$3bn Russian investment makes perfect sense for Coca-Cola, analyst

By Ben Bouckley

- Last updated on GMT

Related tags: Coca-cola company, Investment

$3bn Russian investment makes perfect sense for Coca-Cola, analyst
Coca-Cola’s continuing expansion in Russia makes sense from an economic standpoint, while the risks to consumer goods firms of doing business in the country are over-estimated, according to an analyst.

Coca-Cola and its bottling partner, Greek-based Coca-Cola Hellenic, announced plans yesterday to invest $3bn in Russia over the next five years, as it opened a new bottling plant in the country’s Rostov region.

Coca-Cola chairman and ceo​Muhtar Kent said yesterday that the drinks giant would continue to invest in Russia “to create jobs and stimulate growth across our supply chain”.

“Today’s announcement underscores the Coca-Cola’s system’s long-terms strategy of investing in Russia. The Coca-Cola Company along with our bottling partner, Coca-Cola Hellenic, will invest in Russia more than $3bn in 5 years from 2012 to 2016."

Following the opening of the $120m Rostov plant – which will employ 422 staff and can produce 450m litres of beverages a year within a 26.5 hectare area – Coca-Cola had now invested $3bn in the US economy, the company said.

Russian investment risk?

Worldwide, Coca-Cola and its bottling partners plan to invest almost $30bn over the next five years to support anticipated growth, from new distribution systems to marketing investments in emerging economies.

Richard Hall, founder and chairman of food and beverage research consultancy Zenith International, told BeverageDaily.com that the Russian development plan made perfect sense for Coca-Cola.

“Almost all international businesses believe that the greatest growth will come from beyond the developed markets of the US and western Europe," ​he said.

“So yes it is wise to be investing strongly in the emerging markets, particularly those with the largest populations and the greater prospects of significant growth in the number of people earning more for discretionary spending.”

So were there any risks related to investing in Russian nowadays, given UK oil firm BP’s problems with state-owned Gazprom. “My view there is that oil is a strategic national interest for a country such as Russia, where as soft drinks is much more about freedom of consumer choice,”​ Hall said.

He added that he thought the risks for the major multi-nationals were much lower in relation to consumer goods than in natural resources.

Meanwhile, Hall said it was "evident that Coca-Cola is thinking strongly about its promise to double volume sales by 2020 ​[under the terms of its 2009 '2020 Vision'] and has stated that it’s on track to achieve that, and Russia will be a key contributor to that.”

Asked about current growth levels in the country for Coca-Cola, he added: “Russia has certainly achieved better than average growth, but it has also been quite volatile in any particular year. And there’s the undeniable reduction in the Russian population. But the prospects remain strong.”

Doing business in China

Kent said in a speech at the Clinton Global Initiative conference in the US yesterday that, “in many respects”,​ it was easier doing business in China, where companies had a “one-stop shop”​ in terms of arranging investments via the nation’s foreign investment agency.

Meanwhile, King said political problems and a problematic tax structure had made the US - where Coca-Cola is investing $1.3bn throughout this year - less competitive for Coca-Cola.

Referring to the speech, Hall said: “I wouldn’t disagree that in terms of volume, the Coca-Cola company has a high dependency on the US. Its dependency for profitability is much lower on the US. And a lot of international companies are planning to rebalance their portfolios according to the future opportunity.

“That means the international markets profitability percentage will grow – no doubt in Russia along with China, which is the focus of attention in today’s news. Plus other countries from Brazil to Indonesia.”

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