The Coca-Cola Company (NYSE:KO) recently announced a $4 billion investment in China for 2015-17.  With this move, the company has signaled its intention to take maximum advantage of the fast growing Chinese beverage market. In the first part of this analysis, we elaborated on the growth potential of the bottled water industry in China and how Coca-Cola could increase its volumes in this industry.
In this part of the analysis, we take a look at the opportunities in store for Coca-Cola in the fast growing fruit/vegetable juice market in China. Coca-Cola is already the market leader in this segment, after having trailed the Huiyuan Juice Group and Tingyi Holding Corp in 2011. The Chinese juice market is estimated to generate almost $25 billion in annual revenues by the end of 2017.
We estimate a $44 price for Coca-Cola, which is around 10% above the current market price.
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- Coca-Cola Faces The Sugar-Tax Problem In South Africa
Rapidly Growing Juice Market In China
“Fruit/vegetable juice” market is the largest segment of the Chinese beverage market, worth nearly $14 billion in revenues in 2012. It is also the second largest segment in terms of volumes behind bottled water, constituting almost one-fourth of the market share through September this year.
Growing health awareness among consumers has paved the way for non-carbonated beverages (NCB) such as juice drinks, ready-to-drink teas and sports drinks. The sales of carbonated soft drinks (CSD) have gone down in the developed world, particularly in the U.S., where obesity is one of the major health issues. Even though obesity isn’t a widespread concern in China, soft drink volumes are expected to grow only by a modest CAGR of 3.5% in the next five years.  On the other hand, Juices are becoming popular among calorie sensitive customers as a healthier alternative to carbonated beverages.
The juice market is expected to grow at a higher rate than the country’s GDP in the period of 2012-17, with a projected CAGR of 12.6%.  Coca-Cola will look to capture a majority of this growth, in line with the company’s plan to make China its biggest market. 
Coca-Cola currently leads the juice industry in China with a 16% market share in 2012. In still beverages in the country, Coca-Cola witnessed a staggering growth of 30%, 21% and 16% in 2009, 2010 and 2011 respectively. This surge is primarily driven by the stronghold of Minute Maid- Pulpy and Pulpy Super Milky. In fact, Minute Maid is the first billion dollar Coca-Cola brand to emerge out of China.  Coca-Cola already has bottling plants in all five provinces of North China, and looks to further its reach into the second and third-tier cities by investing more money in the country.
Growth in China could also come from acquiring an established player in the beverage market. However, in this respect, the company might meet some resistance from the government regulations in the country. In 2009, Coca-Cola’s bid to acquire Huiyuan Group failed to meet China’s anti-monopoly law. The local Huiyuan Group had a market share of ~20% in 2011, and led the fruit/vegetable juice category. The domestic know-how of this local company, coupled with the strong distribution channels of Coca-Cola could have ensured a strategic upper-hand for Coca-Cola in the juice market.
However, Coca-Cola has now established itself as a front runner in the Chinese juice market. With further investments lined up, the company will aim to consolidate, and possibly widen its market lead in the next few years. Even if we assume no new acquisitions, Coca-Cola looks on course to benefit from the anticipated growth of the overall fruit/vegetable juice market.Notes:
- “Coca-cola to invest more than $4 billion in China from 2015-17“, November 7, 2013, businessweek.com [↩]
- “Carbonated soft drinks“, August 2013, datamonitor.com [↩]
- “China-juices“, September 2013, datamonitor.com [↩]
- Coca-cola aims to make China its biggest market soon“, June 2013, euromonitor.com [↩]
- “Coke’s 2020 vision for China“, May, 2011, chinadaily.com [↩]