Gurgaon-based Hector Beverages, the parent company behind the energy drink brand Tzinga, wants to make functional beverages for the developed world. The company’s first masterstroke: its affordable pricing strategy delivered through innovative packaging

Neeraj Kakkar and James Nuttall met each other while they were attending the MBA program at The Wharton School at the University of Pennsylvania. Kakkar, who had worked at Coke India for over eight years, was grappling with starting up a venture that would manufacture cost-effective energy drinks for the developed world. He knew that innovating on the packaging front would help bring down the costs, which in turn could be passed on to consumers. As luck would have it, he ran into Nuttall, a packaging innovation expert who had worked at Dow Chemicals, and ended up discussing his plan.

Without wasting much time, the duo got together to launch Hector Beverages in October 2009. They also roped in Suhas Misra, Kakkar’s colleague from his Coke days to join them as co-founder and COO. Kakkar says, “The fundamental premise was and still is that there is a huge market for functional beverages that can be sold at an affordable price point. Brands like Red Bull and Gatorade are just too expensive to become mass brands among Indian consumers.”

Up and running

After founding the company, the first year was spent on research and development. “The focus was on getting the product ready for a market like India. We were self funded in the early days and got to a stage where we could raise venture capital,” says Kakkar about the company’s first year. There were two key aspects that were planned – laying the foundation for setting up the manufacturing plant and identifying the supplier network.

The fundamental premise was and still is that there is a huge market for functional beverages that can be sold at an affordable price point. Brands like Red Bull and Gatorade are just too expensive to become mass brands among Indian consumers.

After raising Rs. 14 crore (Rs. 6 crore in round one and Rs. 8 crore in round two) from Catamaran Ventures and Footprint Ventures, the manufacturing plant was setup in Manesar in Gurgaon, Haryana. Today, a fully automated manufacturing facility is up and running at almost full capacity (Kakkar is careful not to divulge capacity or revenue numbers). Its suppliers include companies from Denmark, China and Germany, and the founders have their task cut out in terms of managing the supply chain. “We have 15 suppliers from over six countries and now, we believe the supply chain process is fairly robust,” says Kakkar.

The other key element in the value chain is to get the distribution model right. Kakkar’s strategy is to build close relationships with all retailers, who stock Tzinga products. Today, the drink reaches over 7,000 outlets through 15 distributors. “Our goal is to reach over a lakh outlets within the next 18 months. The technology we’ve built to monitor and build relationships with retail outlets will come into play as we scale further,” explains Kakkar. The distributors’ role is to deliver the stock. Full-time employees of Hector Beverages will then visit each and every store with a tablet computer in hand to take stock and pick up orders as analysis of these numbers is crucial to make the distribution model work.

The consumer

Tzinga’s primary customers are in the 18 to 25 age group. The packaging design, online advertising strategy and brand activation efforts are all targeted at this segment. At Rs. 20 for a 200 ml pack, it is certainly the right price point. “Considering our price strategy, we’re not able to spend as much on brand building as the big boys do. However, for our segment, online campaigns do work. Our Facebook page has over three lakh fans,” says Kakkar.

Tzinga’s retail presence is fairly good is New Delhi and Bengaluru, with steady progress in a few other cities including Hyderabad, Jaipur, Jodhpur and Kota. “We’re ramping up pretty fast to go national,” adds Kakkar. The company believes the next step is to expand into some of the neighbouring countries including Sri Lanka and Bangladesh.

Mitigating risks

As a Wharton MBA graduate, Kakkar is aware of the importance about mitigating key challenges in his business with utmost clarity. He understands that the distribution puzzle lies at the core of making this business work. “Of course, distribution in a country like India is still very fragmented. Our goal of maintaining direct relationships with all retail outlets is not easy. We’re working on fine-tuning this process.”

Kakkar and his team are also working towards ensuring consumers recognise the value of Tzinga and its role as a functional beverage – that of delivering micronutrients and vitamins, in addition to taste. Its two flavours – tropic trip and lemon mint – use real ingredients like lemon, ginseng and gurana keeping in mind its role as a functional beverage. Kakkar adds, “The other aspect, of course, is to build a brand. A consumer needs emotional connect with the brand. We need to make that happen,” he concludes.

Concept in brief

Neeraj Kakkar, James Nuttall and Suhas Misra have gotten together to launch Tzinga, an energy drink brand for the Indian market. The founders are convinced that there is a huge market for energy drinks in India if sold at affordable price points. Nuttall, an expert on innovative packaging, has led the R&D efforts to deliver on cost-effective packaging for Tzinga.

There are several aspects that make Hector Beverages an interesting company to track. Two of the founders have worked at Coke India for a while and know a thing or two about the beverages industry. They have the ability to build the distribution channel and manage relationships with multiple global suppliers. More importantly, the founders have gone out and built the first manufacturing plant in Manesar that is now operating at full capacity. It recently announced the commissioning of its second plant in Hosur, a district in Tamil Nadu. The company’s next set of challenges includes delivering on its promise of reaching one-lakh outlets over the next 18 months and build a brand that emotionally connects with consumers.

Hector Beverages

Founders: Neeraj Kakkar, James Nuttall and Suhas Misra

Location: Manesar, Gurgaon

USP: Build an energy drink brand for the mass-market in India

Investors: Footprint Ventures and Catamaran Ventures for Rs. 14 crore