Coke Tries to Fizz to $75 with Freestyle Options, Indian Expansion

December 15th, 2011 by Trefis Team
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KO: The Coca-Cola Company logo
KO
The Coca-Cola Company

The Coca Cola Company‘s (NYSE:KO) Freestyle soda got a major boost as Burger King plans to install the high tech machine in all of its 850 company owned restaurants. Freestyle soda machines let users choose from more than 100 different flavor combinations and feature a touch screen. Burger King will also offer its franchisee restaurants the option to install the machines on a voluntary basis. [1] Coca Cola currently competes with companies like Pepsi (NYSE:PEP) and Dr. Pepper Snapple Group (NYSE:DPS).

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Burger King Not Alone

Freestyle soda machines were first introduced in Firehouse Subs in February earlier this year. After the initial success, the restaurant chain now plans to install the machines in all of its 400 outlets across the country. Similarly, Freestyle was introduced at Moe’s Southwest grill in March. The restaurant chain now plans to install the machine at 100 outlets by fall. Initial response has been positive with Firehouse reporting increased customer traffic, which resulted in a double digit sales growth. [2]

The introduction of Freestyle machines comes at a critical time which has seen the Carbonated Soda Drink (CSD) market steadily decreasing over the last few years in which Coca Cola has just about managed to maintain its market share. The introduction of these machines will give the consumers the option to experiment with new flavors or go for the healthier Diet versions all under one hood. They will also offer Dr Pepper Snapple drinks with which Coca Cola has a bottling agreement. Having a first mover advantage can also significantly increase Coca Cola’s CSD market share.

India Expansion

Meanwhile, the company also plans to set up an independent business channel to innovate and distribute beverages in the non-fizzy drink segment in India. The non-fizzy drink segment, comprising of juices, energy drinks, powder drinks and mixers, is growing at a rapid pace in India. The company’s current portfolio of fizzy drinks will continue to be sold through firm’s existing distribution networks. [3] The news comes a month after the company announced to spend $2 billion in India over the next 5 years.

We estimate a $75 price for Coca Cola, which is more than 10% higher than the market price.

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Notes:
  1. Burger King Putting Coke Freestyle Machine at All Company Stores, WSJ, December 6, 2011 [↩]
  2. With addition of Freestyle machines, Burger King will offer customers 100+ beverage options, Jacksonville, December 9, 2011 [↩]
  3. Coca-Cola creating independent unit for non-fizzy drinks, ET, December 9, 2011 [↩]