Beyond the box

The drink in my hand looks like tea. An extremely thick tea. Is it a tea smoothie, I ask suspiciously. No, it’s a healthy mix of oats, milk, and five different fruit, is the somewhat reassuring answer. It tastes pretty good, actually, although our photo editor finds it too sweet. Sweet and healthy is all very well, but why are they making beverages here? Like most consumers, I thought this company with Swedish roots made juice boxes. Some other kinds of packaging too, like chips and cornflakes packets and cartons, sure, but mainly those ubiquitous juice and milk boxes. So I’m taken aback when I realise Tetra Pak makes food processing machinery as well. And that it has a product development centre in India which experiments with different kinds of processed foods and drinks.

We are in the product development centre, part of Tetra Pak’s high-tech factory in Chakan, Maharashtra, and I’m very curious to know why the company is in this line of business. They have the food processing machinery and they have the packaging nous, but it’s a bit of a leap to make fancy beverages. The wonks at the centre tell me they also have gigabytes of data on consumer behaviour, tastes, and preferences, and they analyse this to identify gaps in the market. They then figure out how to fill that gap, and sell the idea to clients who are in the business of manufacturing food products.

I make it a point of asking Saumya Tyagi, Tetra Pak’s new marketing director, South Asia markets, about this. We are in his businesslike office in Gurugram, surrounded by prototypes of packages. “Tetra Pak’s role is all about understanding the consumer and [consumer] categories from a macro perspective. I don’t have a particular brand to drive operationally. Our job is to get a perspective from a macro lens. That is: What is happening in the various categories, what are the big trends in these categories and how consumers are evolving,” he says.

How does he track consumer evolution? “Just look in a person’s fridge,” is his prompt reply. Where even 10 years ago, an urban, middle-class household would probably have had a couple of bottles of fizzy drinks in the fridge, today it’s more than likely to have juices and milk-based drinks. “Today, the Indian consumer is far more health conscious, always on the go, and more affluent,” says Tyagi. And this affects buying choices as well.

Yes, I understand that, but isn’t that the job of the food or consumer goods company? Shouldn’t they be coming to Tetra Pak with innovative food and beverage ideas and challenge Tetra Pak to provide equally innovative packaging? Or machinery that can deal with the new requirements? Because, simply, helping to develop products makes good business sense, says Tyagi. “If our common goal is to drive increased onground activation, we will form a joint project and then fund it equally, which means that Tetra Pak is also a partner in the brand’s growth. Our role just does not stop at providing capital equipment and packaging material.”

At the product innovation centre, Amol Pendharkar, marketing manager and Tetra Pak veteran, had told me something that ties in. “When we look at making innovations, we look at it through the eyes of the consumer and also the retailer,” he said. And that’s Tetra Pak in a nutshell.

The idea of being fully invested in a client’s growth is not unique to Tetra Pak India. It’s something that has spilled over from the headquarters in Lund, Sweden (and now Lausanne, Switzerland). “Tetra Pak is a beautifully integrated organisation,” says Tyagi with all the zeal of a neophyte. (He joined the company in March last year.) “I can call anyone in global marketing and regional marketing and get to know what is trending in various categories [anywhere in the world that Tetra Pak is present].” That includes details on why consumer buying patterns have changed, what the marketing teams did, and much more. “That offers us the opportunity to zoom out and look at the big trends and what the big brands are doing in that market. And we bring that value proposition to our customers.”

It’s something that’s clearly worked for Tetra Pak. In the 30 years that it has been in India, it has built up an enviable list of customers, from the big daddy of milk, Amul, to the relatively new kid on the block, Hector Beverages, known to most as the makers of Paperboat drinks. And the HQ thinks India is important too. The factory in Chakan (which has the product development centre attached) is Tetra Pak’s largest outside of Lund. Given that Tetra Pak today has 42 plants across the world, this means something.

“The innovative spirit in Tetra Pak goes beyond just products. I think it is in the DNA of the people. This includes our sales and marketing teams—how they work with customers on developing new concepts, new business opportunities, and new products,” says Kandarp Singh, managing director, South Asia markets, Tetra Pak.

