Business | Economy
Coke to squeeze more from China
Coca-Cola's 47 products in China range from its trademark Coke to Ice Dew bottled water, and nearly everything in between.
- By Robin Kwong and Tom Mitchell, Financial Times
- Published: 23:12 September 5, 2008
Coca-Cola's 47 products in China range from its trademark Coke to Ice Dew bottled water, and nearly everything in between.
Yet Muhtar Kent, the company's new chief executive and president, still saw a gap in the array of products Coke is offering in its fourth-biggest market.
He is now trying to fill it by making a $2.4 billion offer for China Huiyuan Juice Group, the country's biggest juice-maker.
The acquisition would more than double Coke's market share in China's fruit juices market to about 20 per cent, far ahead of its next closest rival, according to market research firm Euromonitor International.
The move is part of Coca-Cola's global drive to expand its portfolio of beverages beyond fizzy drinks, Coke's traditional strength, a strategy that has included buying Russia's second largest juice maker, Multon, three years ago.
China's non-alcoholic drinks market has grown by 82 per cent in the past five years to $32.7 billion at the end of last year, but of that fruit juice sales have grown by 160 per cent over the same period.
"Especially in the past two years, Chinese consumers are increasingly choosing healthy drinks such as juice or tea," says Michelle Huang, a Shanghai-based analyst at Euromonitor. Carbonated drinks account for about three-quarters of Coke's China business and are managed through a network of provincial bottling companies.
The bottlers, which source concentrate from a Coke plant in Shanghai, are responsible for production, sales and marketing. Coke's two main China bottling partners are Swire, the Hong Kong-based conglomerate, and Cofco, a state-owned grains and oils giant.
Two years ago, Coke agreed to acquire its third major China bottler, Kerry Beverages, from Robert Kuok, the Chinese-Malaysian tycoon.
But as in other parts of the world, Chinese consumers are increasingly turning to the company's non-carbonated drink products, including the best-selling Minutemaid.
This side of the business also encompasses tea, water, milk, coffee and sports drinks.
"It's a good move for Coke," one person close to the company said of its move on Huiyuan.
First major test
"They can't turn 1.3 billion Chinese into US-style Coke drinkers because they are very keen adapters of international trends."
Yet Coke's efforts with Huiyuan could still come to nothing if Beijing vetoes the deal.
While food and beverages companies are not as strategically sensitive as the steel sector, where China has frequently scuttled deals, not all Chinese welcome the foreign takeover of a successful home-grown brand.
The deal would also be the first major test of China's new anti-competition policy, enacted last month.
An online poll conducted by internet portal sina.com, Wednesday, showed 82 per cent of 52,000 respondents opposed the deal, saying it would be an example of foreign capital destroying a "cultural pillar".
"It's still a long way to go," said one person involved in the transaction.
"We take these [approval] processes very seriously and there's not a lot of precedents for them."
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