Daybreak - Daybreak 2024 Wrap Part 1: The Ken writer's picks

Episode Date: December 5, 2024

This isn't your usual Daybreak Friday episode. Considering it's the end of the year, we thought we’d ask the reporters in our newsroom to talk to us about the stories they liked best. This week, we have Rounak Kumar Gunjan and Aakriti Bhalla on the show. They share two of their favourite stories — The first is a fascinating story by Rounak about how a tiny discount caused an uproar inside IRCTC or the Indian Railway Catering and Tourism Corporation. The second is by Aakriti about how Pepsico managed to make Sting the energy drink of India.Tune in. P.S. We want to know how and where you shop. When was the last time you went to a shopping mall? What did you buy? Write to us on WhatsApp. Our number is 8971108379Curious about the story Rounak mentioned on the show? Check it out here.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.Listen to the latest episode of Two by Two here

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Ramon, Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Hello and welcome to another special episode of Daybreak. I'm Snigda and I'm Rahil.

And today we're doing something different. Considering it's the end of the year, we thought we'd ask the reporters in our newsroom to talk to us about the stories they best enjoyed reporting on. So we have two stories for you. The first is a fascinating story by Roanak about how a tiny discount caused an uproar inside IRCTC or the Indian Railway Catering and Tourism Corporation. And the second is by Akrity Bhalla about how PepsiCo managed to make sting the energy drink of India.

The story on IRCTC by Roanak is one of my personal favorites this year. And the reason is because we're talking about IRCTC here, which is a predominantly government organization. And we all know how hard it can be to get access to inside information from government bodies. But somehow, Roneck managed to do it. So I asked him how, and he told me it all started one fine day in the middle of Delhi summer when he was outside the finance ministry for another story. Just then, Ronak got a call from an old source. who said he was at the IRCD office and that he wanted to talk about something that was quite important.

So I went to the ICTC office to meet him and he, you know, not in exactly the same direct words, but he said that, you know, there is sort of undressed inside the organization and they don't really like a basically, an understanding that reached with the government and there is some sort of an internal backtash going on. I can make you talk to a couple of people if you want to. So obviously I said, yes, of course, make me talk to them. And it started off from there. Everything Ronuk discovered through the course of his reporting for the story pointed to a tiny little fixed discount that the government offers everyone

who books their tickets via IRCTC using UPI. The idea was to promote UPI. It was a decision made by the railway ministry and the finance ministry together. But Ronak learned that the IRCTC had to forego nearly 40 crore rupees in revenue in the June quarter because of this discount. Which is why on the day of the budget in July this year, IRCTC officials were waiting with bated breath, hoping that the finance minister Nirmara Sita Raman would announce an end to this discount. They're thinking, everybody uses UPI everywhere anyway. So what's the point of promoting it through a discount that is making us lose our share of business?

the revenue. Let's find out more from Ronak. So Ronak, IRCTC has been around for what? Like 30 years now? And we mainly know it as the official ticketing platform for the Indian railways, right? And this year, it actually did quite well. Apparently this year, 2024, was its highest ever revenue profit. So, you know, to get started, can you tell us a little bit more about what IRCTC does? So ICTC basically is a quasi government body. It's under the Ministry of Railways. It does ticketing. It does catering. And it also takes care of the cancellation, refunds, etc. So every Indian Railway ticket that's booked in India is done through the platform of IRCTC. They provide, they partner with payment aggregators. They partner with payment gateways. So the entire transaction goes through their platform for which they get a cut. They also take care of now tourism as well. They provide pre-c curated packages, etc. So three sources of income. And they take care of the cancellation,

the refunds part of it as well. So basically all in all, if you're traveling in a train, you're obviously doing it through ICTC. Okay. So now that is out of the way, Ronak. This is the question that I'm actually most excited to ask you. How did you find out about this trouble

that was brewing inside the IRCTC's boardroom? So there are three of three of, for board members that IRCTC has, apart from the chairman. I obviously can't name who I spoke to, but it was as if the board members were almost ready to talk. So there are phone numbers that they provided their own phone numbers on the websites, etc, where they talk about their board members. So I called up, I initially messaged all three or four of them, and then I called up one of them as well. And they responded and we spoke about it.

