Is The Acquisition Of AdeS Significant For Coca Cola?

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Recently The Coca-Cola Company (NYSE:KO) announced that together with Coca-Cola FEMSA, it had entered into an agreement to acquire Unilever’s AdeS soy-based beverage business.  The brand, which is currently available in Latin American countries such as Brazil, Mexico and Argentina, generated net revenues of $284 million in 2015. While this number is not significant, compared to Coca Cola’s total revenues of around $40 billion, it marks the company’s foray into a new healthy beverage segment, ensuring that its dependence on soda beverages is gradually being reduced.  The acquisition will also strengthen Coca Cola’s presence in Latin America as the company continues to look for international growth opportunities.

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As the demand for carbonated beverages declines, especially in matured economies, Coca Cola is looking to diversify its beverage portfolio by adding more healthy beverages and strengthening its presence in international markets for growth. In February this year, the company acquired stake in Chi Ltd., a Nigeria based dairy and juice company. (Read How Coca Cola Is Continuing Its Product Diversification Strategy) AdeS is a leading soy-based beverage player in Latin America and Brazil and Mexico are its biggest markets.  This acquisition will give Coca Cola a strong foothold in the region and enhance its product offering.  According to a study by MarketsandMarkets, the dairy alternatives market (of which soy beverages are a part) will grow to around $ 19.5 billion by 2020, indicating the significant potential of this segment. Asia Pacific is expected to be the biggest consumer of dairy alternative products in future.  If Coca Cola is able to expand its soy beverage offering into other regions, based on its experience in Latin America, the company can tap into this growing trend.

Coca Cola witnessed 7% growth in volumes of still beverages (non-alcoholic beverages without carbonation) in Q1 2016, compared to flat volumes for sparkling (carbonated) beverages. This indicates that consumer preferences are tilting towards healthier beverage options as opposed to carbonated soft drinks.  PepsiCo, Coca Cola’s closest competitor, is also working towards creating a healthy beverage portfolio with options such as organic Gatorade and “Hello Goodness” vending machines that offer a healthy selection of snacks and beverages to consumers.

We believe that, while the acquisition of AdeS is not material in terms of revenues and volumes, it gives Coca Cola a foothold into another healthy beverage segment, which holds strong growth potential in Asia Pacific. As the company continues to diversify its product portfolio to hedge itself from the declining demand of carbonated beverages, this acquisition will provide the much needed enhancement to the company’s product portfolio.

 

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