Coca-Cola May Boost China Investment, Chief Executive Kent Says

Muhtar Kent, chairman and CEO of Coca-Cola Co.
Muhtar Kent, chairman and chief executive officer of Coca-Cola Co. Photographer: Doug Kanter/Bloomberg

Coca-Cola Co., the world’s largest soft-drink maker, is likely to increase spending in China as it invests a planned $2 billion faster than anticipated, Chief Executive Officer Muhtar Kent said.

“We’re ahead of our projections in investments,” Kent said in an Oct. 29 interview in Hohhot, Inner Mongolia. The Coke and Minute Maid maker will probably spend “a little more” than the $2 billion it earmarked for China from 2009 to 2011, he said.

Coca-Cola, whose Sprite is China’s top-selling soft drink, is building plants in the world’s most populous nation at a faster pace than it expected. Rivals including PepsiCo Inc. are also expanding in the China, where the soft-drink market grew 11 percent last year, according to Euromonitor International.

“There is a lot of wealth growth in western and central China, so there is a lot of room to grow as Coca-Cola’s presence there is relatively small,” said Ben Cavender, a Shanghai-based analyst at China Market Research Group.

Coca-Cola on Oct. 29 opened its 41st bottling plant in China. The $17 million facility in Hohhot, capital of the Inner Mongolia Autonomous Region, was supposed to be the 39th, according to a statement last year.

The Atlanta-based company accelerated investment on bottling plants, its distribution network and a $90 million research and development center in Shanghai, Kent said. He declined to predict how many plants Coca-Cola would have in China next year.

Fanta, Glaceau

The beverage maker, whose brands include Fanta, Nestea and Glaceau Vitaminwater, may spend $240 million constructing three plants in China this year, bring the total to 42. It opened one facility in Hunan on Oct. 28 and will open the third in Guangzhou later this year, Kent said.

Coca-Cola rose 0.2 percent to $61.32 in New York Stock Exchange composite trading Oct. 29 and has gained 7.6 percent this year.

It seeks expansion in China’s less-developed areas, where the potential for growth may be greater. Per-capita disposable income increased faster in the first quarter in Inner Mongolia, Hubei, Tianjin and than in Shanghai or Beijing, according to data from the National Bureau of Statistics and Bloomberg calculations.

“This is a logical expansion and something we’ll see a lot of in the future,” China Market Research Group’s Cavender said.

Market Share

Coca-Cola has the biggest market share of soft-drink makers in China with 17.5 percent, according to data from Euromonitor International. Taiwan’s Ting Hsin International Group ranks second with 11 percent.

Coca-Cola has 55.3 percent of the carbonated drinks market while PepsiCo has 33.1 percent, according to Euromonitor. Its Minute Maid brand leads the fruit and vegetable juice market with a 12.3 percent share at the end of last year, the researcher said.

PepsiCo in May this year pledged to invest $2.5 billion by 2013 in China, including spending on research and development, marketing, and as many as 12 new soft-drink plants. That was in addition to the $1 billion expenditure it announced in 2008.

Coca-Cola said earlier this month that volumes in China expanded 12 percent in the third quarter, on par with the increase of its Eurasia and Africa group, which is the fastest-growing unit.

Coca-Cola Consumption

Annual per-capita consumption of Coca-Cola drinks in China was the equivalent of 32 8-ounce bottles in 2009, quadrupling over a decade, according to data on the company’s website. The world average grew 30 percent to 86 servings in the same period while top-ranked Mexico increased by 56 percent to 665 bottles.

Kent estimated 1 billion customers will join the middle class in the next 10 years. "A big portion of these will come from China -- 30 to 40 percent of these are going to be generated in China. That will support our business growth dramatically."

He is increasing investments in developing countries as part of a plan to double, by 2020, last year’s revenue.

The $2 billion Coca-Cola set aside to invest in China from 2009 through 2011 is equal to the amount the company spent in three decades since returning to the Asian nation in 1979.

Kent said the company had no plans to acquire rivals in China after regulators last year blocked its acquisition of China Huiyuan Juice Group Ltd. “We are focused on our efforts to grow our business organically in China.”

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