Recently, world’s largest global producer and marketer of beverages, The Coco-Cola Company (KO) entered into a multi-year partnership with leading multichannel retailing giant HSN, Inc. (HSNI) that includes the interwining of Coca-Cola brand into HSN’s events throughout the year including festive occasions.
According to the agreement, Coco-Cola products will be endorsed through all HSN programs and will be available to consumers through its multiple digital platforms like cable channels, online, mobile applications and other social media.
In addition, the companies have agreed that HSN products will be available at Coca-Cola’s online store and My Coke Rewards stores. The companies will also conduct a HSN cares campaign with Diet Coke in support of The Heart Truth in February 2013.
The nonalcoholic beverage segment is highly competitive and in order to gain its share of business, the Coco-Cola company needs to focus on promotional activities. Coca-Cola’s advertising spending as a percentage of sales has decreased since 2006 and the company has not been involved in adequate brand building. This has affected company sales and has provided opportunities to its rival PepsiCo Inc. (PEP) to grow in the North American beverage segment. The present acquisition will ensure brand building for the company and will help it to reach out to a larger consumer base.
On the other hand, HSN Inc. is one of the leading multichannel retailers with large consumer base. The partnership will enable the company enjoy the benefits of the strong brand power of Coca-Cola.
We are encouraged by The Coca-Cola Company’s global reach, strong brand power, expanding presence outside the U.S. and its solid cash position. Moreover, the company’s strategy of growing through acquisitions and its productivity initiatives are expected to result in significant cost savings and improved productivity in the near future. However, soft economic conditions and a tough currency environment ahead concern us.
Currently, we have a Neutral recommendation on The Coca-Cola Company over the long term. The Coca-Cola Company carries a Zacks #3 Rank in the near term (Hold rating).
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