Coca-Cola Making Quick Moves In Myanmar To Gain Market Share

by Trefis Team
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The socialization of the Myanmar economy in 1962 and subsequent economic sanctions imposed by the U.S. government on the country prevented U.S. companies from conducting business there for a long time. However, Myanmar has made tremendous progress on the socio-economic front over the last couple of years primarily driven by the new Foreign Investment Law and other ongoing reforms. [1] Thirsty for growth, The Coca-Cola Company (NYSE:KO) pounced over the new market opportunity and became one of the first U.S. companies to be awarded an investment permit under the new law.

Coca-Cola initially started selling imported products in Myanmar on September 10, 2012, after a being away for more than 60 years, with plans to start off local production ‘soon’. [2] Earlier this month, as a part of its $200 million investment plan, Coca-Cola also started local production in the country. [3] Only a couple of weeks after the announcement, Coca-Cola’s joint venture partner in Myanmar, Pinya Manufacturing, said that it plans to expand the production lines at the manufacturing plant by the end of this year. This reflects Coca-Cola’s intentions of quickly gaining a strong hold on a very dynamic market of Myanmar. [4] In this article, we will size the market opportunity for Coca-Cola in Myanmar and also discuss the competitive landscape of the market.

Coca-Cola is the world’s leading beverage company, selling more than 500 sparkling and still brands. The company sells non-alcoholic beverages in nearly every category – from sparkling beverages to water, enhanced and flavored water beverages, tea, coffee, juice and juice drinks, sports beverages and energy drinks. The company’s portfolio features 16 billion dollar brands including Coca-Cola – its most valuable brand, Diet Coke, Fanta and Sprite.

See Our Complete Analysis of Coca-Cola

How Big Is The Opportunity?

Myanmar has a population of almost 50 million and a decent number of foreign visitors that consume soft drinks worth $100 million each year. Although its a relatively small market as of now, its future growth potential is huge. The spending power of local population in Myanmar is expected to grow at a much faster rate than seen in the past on the back of ongoing reform process in the country leading to economic liberalization. The new Foreign Investment Law passed last year is aimed at liberalizing the economy by allowing foreign investors to invest in the market without partnering with local players. Last year, the Asian Development Bank also issued a first loan of $512 million in more than 30 years to finance infrastructure and development projects in Myanmar.

According to IHS Global Insight forecasts, the GDP of Myanmar is expected to double by 2025, which will imply a per capita GDP of more than $2,500. [5] Thailand, one of the neighboring countries of Myanmar, which also bears a close demographic resemblance to it, has a soft drinks market of around $1.2 billion, with GDP per capita of around $5,000 and a population of almost 70 million. By applying simple unitary method with an assumption that the soft drink market size as a percentage of GDP in Myanmar will reach close to what it is in Thailand today, we can roughly estimate the soft drink market in Myanmar to reach over $500 million by 2025. There are similar growth projections by various agencies across various industries, primarily because Myanmar has a very dynamic economy, as it is coming out of a long hibernation period. According to the CEO of HyperTrade Consulting, Myanmar’s retail sector is expected to double over the next 3 years form around $13 to $15 billion currently.

Competitive Landscape

Since the cola giants are making a come back in Myanmar after a long period of time, local players are expected to be the main competitors initially. Although the market is relatively small in size when compared to the kinds of India and China, it will still take time for both Coca-Cola and PepsiCo to penetrate deep into the market and develop brand loyalty. Players like the Loi Hein Group which currently holds ~30% share of the market with its Blue Mountain, Green Spot, Fantasy and Lemon Sparkling brands is expected to continue to do well in the rural areas. However, with their deep pockets for investments in supporting infrastructure and marketing along with the popularity of their global brands, Coca-Cola and PepsiCo are expected to crowd out the market for local players eventually. Moreover, growing foreign visitors to the country is another positive sign for multinational players, as they generally prefer global brands to local. In 2012, more than 550,000 visited the country, which was more than 50% higher than 2011.

Wherever there is Coca-Cola, there will also be PepsiCo. However, the company’s prime competitor has adopted a completely different approach for Myanmar. With its diversified portfolio, PepsiCo is also looking at opportunities beyond the soft drinks market. Along with the announcement of its new partnership with a local distribution company, Diamond Star Cola, last year, the company pointed out its interest in the local agriculture market as well. Partnership with local farmers to improve agricultural yields through the use of better farming techniques has worked well for the PepsiCo in India. The company has partnered with more than 11,000 potato farmers in India for the supply of potato used in making Lays potato chips in return for introducing high yielding, better quality seed varieties. [6]

However in CSDs, PepsiCo has still to make a move towards local operations in Myanmar, as it is currently relying on its partner, Diamond Star for importing, distributing and marketing its products. Coca-Cola on the other hand, is expanding local production facilities and investing in distribution network with an aim to extend its reach to more than 100,000 retail outlets in the country over the next six months. Playing to its strengths, Coca-Cola also launched a new advertisement recently to activate sales from retail stores. [7] This is where we believe; Coca-Cola is expected to derive a long-term advantage over PepsiCo in the CSD market. Local manufacturing, distribution and marketing of soft drink brands will allow Coca-Cola to directly reach out to its prospective customers as well as better gauge the evolution of consumer preferences over time.

We currently have $39 price estimate for Coca-Cola, which is almost equal to its current market price.

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Notes:
  1. Myanmar Passes Investment Law, wsj.com []
  2. In which countries is Coca-Cola not sold?, bbc.com []
  3. Coca-Cola Starts Local Production in Myanmar, coca-colacompany.com []
  4. Coca-Cola to expand Myanmar factory in 2013, elevenmyanmar.com []
  5. ASEAN’s rise as the next economic superpower, aseantuc.org []
  6. Partnership with Farmers, pepsicoindia.co.in []
  7. Coca-Cola Introduces Itself To Myanmar, adage.com []
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