So basically, this issue has been going on inside the ICTC for a while, where they, you know, keep going to finance ministry where they keep going to railway ministry, asking them to, you know, wave off this discount and that it's unnecessary anymore. These discussions have been going on inside boardrooms for a while, but they haven't really been escalated to a place where the finance ministry could take a decision on it. So the board member also said that they've been privy to such discussions almost every quarter. The topic comes up every quarter. They talk about the fact that there are some officials who are not really happy about it

and how they're not able to progress in the PSU ladder as well. So it was just a fact of me reaching out to them and they responded. Now, the thing to understand here is that IRCTC is a public sector company that was initially completely owned by the government. But over the years, the government has been reducing its holding in the company. It is at about 60% now. And the rest of the shares are publicly traded. Also, it is a mini-Ratna company.

which is basically a government company, but the government has given it some financial independence so it can generate more profit. So to really understand why IRCTC folks are so unhappy with this tiny discount, we need to look at the efforts that IRCTC has been making to expand its business and stay relevant. I asked Ronuk.

So ICTC has always tried to project itself as a new age company that understands market dynamics, etc. they were obviously the first ones who got into online ticketing and they completely removed cues out of, you know, those check-in counters at ticket buying counters at railway stations, etc. They also are partnering with Zepto. They're partnering with Zomato. They're partnering with Suggi as well to deliver food to passengers inside trains. They're not just attracting the older guys into. buying their tour packages, they're sort of the itineries such that they're also trying to attract the younger folks. Because again, huge boost in the travel industry post the pandemic, right? So they're trying to make full use of that as well. And they're trying to keep themselves as relevant.

Right. So, you know, Ronak, basically, this discount is hurting IRCTC's main revenue source, which is e-ticketing, right? And just to make it clear to our listeners, you know, when we book a ticket, most of that money goes to the railways and the IRCTC gets a cut. for facilitating that booking of the ticket, right? And this discount is going from their cut, which is why they are upset. But, you know, what I don't understand is that if it is affecting them so much, IRCTC, so much,

like how you mentioned in your story, they lost 40 crores worth of revenue because of this, why are IRCTC officials not directly going and speaking to the government and expressing their discontent? You know, like, I mean, officially, they're not doing that, right? No, they're not doing that. You're right. So basically the thing is they've spoken about their displeasure to their own chairman a couple of times. They've spoken about it to the previous chairperson as well. But the problem is that all of the chairpersons who assumed that

corner office, they know that the railways has had an understanding with the finance ministry that they cannot let go of that discount because there were other promises that were made in in a closed-door meeting that happened between the finance ministry and senior railway folks and senior IRCTC folks, where they were given back some of the cut that they were getting at online ticketing, only with a promise that UPI discounts won't be taken off. So it so happened that the percentage cut that ICTC used to get before UPI or before the pandemic happened was much higher than what they're getting right now. but in between they also removed all of those cuts that ICTC was getting because of online

ticketing booking that was going on in the country. And that really sort of hit ICTC's top line and bottom line. It was only after these discussions that happened between the finance ministry and the railway ministry that these cuts are brought back into the system and ICTC was able to get its top line and bottom line back in order. but with an understanding that UPI discount won't go away. So while the junior ICTC folks keep complaining about it, the chairman cannot go to the railway ministry or the finance ministry

and ask them to remove this discount because they're aware that this understanding had happened and they again cannot afford a hit on their bottom line or top line. Right, okay, that makes sense. Okay, so Ronak, can you tell us, we know that IRCTC is a mini-ratna company now and it has a certain amount of independence. But what is the next step?

Like, what are the ambitions for IRCTC in the future? So, ICTC right now is a mini-rattna company. The next step that it is supposed to take is to become a Navratna company. Yeah. So, one, it provides more freedom to the company in the sense that most of their strategic decisions can be taken by them. with as little as government involvement as possible. For example, oil and gas companies like, say, IOCL or HPCL, these are either Navratna companies or Mahatna companies.