Innovation is key to Tetra Pak’s growth in India. Because it’s as close to a seamless global organisation as it’s possible to get, India learns a lot from experiences globally. And gets to use products developed in and for other markets. For instance the Tetra Fino, otherwise called a pillow pack, was introduced in Egypt, but is hugely popular in rural South India where it is used to package milk. The advantage of the Fino is that it keeps milk fresh without having to refrigerate for 100 days at least.

Other forms of packaging, such as the popular pyramid-shaped “samosa packs” (formally, these are the Tetra Classic Aseptic packs) were developed locally. “The samosa pack is a perfect example of frugal engineering,” says Jayant Sinha, minister of state for civil aviation, who delivered the keynote address at Tetra Pak’s event to celebrate 30 years in India. He adds that with the right packaging, it is possible to even change consumer habits.

The idea of frugal engineering or frugal innovation is definitely Indian. In a 2012 report, researchers from Nesta, a British innovation foundation, tried to define this phenomenon. “Frugal innovation responds to limitations in resources, whether financial, material or institutional, and turns these constraints into an advantage. Through minimising the use of resources in development, production and delivery, or by leveraging them in new ways, frugal innovation results in dramatically lower-cost products and services.” The researchers could well have been quoting from Tetra Pak’s playbook.

Since Tetra Pak is driven by what consumers want, as well as what those consumers can afford, frugal innovation is, perforce, one of its strengths. “When Tetra Pak makes frugal innovations in India, it is not innovating for the top one billion people on the planet, but for the next six billion whose consumption behaviour and affordability characteristics are completely different,” says Sinha.

The introduction of the pillow pack was because a survey that Tetra Pak conducted jointly with the Karnataka Co-operative Milk Producers’ Federation showed that daily wage earners, fishermen, construction workers and the like could not afford large packs of milk. Even if they could buy an occasional litre of milk, they had no refrigeration facilities so were forced to consume it in a hurry. The Fino packs allowed the state milk cooperative to provide hygienic milk in small quantities at a low price to sections of the population that were under-served.

Similarly, the now much sought-after “dangler pack” for the popular mango drink Frooti was developed because the company wanted to reach more people and wanted to be present in even the tiniest shops. Many of these shops did not have room to display the conventional sizes of Frooti. Hence danglers.

“People want the most affordable pack and they also want the packs to be available at every nook and corner of the country,” says Tyagi. Of course, being frugal is not Tetra Pak’s sole objective. The company makes the more expensive soft packs used by Paperboat, and now by the likes of Dabur and other beverage makers.

Packaging is not just putting together a spillproof box in a certain shape. Customers want brightly printed labels, they want a distinctive look so their products will be easily visible even in crowded supermarket shelves.

The fear of being disrupted by new technologies is forcing the Swedish behemoth to invest heavily—nearly $400 million (Rs 2,526.8 crore) every year—in alternate material technologies for its packaging business. “Globally, the company is constantly debating on how to replace the aluminium foil; find a more sustainable paperboard, and an alternative to polyethylene because its raw material, fossil fuels, are fast running out, or even new sterilising technology,’’ says Singh. All these have led to the discovery of bio-polymers as an alternate to polyethylene.

But the real challenge about innovation is the challenge of scaling up and localising it. “What you don’t want to do is to create an expensive imported supply chain,’’ adds Singh. Which is why 50% of Tetra Pak’s paper needs are met domestically; the rest has to be imported from Scandinavia “because we need 100% softwood content, which is the requirement for the thin paper. And softwood only grows there,” says Dilip Bhave, factory director, Tetra Pak India, at the Chakan plant.

All of this comes down to Tetra Pak’s big advantage: technology. This is the single factor that has kept the packaging giant so far ahead in the game that it can be considered a monopoly. Combine cuttingedge technology with sharp consumer insights and a clear understanding of the market, and it’s easy to see why Tetra Pak has become an almost generic name.

