Coke sees China as No. 3 market
No. 1 soft-drink company expects to reach the goal by
'08 as traditional markets reach saturation.
November 12, 2004
SHANGHAI (Reuters) - Coca-Cola, the world's top soft drink maker, expects
China to become its third-largest market by 2008, executives said Friday, as
it embarks on an expansion to try to offset a slowdown in mature Western
markets.
Coca-Cola Co. (Research), which counts the country as its fifth-largest
market by sales, has struggled for years to revive sluggish soft drink
sales. It lowered its key long-term earnings and revenue targets Thursday,
causing its stock to fall as much as 3.8 percent at one point.
The company, which vies with PepsiCo Inc. (Research) and claims a leading
53-percent slice of China's carbonated soft drink arena, is turning to
emerging markets to combat a prolonged downturn in America, Germany and
other major markets.
Coca-Cola will add to the $1.2 billion it and its partners have invested in
the country since 1979, when the company returned after a three-decade
absence.
More bottling plants would be built to complement the 34 existing
facilities, Etchells said, saying new plants were being built as far afield
as the dusty northwestern city of Lanzhou.
"My aspiration is to lead the China division to become the third-largest
market in the global Coca-Cola system by 2008," Paul Etchells, the company's
China president, told reporters.
"Ultimately we do see our business expanding into rural China. We want to
cover the country in its entirety," the British executive said at the
company's China headquarters in an eastern industrial suburb of Shanghai.
To move up from its current number-five ranking, China would have to outsell
Brazil and Japan, moving up behind the United States and Mexico.
Tough nut to crack
China has proved a tough market to crack for beverage makers due to a
die-hard tea-drinking culture and a traditional aversion to cold drinks
believed by many to be bad for one's health.
The average Chinese takes in just eight soft drink servings a year, versus
150 in Hong Kong, executives said. Indeed, packaged teas comprise 35 percent
of the soft drinks market in China.
That hasn't stopped Pepsi and partners investing over $1 billion. Coke also
competes with private beverage maker Hangzhou Wahaha and its "Future Cola,"
and other drink makers from Taiwan's Tingyi to Uni-President.
Coca-Cola and Pepsi also have embarked on a marketing blitz, signing up
stars from Taiwanese girl band S.H.E. to Hong Kong heartthrob Aaron Kwok, in
an effort to attract younger consumers.
Still, Etchells said China contributes a single-digit percentage to
Coca-Cola's global revenues, which hit $5.66 billion in the third quarter.
He declined to give a breakdown for China.
China sales grew 20 percent by unit case volume during the third quarter.
Etchells said he expected double-digit growth to be sustained over the next
few years.
But few Chinese customers will pay premiums for specific brands, which is
partly why a 500-ml bottle of Coke sells for about three yuan, or 36 U.S.
cents, in China, comparable to other beverages in the country's
20-million-ton a year bottled drinks market.
"We've invested quite a lot of money in putting refrigeration equipment in
the market. But that's a change which will occur over time -- it's almost a
generational thing," Etchells said.
"And I'd expect us to do more in tea."
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