Ventures Dialogue

With the opening of its $90 million (USD) technology center in Shanghai on March 6, The Coca-Cola Company (Coke) also announced it will invest $2 billion in China over the next three years on bottling plants and distribution infrastructure, sales and marketing, and research and development. 

Over the past 30 years, Coke has invested $1.6 billion in the Chinese Market and has good reasons for doing so.  China is Coca-Cola’s fastest growth market and its third biggest market (after the US and Mexico) says Muthar Kent, Coca-Cola’s chief executive officer in the article “Coca-Cola to invest more than $2 bln in China over next three years” from SINA English.  The article noted globally, Coke posted a five per cent growth in the fourth quarter of 2008 with both sparkling and still beverages, but in China, it posted a 29 per cent gain (19 per cent for the year as a whole).  This represents the largest percentage increase in more than five years (21 consecutive quarters).  Compared to Coke’s North American market, their annual report showed that sales declined by 1 per cent in 2008.  

This $2 billion investment is not the only big move Coke is pursuing in China.  Last September, Coke announced its intention to purchase China Huiyuan Juice Group Ltd, China’s leading pure juice maker. China Huiyuan captures about 42 per cent of China’s fruit juice market. The offer is not final, as according to Anti-Monopoly laws, the deal has to be approved by the Ministry of Commerce.  While there are some tensions rising due to nationalistic pride, because if this deal goes through, it would be the largest acquisition of a domestic company by a foreign firm, a decision is expected by the end of the month.

Coke is not the only beverage giant to show an interest in China.Pepsico announced plans in a November 2008 press release to invest $1 billion in China over the next four years.  As well, Japan’s Asahi Breweries, Ltd. paid $667 million for an almost 20 per cent stake in Tsingtao Brewery Co., China’s biggest beer company in January.  Of the two beverage giants, in China, Coca-Cola represents 54 per cent of the soda market, and Pepsico 31 per cent, this is according to Euromonitor International, a research firm.

Photo by maestropastelero