Will Emerging Economies Drive Coca-Cola’s Growth?

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India became the sixth largest market by volumes for Coca-Cola after it overtook Germany last year. [1] The company’s unlisted Indian subsidiary Coca-Cola India Pvt. Ltd. registered a 22% y-o-y growth in its top line and 43% y-o-y growth in its net profit in FY 2015. [2]. Economic growth in emerging economies such as India and China is leading to the creation of a wealthy urban class, which is boosting sales of international products such as Coke Zero in these regions. As consumers in the U.S. shift towards healthy beverages, the less saturated markets in Asia Pacific and Middle East, where consumption of carbonated beverages is currently very low, would provide a lucrative market for Coca-Cola.

See our full analysis for Coca-Cola

Asian Soft Drinks Market Is Growing Rapidly

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According to industry estimates, Indians on average drink 12 eight-ounce bottles of Coke every year, compared to 92 bottles globally. Given a huge potential for growth owing to its large population and low per capita consumption of carbonated beverages, India’s soft drink market is expected to reach $4.1 billion by 2020. [3]. Southeast Asian countries are also emerging as a major global soft drink market, and volumes in ASEAN countries are expected to grow by 15.4 billion liters between 2014 and 2019. [3]. BMI Research forecasts the soft drink market to grow at a compounded annual growth rate of 8.2% in Indonesia from 2014 to 2018. A report by Canadean projects a 13% CAGR in the soft drink market in Asia between 2013 and 2018, while this figure is less than 3% for North America. [4].

We expect the international carbonated soft drinks market size to increase from $30 billion in 2015 to around $36 billion by the end of our forecast period, and Coca-Cola’s share in this market to be around 23-24% over our forecast period. This will lead to Coca-Cola’s international revenues increasing from around $8.5 billion in 2015 to around $11.5 billion by the end of our forecast period.

 Coca Cola

Demand from India and other Asian countries should be key to drive revenue growth. Coca-Cola is facing certain challenges in India in the form of tax concerns. The company stated on December 14 that it will scale back production in India if the government goes ahead with a proposal of 40% “sin tax” on sugary beverages. The company believes that this high level of taxation will have a ripple effect on the entire beverage ecosystem, since it will lead to a sharp decline in consumer purchases. [5]. However, industry players are confident that the Indian government will take a balanced view on taxation.

With growth of carbonated soft drinks slowing down in the U.S., and an emerging urban middle class in developing nations such as India and China, with presently low per capita consumption of soft drinks, we believe these developing markets have a huge potential for growth for Coca-Cola.

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Notes:
  1. Premium products, online sales to drive Coke in India, rediff.com, October 10, 2015 []
  2. Coca-Cola India bucks FMCG slowdown trend, Business Standard, December 14, 2015 []
  3. Are soft drinks still a big market in Asia – or anywhere?, Futureready Singapore, July 2015 [] []
  4. Global Beverage Forecasts, Canadean.com, March 2013 []
  5. GST: Coca-Cola India says may have to shut factories if new “sin tax” passed, Economic Times, December 11, 2015 []