So their day-to-day operations are not controlled by the government, though these are PSU companies at the end of the day, and they do take in instructions from the government. There are price limitations that the government puts on these oil and gas companies. but in terms of their strategic decisions, they are pretty independent on their own. And that's the status that ICTC is aiming for as well. They want to move up the ladder and be more independent in terms of the decisions they take in terms of who they partner with, for example, for their payment gateways, the kind of vendors they associate with in their food business, for instance.

So they want as little, for almost every company, that's the case, right? they want as little government involvement as possible so that they're able to focus on their bottom line, on their top line, etc. Right. And, you know, it seems like it is a fair ambition or dream to have, right, on Partify RCTC, because if we look at how it's been doing so far, it's indeed been quite remarkable. It's been pretty agile. It's been coming up with new partnerships.

Like you mentioned, the food business is doing phenomenally well, all these tie-ups that it has made with Zomato, Swiggy. I mean, it's quite amazing, you know, how passengers have the option to get food delivered mid-journey. I mean, the logistics of it all. And then you have all the tourism packages, like you mentioned. So in a way, you know, it does seem like they do deserve more independence, right? But, you know, from what you told us earlier, the picture right now is quite different, right? Ronak, in terms of independence, like the railway ministry is ultimately their boss

and the final green flag for everything has to come from there. So, you know, because you spoke to so many IRCTC officials, you know, for this story, and they were talking to you about their resentment, is there any resentment that they have for the railways in specific, you know? No, no, they say great things about railways, because we need to understand that without railways, there is no IRCTC. And railways could have easily hired a private. partner to do all of these things, which ICTC does at the moment. But they floated a company and

ICTC was born because of railways, right? And it continues to be around because of railways. So they have good things to say, but they also say that there is a lot of hierarchy inside railways. And to get anything past, you need to go through that entire ladder. I will not name the person, but I spoke to a former ICTC head as well. And they also said that, that even if they need to pass one small payment-related decision, they need to go through the entire hierarchy of Indian railways and it goes through meetings and all of that, and only then it is passed.

So the entire government slash Babu culture does exist. Right. Okay. Thank you so much, Ronak, for doing this story and also for finding time to talk to us about it. But before you leave, you have to recommend your favorite story by a Ken colleague to our listeners. I think the story that Noha did on Flipkart in January, which spoke about Flipkart being a high pressure workplace because of it's real, etc. I think that's a fantastically reported piece. Well, I remember that story, actually. It was brilliant. We even covered it on daybreak. I'll link it to the show notes of this episode. But before we move on to the next segment,

Rahel, my co-host, has something to tell you. The Mall Coppelips. is here. Or is it? You're probably wondering what that even means? Well, it's a rather over-the-top portmanteau to describe a trend in India's retail landscape that many say is inevitable. I'm talking about the mall apocalypse, the death of the shopping mall as we know it. In fact, a recent report found a 59% increase in ghost malls across the country. What happened?

Well, most people blame e-commerce. Then they say that COVID was the final nail in the coffin. But turns out there's more to it than that. In an upcoming episode of Daybreak, we will uncover why India seems to be over shopping malls. But we want to hear from you. When was the last time you went to a shopping mall? Has the in-person shopping experience lost its charm? Tell us what you think.

If you are open to having a can, candid one-on-one chat on the subject, write to us on WhatsApp. Our number is 8971-08379. I'll also add it to the show notes of this episode. Thank you and I'm really looking forward to hearing from you. Next up is our segment with Akriti. We speak to her about how Sting became India's go-to energy drink. Earlier this year, the Ken reporter Akriti Bhalla found herself in Bijwasan.

Now, this is a village close to the digital Delhi Haryana border. And here, outside a neighbourhood temple, she ran into three young boys. Their names were Chintu, Pankaj and Bhohā. Akriti caught them right in the middle of what had become an everyday ritual for these teen boys during their summer vacations. They were sitting together and chatting, but what really caught her attention was what each of them was holding in their hand. You see, they were each sipping on a bottle of sting. The fluorescent red, berry-flavored energy drink that has taken the Indian beverage market by storm. They were like boasting how this is the next cool thing because it doesn't look like your

Pepsi or a Mirinda, right? It has a striking red colour. It's something new, something cool. And yeah, it's something that makes them stand out amongst their friends. While talking to the boys, Akrity was pretty taken aback by the lengths to which they were willing to go to procure this $20 energy. They joked that Chintu had it the easiest. You see, he studies at a private school, he owns an iPhone, and he also happens to have the highest pocket money among the three of them.

