Coca-Cola looks to China for future growth

Related tags Coca-cola Soft drink United states China

A slump in international sales means that Coca-Cola is set to
switch its focus to the China market in an effort to sustain
growth. The company said that with current economic growth
continuing apace, China should be its third biggest market by 2008.

The company says it wants to invest heavily in developing the potential of the China market in an effort to offset the demise international sales that are expected to remain soft for the foreseeable future.

Coca-Cola​ China's president Paul Etchells told reporters that he wants to increase the geographic coverage of the company's bottling plants. Currently the company has 34 existing production facilities, with a number of bottling plants under construction,including one in far-flung Lanzhou, North West China.

Coca-Cola wants to bring all of its brands, including Coke and Minute Maid, to the 80 per cent of China's 1.3 billion population that live in the countryside. Until now the company's marketing and distribution network has tended to concentrate in the three main urban areas around Beijing, Shanghai and Guandong. But with growing wealth distribution and a rapidly developing infrastructure outside the main urban areas, opportunities are increasing further afield.

However, winning over China's rural population could be easier said than done. Penetration of soft drinks companies has continued to be low, with the sacred tea drinking remaining by far the preferred beverage.

At the end of last week Coca-Cola published a profit warning, lowering its earnings expectations because of falling soft drink sales in both the US and Europe. The company said that it expects is shares to rise 9 per cent during the course of 2006, down on the original goal of 11 - 12 per cent. Likewise the company said it expected sales volumes to rise by 3 - 4 per cent in 2006, down from original expectations of 5 - 6 per cent.

Analysts have voiced concern over Coca-Cola's future growth prospects, citing growing competition from other leading brands in the sector and the gradual switch to other soft drinks that are perceived to be healthier.

But putting too much emphasis on the China market also worries industry observers. The continued growth of the China economy has been astounding, with GDP running at over 9 per cent for the most part of this year. However, it is widely believed that the market is showing dangerous signs of overheating. The consequences of this could well be economic failure if the government's moves to control the speed of growth are not successful.

The consequences of economic failure for Coca-Cola and many other multinationals pinning their hopes on continued growth in China go with out saying.

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