It all started in 1961, when Swedish entrepreneur Ruben Rausing succeeded in creating an easily transportable, damage-resistant packaging for milk. From then, Tetra Pak has been constantly innovating packaging; the current six-layer packaging could soon give way to something even better. The company’s tag line, “Protects what’s good”, is something everyone at Tetra Pak takes seriously.

At the Chakan plant, the engineers are keen to show me the unique Tetra Pak features: the three layers of low-density polyethylene, the single layer of high-barrier aluminium foil to keep out dust, moisture, and heat, and a cardboard outer layer to keep the shape and stability of the pack. Pendharkar, who explains the idea behind the thick smoothie we tasted, adds that if the product finds a buyer, Tetra Pak would have a packaging challenge on its hands.

“Our brief was to create a breakfast beverage or a liquid meal—a drink that is thicker than the normal and one that is more filling—and we have developed it after two years and many, many refinements,” says Pendharkar. But, he adds, such a thick drink will require certain packaging modifications since it is far more viscous than other drinks and cannot come out of the same thin straw that’s attached to most beverage packs.

So, Tetra Pak has already developed what it calls a telescopic straw—narrow at one end and broad on the other, larger in diameter and much thicker—so the liquid can come out much faster. They are also mulling the idea of a carton with a cap. “The dream cap, as we call it, also offers the benefit of a far better consumption experience because only the right amount of liquid goes into the mouth without the fear of spillage. The lip of the cap was developed after many, many iterations,” says Tyagi.

It fascinates me that at a company that rolls out billions of boxes a day, there’s still attention paid to the ultimate experience of drinking from a package. But that’s pretty much Tetra Pak’s USP. Today, it is a sought-after partner by brands that cater to local tastes. So, there are drinks like bael (wood apple) juice and aam ras, which have smaller markets but which need different packaging because of the different densities of the liquids. “It will actually mean a paradigm shift for our business because we will need to run orders of lower sizes and lower quantities, and still maintain efficiency,” says Singh.

The era of running single large orders may fast become a thing of the past; it will be replaced by a smaller number of packs but with different products and labels. It’s a logistical puzzle in the making, since it will call for a completely different way of managing vendors and inventories, because of the proliferation of products. Tetra Pak is automating some of this; it uses a robot to keep tabs on the stocks.

With more localised products, the printing on the packages will also have to be changed. No longer can Tetra Pak print millions of reams of, say, orange packaging for Frooti. If there’s a brand identity change, which companies are increasingly experimenting with to attract new customers, that could disrupt printing. “We are changing our existing flex technology for packaging to meet the new demands,” says Tyagi.

Things were simpler in the ’80s. Most beverages came in bottles. And then came the disruptor, Frooti, one of the first juice boxes in India. “You needed a pack format that was convenient, safe, easy to drink [from], and also gave [consumers] the benefit of being able to take something and walk away with it,” says Nadia Chauhan, joint managing director, Parlé Agro, the makers of Frooti.

Neeraj Kakkar, CEO, Hector Beverages, says that “a lot of brands are now focussing on spiffier ways to package products in order to keep them safe and convenient”.

I ask Singh what all this means to Tetra Pak’s future plans. He doesn’t seem fazed. “We have always been ahead in the technology curve and for many years have been seeding the Indian market. Questions were even raised about the viability of our investments and it is only in 2011- 12 that we saw an inflexion in the processing and packaging businesses with more and more companies gravitating to our technologies,” he says.

Juice is an important category, sure, but pretty much everyone I meet in relation to Tetra Pak really waxes eloquent about milk. The managing director of Amul, R.S. Sodhi, is almost poetic. “Our relationship with milk is like our relationship with Lord Krishna. Most Indian lives begin and end with milk.” His enthusiasm is understandable; after all, Amul belongs to the country’s largest and most acclaimed milk marketing cooperative, Gujarat Co-operative Milk Marketing Federation.

What is Tetra Pak’s fascination? Milk is the first thing that Rausing managed to package; it’s Tetra Pak’s firstborn, in a manner of speaking. There’s also the fact that in consumer terms, India is moving away from the soda and packaged juices segment and is entering the dairy drinks segment in a big way.

