepsiCo, and the decades-old rose drink Rooh Afza from Hamdard. Commenting on this in a media interview, Devendra Chawla, president, food and FMCG brands at Future Group, said: “Traditional drinks and tastes have come out of the shadows. The past few decades saw high decibel marketing and commitment of resources from global brands, but consumers are going back to favoring what they perceive are healthier and traditional flavors.”

“Branded ethnic beverages are a category that is waiting to explode and has the potential to break the back of the cola market.” –V. T. Bharadwaj

Global trends also show cola growth slowing down. In another media interview, Euromonitor India country manager Janaki Padmanabhan said: “Globally, cola carbonates have received a lot of negative publicity due to high sugar content and lack of nutritional value.”

On the Traditional Trail

Interestingly, Kakkar and his co-founders Suhas Misra and Neeraj Biyani (both former colleagues at Coca-Cola) and James Nutall (a packaging industry professional in the U.S.) thought of Indian beverages only after their first two product launches — Frissia, a protein drink (in 2011) and Tzinga, an energy drink (in 2012) — failed to create waves. Even as the co-founders were grappling with what to do next and exploring other functional beverages such as vitamin water and smoothies, they hit upon the idea of traditional Indian drinks serendipitously. (Misra and Nutall later exited the company in 2014 and 2015 respectively.)

In the summer of 2012, Nutall’s parents were visiting India and he wanted to buy Aam Panna for them — a refreshing raw mango drink that Misra’s mother used to send daily with his lunch to help him keep cool during the scorching heat of New Delhi. (Hector Beverages moved its headquarters from New Delhi to Bangalore in 2014.) While Nutall’s colleagues cautioned him against buying Aam Panna from street vendors to avoid “Delhi belly” (an upset stomach), despite searching in various shops Nutall couldn’t find a safe alternative. “This is when we realized that traditional Indian drinks could have a great market if produced and packaged hygienically. We didn’t do any formal market research. We just followed our instincts,” says Kakkar.

Paper Boat has sailed a long way since then. From two flavors in 2013 — Aamras (sweet mango) and Jalzeera (cumin and lemon) — Paper Boat currently has a portfolio of 13 flavors, each comprising specific Indian spices and condiments. The flavors include Aam Panna (raw mango), Jamun Kala Khatta (Indian black berry), Kokum (a berry belonging to the mangosteen family), Anar (pomegranate), Chilli Guava (guava), Neer More (curd-based) and Thandai (milk-based). While all these flavors are available in 250-milliliter doy packs (sealed flexible plastic bags designed to stand upright), the company recently launched Aamras and Anar in 500 milliliter tetra carton packs also.

All Paper Boat drinks are made without preservatives, added color or carbonation, and on average it takes the firm 18 months to develop a flavor from idea to launch. Currently, 11 flavors are in the pipeline in different stages of development and are scheduled to be launched by the end of 2017.

Hector Beverages has two manufacturing plants — one in Manesar near New Delhi and the second in Mysore near Bangalore. Manufacturing capacity has increased from one million packs per month in August 2013 to eight million packs per month at present, while distribution has increased from 20,000 outlets to 120,000. Kakkar and Biyani are looking to double capacity by the end of 2017.

Last year, the company partnered with Indo Nissin Foods for distribution and with this they expect to further ramp up their distribution substantially. Funds, they say, are not a constraint. So far, Hector Beverages has raised $42 million from angels and venture funds like Sequoia Capital, Catamaran Ventures and Foothills Ventures. While Kakkar is tightlipped about sharing any details on revenue and profitability, he says the company has been “growing more than 100% year on year.”

Making Traditional Contemporary

So what is the secret of Paper Boat’s success? Kakkar lists authentic recipes right on top. In food, he notes, the central piece is getting the recipe right. “The traditional way to develop a product is at the center of different nodal points. But in a country as diverse as India, trying to satisfy all groups doesn’t work. So when we develop a recipe we try to get it as close to any one group as possible,” says Kakkar. Adds Biyani: “We are extremely strong in product development. Whether it is identifying the right vendors, sourcing at the right time or establishing the right processing standards, we have developed a very strong knowledge base.”

“Paper Boat has used differentiation as the cornerstone of its brand strategy.” –Harish Bijoor

Biyani cites an example. For making Aamras, the firm uses

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