Coca-Cola Plans China Investment
by: James T. Areddy, Mike Esterl
Aug 19, 2011
Click here to view the full article on WSJ.com
TOPICS: Foreign Investment Opportunities
Coca-Cola Co. Chairman and Chief Executive Muhtar Kent said Thursday that the
Atlanta soft-drink giant plans $4 billion in new spending in China over the next three
years, the latest big investment commitment by multinational food and beverage groups
targeting the world's No. 2 economy.
In an interview with The Wall Street Journal, Mr. Kent said the investment would be
used to add bottling plants, expand some existing facilities and fund initiatives in
distribution, marketing and the development of new cold drinks. "It's our third-largest
global market, growing at double-digits," he said.
Not on Coke's China agenda, however: acquisitions. "It's no longer on our radar screen
because we're seeing so much potential for organic growth," Mr. Kent said.
Coke and rival PepsiCo Inc. have been investing heavily in China, where each company
is enjoying double-digit volume growth rates as the consumer class grows in the country
with the world's largest population, helping offset slowing sales in their U.S. home
market. Last year, PepsiCo earmarked a three-year, $2.5 billion program for its snacksand-beverage business in China that includes new plants and even potato farms, on top
of $1 billion invested since 2008.
U.S. fast-food chain McDonald's Corp. has plans to expand its number of stores in
China to 2,000 by 2013, from the current 1,300. And last month, Swiss food giant Nestlé
SA bid $1.7 billion for Chinese candy maker Hsu Fu Chi International Ltd.
Coke—whose largest markets are the U.S. and Mexico, respectively—says China
accounts for 7% of the company's global sales by volume. The company is nearing the
end of a previous China investment cycle unveiled by Mr. Kent in 2009 that called for
investing $2 billion over three years. In fact, he said Thursday, Coke spent $3 billion. By
historical standards, the investment commitments to China are large: In the three
decades to 2009, Coke spent only $1.6 billion in the country, the company has said
previously.
"You create your fate two or three years before it happens, at least in the way our
business works," Mr. Kent said.
A spokesman for Coke said the company is profitable in China, but declined to provide
more details. Coke's volume in North America was flat in the latest quarter and up only
1% in the first half of 2011, excluding new cross-licensed brands.
Enlarge Image
Coke is to invest $4 billion in China during the next three years. Above, Coke machines
in Beijing in 2008.
Mr. Kent indicated reinvested profits will power some of the new spending in China,
saying "we generate a lot of cash." Some of the investment will also come from
ventures with the company's bottling partners in China, Swire Beverages Ltd. and Cofco
Coca-Cola Beverages Co.
In China, Coke plans more initiatives such as the locally developed Minute Maid Pulpy
orange drink, its first $1 billion brand born in a developing nation, and which is now sold
in more than 30 countries. "We don't see China only as a great growth market. We see
China as a future market for further innovation that will benefit our business globally,"
Mr. Kent said.
But the 59-year-old executive has faced hurdles in China since becoming CEO in July
2008. Months after Coke co-sponsored the 2008 Beijing Olympic Games and its
controversial torch relay, its $2.4 billion agreement to buy privately owned Huiyuan
Juice Group Co. was rejected in March 2009 as anticompetitive by China's Ministry of
Commerce.
In retrospect, Mr. Kent said Thursday, Coke has achieved "clear leadership" in China's
juice market on its own. "Are we looking for acquisitions in China? We're focused on
organic growth because we see so much potential in China," he said.
With Coke coming off a 23% rise in China sales volumes for its trademark brand during
the latest quarter, its best since 2004, Mr. Kent plans to open the company's 42nd
bottling plant in China, in northern Liaoning province, in November. PepsiCo too is
focusing on lesser-developed parts of China in its drive to add about a dozen new
plants.
Beverage Digest, a U.S. trade publication and data service, estimates Coke had a
60.1% share of China's carbonated-soft-drink market last year, followed by PepsiCo
with 34.6%.
Enlarge Image
Muhtar Kent, chairman and CEO of Coca-Cola, said the company plans to invest $4
billion in China over the next three years.
The Coke executive sidestepped specifics about rising prices of corn, sugar and other
commodities, saying the company has options to deal with those matters—including
price and productivity increases. "What we are facing is faced by all food producers," he
said.
Recent gains in China's yuan exchange rate have had no effect on Coke's operations,
he said.
Like a number of multinationals, Coke is "actively talking" to authorities in Shanghai
about the possibility of listing its shares on the Shanghai Stock Exchange, Mr. Kent
said, but he added that nothing is imminent.
Questions:
1. How much does Coca Cola plan to invest in China over the next three years?
How does the soft-drink giant plan to spend the money?
2. Why is this investment plan significant?
3. What are Coke's top three markets?
4. At what rate is Coke's volume growing in China?
5. How will Coke fund its new investment plan in China?
6. What was the share of Coke in carbonated soft-drink market in China last year?
What was the share of its rival?
7. Given the current economic environment, how does Coke’s investment in China
advantage/disadvantage the U. S. economy?
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Coca-Cola Plans $4 Billion China
Investment
by: James T. Areddy, Mike Esterl
Aug 19, 2011
Click here to view the full article on WSJ.com
TOPICS: Foreign Investment Opportunities
SUMMARY: Coca Cola, Atlanta-based soft- Redesigned ProfessorJournal.com
drink giant, plans to invest $4 billion in new
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spending to add bottling plants, expand
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over the next three years. This plan is the
latest big investment commitment by a
multinational food and beverage company in China which is Coke's third largest global
market, after the U.S. and Mexico. Coke is enjoying a double-digit volume growth rate
that is helping to offset sales in their U.S. domestic market. The soft-drink giant will
reinvest some of its profits to fund new spending in China. Coke had a 60.1% share of
China's carbonated soft-drink market last year, followed by its rival, PepsiCo, with 34.6%.
CLASSROOM APPLICATION: The students will learn that Coca-Cola will invest $4
billion in new spending in China over the next three years. Coke is enjoying a doubledigit volume growth rate that is helping to offset slowing sales in their U.S. domestic
market. The soft-drink market will reinvest some of its profits to fund new spending in
China.
QUESTIONS:
1. (Advanced) How much does Coca Cola plan to invest in China over the next three
years? How does the soft-drink giant plan to spend the money?
2. (Advanced) Why is this investment plan significant?
3. (Introductory) Rank Coke's top three markets?
4. (Introductory) At what rate is Coke's volume growing in China?
5. (Advanced) How will Coke fund its new investment plan in China?
6. (Introductory) What was the share of Coke in carbonated soft-drink market in China
last year? What was the share of its rival?