The growth in what Tyagi calls the healthy dairy beverages category is impressive. This category has been growing at nearly 35% on an annual basis for the past three years or more. The market for sodas has lost its fizz, growing at a snail-like 4% to 5% annually. Mango-flavoured drinks account for the lion’s share of the market for ready-to-drink beverages.

One of the big reasons for the growing demand for milk is Tetra Pak. So close is the company’s association with milk that it almost seems like a milk brand. Anyone who has ordered groceries from the local kirana store would have been asked if they wanted Tetra Pak milk.

The reason for this is in the technology and machinery Tetra Pak offered milk companies— UHT or ultra-high temperature processing. Milk is flash heated to 140 degrees (centigrade) for up to four seconds, and then rapidly brought down to 20 degrees. The heating kills all bacteria and pathogens that thrive in fresh milk. The treated milk is then packed in Tetra Pak’s aseptic packaging, which ensures that no bacteria can get in once sealed. This allows milk to be transported to the most hostile of terrains, where it can be stored for months.

There’s also the pillow pack discussed earlier. And, of course, the large number of consumer goods companies that have introduced milkbased beverages over the past couple of years. Milk, clearly, is a huge part of Tetra Pak’s business. But it doesn’t seem to excite Tyagi as much as a new segment—oral rehydration solutions.

Till recently, ORS was available in powder form in sealed pouches. Users needed to mix that with water and drink. However, as the Tetra Pak data showed, clean drinking water was unavailable in most of the regions that needed ORS the most.

“What we have developed with our customers is a ready-to-drink ORS,” says Tyagi proudly. Despite costing four times more than the ORS salts, the ready-to-drink beverage has found a good market. It has become the fastest growing category, says Tyagi, adding that a 43% growth (albeit on a low base) is commendable.

One of the reasons for demand growing is the lack of clean drinking water, of course. But increasingly, the ORS drink is being consumed as a health drink by the more affluent sections of society as well as by athletes.

Remember, Tetra Pak’s skin in the game is limited. But management is clear about what makes the company grow. “The idea is to see that our clients sell their stuff. We want our customers to grow and add more and more categories, because they are the drivers of the market,” says Pendharkar.

It is to this end that the company invests so much in consumer and market research, to say nothing of product development. It’s a growing space. According to a report in the Progressive Grocer 2016, the market for non-alcoholic beverages in India is in the region of Rs 195,000 crore, and growing at roughly 20% to 23% a year. “This growth rate will take the category to three-anda-half times of its present size by 2020,” says the report.

The penetration of packaged drinks is still minuscule and juices are barely 4% of this segment, concentrated in SEC A urban markets. Indians spend an average of just Rs 6 per month on juices. “So much opportunity [can be created] just by expanding distribution,” says Singh.

Tetra Pak has had a pretty good run in India from the time it set up its 90,000 sq.m. factory in Takwe, Pune, in 1997. Its massive 1.8 lakh sq.m. factory in Chakan was inaugurated in 2013. It produces 40 million packs a day, of which only 9 million are for India; the rest is exported to other Asian countries. Tetra Pak’s business has grown eight times in the past 10 years; till 2006, growth was a far slower two times. There are many reasons for the spurt, but chief among them is consumer behaviour. And that’s why tracking that is so important to Tetra Pak.

Thanks to the global nature of the company, consumer data does not come just from the Indian market. Singh says one of the reasons Tetra Pak has invested in QR coding its packages worldwide is data collection. “If each of these packs has an individual bar code, we will have a phenomenal amount of data. We are still figuring out what we can do with that data. Going forward, data analytics could be another great business for the company,’’ says Singh.

Back in Chakan, Pendharkar says his team has been working on a blueberry-vanilla nutritional drink that contains no added sugar; it uses a natural sugar source to attract health-conscious teenagers. Kids will love its colour and taste, Pendharkar says confidently.

But what catches my attention is the other project the food techies are working on: creating ice-lollies and kulfi that can be stored at normal temperature. “That means you are completely bypassing the whole refrigeration issue and the frozen dessert issue,” explains Pendharkar.

Now that doesn’t sound like something a tech or packaging company will do. That’s something from Willy Wonka’s factory.