Coca-Cola (NYSE:KO) believes that driving transactions is the best strategy to follow for consistent growth. The beverage giant believes that this strategy inculcates purchasing habit among customers that in turn drives consistent sales growth. Joseph Tripodi, Coca-Cola’s EVP and Chief Marketing Officer admitted that Coca-Cola made a mistake in the U.S. of riding on volume packs. They focused on volume growth, wherein, they concentrated on selling 2 liter bottles and big packs and simultaneously, were losing out on the younger customers who were looking for smaller and lower priced packs. [1] Coca-Cola competes with companies like Pepsi (NYSE:PEP) and Dr. Pepper Snapple Group (NYSE:DPS).
Our price estimate for Coca-Cola is $75, implying roughly 10% upside to the current market price.
Transactions Over Volume a Wise Strategy
We believe focusing on transactions is a well thought of strategy, especially for emerging nations like India, which have an ever growing middle class and a demographic profile that has a higher proportion of youngsters.
We believe this strategy would be successful, briefly discussed below:
- Coca-Cola is working on offering more affordable packs as that helps in building more transactions. According to Joseph Tripodi, Coca-Cola’s EVP and Chief Marketing Officer, the company has been trying to bring entry level pricing to the Rs 5 mark in India. This would help the beverage giant to penetrate middle class segment and younger generation in these markets.
- More affordable packs also ensure a strong presence in homes. This also justifies with Coca-Cola’s plans to penetrate rural India. Focusing on driving volumes approach would fall flat if it is keen to penetrate emerging economies like India and China. There is a pent up demand for affordable and diverse offerings in these economies.
We believe this strategy would prove beneficial for Coca-Cola as this connects the beverage giant with the middle income segment which possess huge opportunities for growth.
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Notes:
- See: India mission critical for Coke’s 2020 goal, Business Line [↩]
