5 Regions Critical to Coca-Cola’s Success

The Coca-Cola Company (NYSE:KO) announced its decision to pour in additional $3 billion into India that will see the total investment in the country at $5 billion over the next eight years. Coca-Cola’s volumes grew 12% in 2011 in India, helped by strong performances by Sprite, Coca-Cola and Thums Up, the Indian cola company acquired by Coca-Cola in 1993. The per-capita consumption of soft drinks in India is only a fraction of what it is in more mature markets, and so the soft drink companies see a great future in the country. So far, Coca-Cola has spent around $2 billion in India since its return to the country in 1993. ^[1] Overall, this is part of $30 billion of global investments planned by the company in the next five years.

Coca-Cola’s unique selling point is its high degree of brand recognition. The brand is identifiable everywhere, even by consumers in countries where it has little to no presence. Hence, whenever Coca Cola launches a new product, there is a certain degree of excitement associated with the launch and consumers are more than willing to try the product. In fact, according to one report, the Coca-Cola logo is identifiable by a whopping 94% of the world’s population. ^[2] Besides India, we look at some other regions where Coca-Cola is investing heavily in and whose success is critical to the company’s long-term performance.

See our full analysis for Coca-Cola

China – This is the epicenter of global investment. Every major corporation wants a piece of China and Coca-Cola is no different. The company opened its 42nd bottling plant in the country in March 2012. Further, Coca-Cola plans to spend more than $5 billion in China in the next three years. Coca-Cola’s volumes grew 13% in the country in 2011. ^[3]

Brazil- The company will invest a staggering $7.6 billion in Brazil through 2016, which includes sponsorship for the soccer world cup to be held in 2012 and the Olympic games in 2016. The investment will also see the company opening three new factories in a country which already has 47 factories. Although Coca-Cola’s volume grew only 1% in Brazil in 2011, it surged 11% in 2010.

Africa – Coca-Cola has so far invested more than $350 million in Tanzania in the past three years and will spend another $187 million in the coming three years. In Kenya, Coca-Cola will spend $60 million in two years starting April 2011.

The company also opened a new bottling plant in Somaliland at an investment of $15 million in May 2012. These investments are part of the company’s broader plans of spending around $12 billion in the continent in the 10 years beginning 2010. Last year, the company launched Minute Maid in Tanzania, Kenya and Uganda as well. In 2011, Coca-Cola acquired a 49% stake in Aujan Industries which will enhance its presence in North African countries such as Egypt and Tunisia.

U.S.A – Coca-Cola’s home country continues to be the biggest market for the soft drink maker with 20% of its global volume consumed here. It will spend $3 billion in the U.S. in 2012. One aspect about the company that often gets overlooked is its bottling operations. Coca-Cola generated volume growth of 4% y-o-y in 2011 in the North American region, of which 3% was attributable to its bottling deals with Dr Pepper Snapple (NYSE:DPS).

We estimate a $76 price for Coca-Cola, which is slightly below the current market price.

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1. Coke to boost India investment by $3 bln, June 26,2012, reuters.com [↩]
2. 15 Facts About Coca-Cola That Will Blow Your Mind, June 9, 2011, businessinsider.com [↩]
3. KO  2011 10-K [↩]