So he could buy as many bottles of sting as he would like. But the other friends, they can't do that. They can't afford to do that. So they were doing little, little things for themselves. One of them was helping like a flower lady and doing like little chores for her. And that's how he was earning his money and buying stings for himself. For context, Pankaj and Bhollah are the sons of daily wage workers. They attend government schools close by and generally had to earn a couple extra rupees by doing odd jobs,

just like Akrithi mentioned. But all three of them made it a point to set aside money every single week to buy their supply of the drink. This conversation with Chintu, Pangaj and Bhoa, confirmed. a hunch that Akriti has had for a while now. Sting is not like any other energy drink. It has completely changed the game. In fact, an analyst Akriti spoke to said something very interesting. They said that for a certain class of Indians,

Sting isn't just becoming a popular alternative to chai at tea stalls. It is very quickly replacing tobacco. So that was like one of those trigger points. like the insight there was that it's something that fuels the energy, obviously. It gives you a kick, right? So instead of taking a smoke, you have a sip of that drink, which you can keep in your hand entire day. You see, in the last few years, energy drinks have really been having their moment.

In fact, they've even been replacing carbonated drinks and juices for a lot of people. Data from a market research firm called Euromonitor, at a 30x increase in the consumption of energy drinks since 2018. And among energy drinks, Sting has become the most preferred choice. I wanted to understand what it was about this $20 energy drink bottled by Varun beverages, PepsiCo India's bottler and distributor, that has made it blow up like this. So, I asked Akriti.

Okay, Akriti, up until about six years ago, Red Bull used to be practically synonymous. with energy drinks, right? But in many ways, it also kind of felt like a rich person's drink. And then on the other hand, you have Sting, which is significantly cheaper. Do you think it was that affordability factor that has really made it blow up the way that it has? You know, the fact that it isn't catering to an elite demographic with a lot of disposable income.

It's catering to a whole other demographic. Yes, yes, Rahel, you're on point here. That was the game changer for the company that makes it, right? Varund beverages also because they hit the mass, right? Earlier with Red Bull, of course, Red Bull has market share right now also in premium energy drinks category. But Sting changed the game because it was priced at a fraction of what Red Bull cost, right? Red Bull is above 100 bucks.

This thing comes at rupees 20, almost at the same price as a Coca-Cola or a Pepsi or any other soft drink for that matter. Right? So it obviously had that affordability factor. So a lot of people were able to buy it. And when you're not appealing to the cream, when you're appealing to the larger base, obviously it will have that sort of an effect. So who exactly are these new consumers of energy drinks?

Well, on one hand, we have young adolescents like Bholla, Chintu and Pankaj who drinks sting because they want to look cool, but on a budget. And on the other, you have people who consume Sting as a stimulant that can keep them going during the day, possibly even replace a meal, all without breaking the bank.

I think you know where I'm going with this one. So it's not just the kids. Like I mentioned initially, it's also your daily wagers who are also a good chunk of their consumers. Daily wagers, because they need that kick to do that hard work, right? They have to be out there.

in the site, right? Be it the e-risha drivers, be it the ones working for construction site, all of these guys need some sort of refreshment and some sort of kick to keep on with the daily work. And it also really helps that it lasts a lot longer than tobacco. Tobacco is more of a one-and-done kind of thing, whereas an energy drink is something that you can carry and sip

whenever you feel like. It could last several hours. So it does feel like a much better deal. Right, but Akriti, the obvious question is, how is sting this cheap? We were talking about Red Bull a little while ago. One would assume that it comes at a premium price point because it's made of, you know, more premium ingredients, right?

But is it really that simple? How is Varun beverages able to sell Sting for that little money, you know? Right. Interestingly, it's not what goes inside. There must be, I'm sure, difference is there also. But the biggest cost point was the exterior, the bottle itself. A red bull comes in a tin bottle, right? It's a tin.

