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.
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.
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.
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.
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.
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.