Major beverage companies in India are aggressively shifting toward zero-sugar products to mitigate rising ingredient costs. While this transition is driving volume growth, companies are simultaneously facing margin pressure from increased packaging expenses, making this a key area for investors to monitor.
The Indian beverage industry is undergoing a significant shift in product strategy as major players adapt to changing consumer habits and rising raw material costs. For the quarter ending September 2026, companies like PepsiCo and Coca-Cola have aggressively expanded their zero-sugar and low-sugar portfolios, a move that is reshaping their product mix in the Indian market.
Strategic Shift Amid Rising Costs
For Varun Beverages, the primary bottling partner for PepsiCo in India, this transition has been particularly sharp. The company reported that zero and low-sugar products accounted for nearly 88% of its total India sales mix during the third quarter of 2026, a substantial rise from 44% in the same period last year. This pivot serves as a defensive strategy against volatile commodity prices. With domestic sugar prices rising by approximately 16% in 2026, reducing the reliance on sugar has helped manufacturers maintain volume growth despite inflationary pressure on key ingredients.
Financial Pressure and Margin Dynamics
While the focus on zero-sugar products has helped manage sugar costs, it has not fully insulated the companies from all financial pressures. For instance, Varun Beverages reported that its EBITDA margins moderated to 21.6% in the third quarter, reflecting a decline of 140 basis points. This contraction was primarily driven by higher packaging material costs, such as aluminum and shrink films, which have offset some of the benefits gained from the changing product mix. Investors should note that while volume growth remains strong, the ability to protect profit margins depends heavily on managing these rising non-sugar operational costs.
Competition and Market Expansion
Coca-Cola is also reporting success with this strategy, noting a 16% increase in global volumes for Coca-Cola Zero Sugar. In India, the company is continuing to scale its operations, with reports highlighting the potential for an initial public offering (IPO) of its Indian bottling arm, Hindustan Coca-Cola Holdings, with a target valuation of approximately $10 billion.
The market landscape is becoming increasingly crowded. Competition is intensifying as new entrants like Reliance Consumer Products, through its brand Campa, and specialized players like Veeba Foods, aggressively compete for the health-conscious consumer. These new entrants are challenging the dominance of established giants by targeting niche demographics, indicating that the zero-sugar segment is becoming a permanent battleground in the Indian retail economy.
Moving forward, the primary monitorables for investors will be the sustainability of volume growth in the sugar-free category, the company's ability to offset packaging and raw material cost fluctuations, and any updates regarding major corporate actions such as the potential HCCH public listing.