While this one is like a plastic bottle. A tin is something that is like 35 to 40% of the cost of the entire thing. And you import it from outside. So Red Bull is not an Indian company. This product you import from outside plus the thing in which you bottle it, that's also imported from outside. So that also pushes up the price. While in this case, in Sting's case, Varan beverages, was making the drink what goes inside as well as the exterior, the bottle in India. Plus plastic is obviously cheaper than tin.

So that was the game changer here. On the subject of packaging, interestingly enough, back in 2018 when Sting was launched, it was actually sold in a tin can. But within two years, they switched to the clear plastic bottles we associate it with today. In fact, it was after 2020 that PepsiCo really blew the market open with Sting. Of course, its popularity is credited to things we've discussed already, like the fact that it's 80% cheaper than Red Bull. But another reason that is often cited is its colour.

When I was speaking to these consumer analysts, they were also saying that this definitely had a part to play. Because imagine, right, if you are sitting, if you're out in a market, somebody who's wearing red, like that pops out, the colour itself pops out. That's the thing with the colour. So in a fridge, when you have your reds and, when you have your blacks and oranges, a red colour would pop out.

So you will as a consumer get curious about, okay, what is this red-coloured thing? So it's just appealing to the basil instinct, right? Sometimes it really is the simplest things that make a product stick. And choosing blue and red for its two variants proved to be a real master stroke by Varan Beverages. Right, Akriti, let's talk about Varun beverages a little more, right? Why have they been able to pull this off in a way that nobody else seems to have been able to do it?

Correct. So if you look at India, right, there are millions and millions of kiranhas, like, and they are in the farthest of places, like places where even a person takes time to reach by foot. but PepsiCo because they have been here from years these guys reach where nobody is able to reach easily like just for an example if you go to mountains right you will find a maggie's packet you will obviously always find Pepsi's bottle right that's the distribution might

we are talking about where you'll get nothing you will get Pepsi So that obviously helped. So if you are available in the farthest corners, you can take your product from your factory in and around a metro city or wherever the factory is to those farthest corners. Now, thanks to all these factors combined. As of 2023, Sting holds a lion's share, a whopping 90% in terms of volume in the energy drinks market.

And in the process, Sting has also much. managed to turn Varun beverages into the country's hottest FMCG stock. For Varun beverages, having Sting in its sales mix changed the game for them. Their stock price has shot up because of Sting. They have outperformed, they continue to outperform the larger index because of this one magic formula. If you look at FMCG index, right, the larger index.

It has grown about 80 to 90% in last five years. But if you compare it with a Varun beverage stock, the stock itself has grown 10 times than the FMCG index. Like, it's over 900%. So one product, like, clearly fueling the stock's growth as well. Now, there's no two ways about it. Sting has fundamentally changed the market for energy drinks here in India. In fact, it even paved the way for a bunch of international brands like ocean, prime and fast enough to enter the market.

But there is also a flip side to the story that we absolutely cannot ignore. It all comes back to the new demographic for energy drinks that Sting has created. Sting is largely consumed by adolescence and rural people, many of whom don't have a full sense of the side effects. They don't fully understand the repercussions of consuming large quantities of caffeine and sugar. Okay, Akriti, there's so much talk about the side effects of consuming energy drinks, right? I'm curious to know what sort of regulations are in place to kind of protect people, you know, who actually consume these beverages. There aren't particular regulations in place. There are no regulations stopping somebody from not making the drink or selling it.

But like I said, there are advocacy groups that have been telling FSISAI, which is the food regulator, to look at the amount of sugar that goes in, the amount of caffeine that goes in. Is it safe for you or not? There are, of course, global standards out there. And drinks usually do put the amount of sugar or caffeine in it that goes by, global standards. But the thing is, usually those standards are for one drink, right? But what ends up happening is people have it like four or five drinks a day. So for one bottle, it's enough, the amount of sugar or caffeine. But people don't stop at one. That becomes the challenging part. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscribe-only offerings. A full subscription unlocks daily long-form feature stories, newsletters and podcast extras.

Head to the ken.com and click on the red subscribe button on the top of the Ken website. Today's episode was hosted and produced by Rahal Philippos and I Sinkda Sharma and it was edited by Rajiv Sien.