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The Coca-Cola Company Message Board

  • mycrof4 mycrof4 May 7, 1998 12:11 AM Flag

    KO IN CHINA PART 1

    Capturing the giant

    Coke entered the
    Chinese market in 1927 and resumed its operations in
    1979. Since the mid-1980s, Coke has
    made
    systematically big investments in China. The huge nation has an
    exceptional potential and is already the 9th largest market
    for
    soft drinks in the planet. Coke already has 20 % of
    the soft drink market, compared to Pepsi�s 10%, and
    keeps growing at an
    incredible pace. The volume of
    sales roughly double every three years. Coke�s market
    share in China just reflects the world
    battle of the
    soft drink industry, Coke is winning with a 46%
    compared to Pepsi�s 21% share.

    A key strategy in
    entering the Chinese market is to develop the right local
    connections.. Coca-Cola China Ltd. entered the
    market
    through partnerships formed with Kerry Group, one of
    Asia�s solid conglomerates, and Swire Pacific Ltd., a
    diversified
    company with extensive expertise throughout Asia. In
    China, Kerry Beverages Ltd. is a joint venture partner
    with Coca-Cola
    in roughly half of its bottling
    ventures, while Swire Beverages Ltd. is a similar joint
    venture partner in the other half or so.
    Coca-Cola
    sets up its bottling ventures in China as a three-way
    joint venture involving The Coca-Cola Company, a
    major
    Coke bottler (Kerry or Swire) and a local Chinese
    business partner. The Coca-Cola Company generally limits
    its equity
    holding to 12.5% of the venture.
    Coca-Cola and its partners currently are operating 19
    bottling plants and one plant to make
    the concentrate
    in Shanghai. An additional four are scheduled to
    open in 1997. Many of China�s western provinces, are
    still
    without franchises.

    According to company
    information sources, the sales volume roughly doubles every
    three years, quite amazing. The company
    is focused
    on two major objectives to increase sales and market
    share: Improving the distribution system and increasing
    the
    per-capita consumption of its products.

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    • Distribution

      Coca-Cola already reaches
      approximately 900 million of China�s 1.2 billion, and the
      company is developing a distribution
      system to reach
      the 300 million people in less-populated and distant
      areas. The company is putting emphasis on
      developing
      direct distribution through route sales and establishing
      sales centers in smaller cities.

      The two
      giants, Coke and Pepsi, at the moment are just trying to
      supply the increasing demand for its products. They are
      not
      so concerned with the marketing platform and product
      differentiation as in other markets. The main focus now seems to
      be
      affordable packaging and improving distribution. Consumer in
      china currently prefer drinks packaged in cans and
      plastic
      bottles, the non-returnable types. The change to more
      affordable packaging like returnable glass could be an
      important factor
      to increase take-home volume. Shifting
      packaging has very significant implications on distribution
      systems, which are already
      experiencing difficulties in
      efficiency.


      Consumption patterns

      The other way to increase volume
      is to raise the per-capita consumption. The average
      Chinese consumer drinks 17
      eight-ounce servings of
      soft drinks each year and many industry experts expect
      that level will grow to 55 servings in the next
      15
      years. With the power of its brands and its distribution
      Coke will have a strong impact on the diet of the
      Chinese
      population. The company in the last decade, for instance,
      dramatically changed the per-capita consumption of soft drinks
      in the
      Mexican population. At the present, Mexico
      is already the second largest market for soft-drinks
      in the world. Average
      per-capita consumption is
      now around 340 eight- servings a year, the biggest in
      the world. Coca-Cola will increase its
      "stomach
      share" against other liquids such as teas and juices. To
      achieve this, Coke is not only using its well-known
      brands but
      also developing new ones. The company is
      combining its worldwide expertise with extensive local
      research in consumer tastes
      and flavors. It has already
      crated a top-quality local juice brand called Tian Tu Di
      ("Heaven and Earth"), that is available in
      three
      different flavors and will be in five more in the future.
      Most soft drinks in China are consumed on the point of
      purchase,
      like restaurants, parks, etc. Take-home volume is
      small compared to that of other markets. Changing this
      pattern is very
      important to increase consumption.

      • 1 Reply to mycrof4
      • Coke�s focus on soft drinks
        worldwide

        Ubiquity of Coke in China is still far from reality but
        the company is working hard to achieve it.

        Why
        is Coke so successful in China and the rest of the
        world? We have to analyse the company and PepsiCo, its
        main
        competitor. PepsiCo, is diversified into soft drinks,
        restaurants and snacks, while Coke is not. Coca-Cola is the
        number one
        trademark on a global basis, and it
        strengths that every day. Coke concentration in
        international market is different from
        PepsiCo�s. Coke
        generates 71% of its revenues in international markets
        outside the U.S. PepsiCo derives 71% from the
        U.S.

        One of Coke�s key strategies for success in the world
        markets is investing in infrastructure. The company
        methodologically
        invested billions of dollars in consolidated and
        developing markets. This is paying off.

        Coca-Cola�s
        future success in China will depend in part on PepsiCo�s
        attacks. PepsiCo is losing the war. It is losing
        market
        share in every major foreign territory outside the
        U.S., but this trend can be reversed anytime
        soon.

        Impact on China�s economy

        According to a
        Cambridge University of Chinese joint ventures and economic
        reforms, Coca-Cola is having an important
        influence on
        China�s economic development. It is reported that each
        position in a China-based Coca-Cola joint venture
        can
        create six indirect employment opportunities. The
        business has provided tens of thousands of jobs for
        Chinese workers and
        has also helped 40,000 to 70,000
        retail shops in China. Professor Nolan, the sponsor of
        the study, states that the indirect
        job
        opportunities created by each Coca-Cola ventures can be seen
        all over the country.

        The study found that
        Coca-Cola has greatly contributed to the change in China�s
        soft drink production pattern. Before Coke,
        there
        were many scattered and inefficient small factories
        producing unstable-quality products, now there is
        production of
        high-quality products by large modern
        firms. Coca-Cola bottlers have had an impact on domestic
        suppliers in technology,
        labor productivity, economic
        returns and delivery times.

        Coke�s experience in
        China will motivate foreign business to invest there.
        An example of the experience: 98 percent
        of
        materials to make Chinese Coca-Cola products come from
        China.

        The future

        Coke is winning the battle of
        soft drinks in China and the rest of the world, but
        the war is not over. We will watch a unique
        and
        intense fight of two giants to capture the world largest
        population and fast-growing economy. Analysing this
        confrontation will
        be useful not only to future players in
        the beverage industry, but also to many other
        industries and sectors interested in meeting
        the giant.




        References:

        McBride, Sandra, "News
        from China", Beverage World, Sep.1996, p.
        96-98.

        Sellers, Patricia, "How Coke is kicking Pepsi�s can",
        Fortune, Oct. 1996, p. 70-84.

        Stahl, Jack, "Brand
        building, Coca-Cola style", Beverage World, Sep.1996, p.
        131-133.

        Rongxia, Li, "Coca-Cola Expands Market in China",

 
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