India on Coke Diet!
Sumith is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Consider a market that is 1.2 billion strong yet still in its nascent stage when it comes to adopting aerated drinks. It is with the aim of tapping this huge market potential that Coca-Cola (NYSE: KO) has decided to announce the investment of $5 billion in its Indian operations by 2020. Thirty-five years after it had to exit the country due to the prevalent government policies at that time, Coca Cola is marching on in India full steam.
India like many countries in the emerging markets is also undergoing slow growth due to the current prevalent economic crisis. Its growth rate has slowed down to between 5 and 6 percent. But that is still better than many developed economies which have flat or negative growth. With its ever growing and burgeoning middle class, whose aspirations has attracted many big ticker investments from consumer companies, it was just a matter of time for Coca Cola to set things in motion in India. The Indian pie perfectly fits into Coca Cola's plan to double its revenue and volume by 2020.
Giving Coca-Cola a tough fight in the Indian Market is none other than the fellow American rival Pepsico (NYSE: PEP). Both of them dominate the Indian carbonated Soft drinks market, with Coca-Cola accounting for 60% of the retail value sales compared to 37% for Pepsi.
Both the cola companies have huge investments in India already to the tune of $4 billion making them one of the largest source of foreign investment in the country. Taking their combined furture invetments into perspective, the final figure looks a towering $8-9 billion in the next few years. This huge interest also has to do with the Cola market in India. Last year, the market consumed one billion cases. There are 93 cola factories which do the honors of manufacturing the cola drinks. Close to 10,000 trucks ferry fresh bottles to retailers and empty bottles to factories every day. So in spite of all the controversies over the ground water level and pesticides from these factories, both the cola giants march on relentlessly. That’s perhaps because India is the final frontier for the two cola giants considering that in the US, opposition to the colas is at an all-time high.
Ideally speaking once you take your eyes from the US, shouldnt the next fixation be China? China ought to have been the next logical stop. But strong local brands (of Tingyi ad Wahaha Group) have made it a tough market to crack for Coke and PepsiCo. As a result, their share is below 25 percent in China.
However when it comes to India, the picture changes completely. The Indian beverages market has grown at 16-20 percent per annum in the last 3 years. It's now valued at approximately 4 billion dollars in size. The per capita consumption is still far less than global average of 90 bottles, sitting far lower at 12 bottles per annum. The beverages market services less than 25 percent of the billion plus Indian populance. Furthermore the Cola's have less than 5 percent share of the food and beverage requirements for a average Indian. Considering these low numbers both the Cola companies hope for a huge upswing in demand, almost a billion more potential customers.
On the one hand while Coca Cola aspires India to be among the top five countries in their entire global business by volumes, for Pespico its already there. Yet India's share is only 4 percent of the global market. Therefore it's safe to conclude that the near and far term growth opportunity is huge for both companies.
sumith123 has no positions in the stocks mentioned above. The Motley Fool owns shares of The Coca-Cola Company and PepsiCo. Motley Fool newsletter services recommend PepsiCo and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.