22 October 2008 - Soft drinks giant the Coca-Cola Company, in last week's Q3 financial statement, said it was feeling the drop in US consumption resulting from a cut back in spending. However, the company reported a better-than-expected 14% rise in quarterly profit helped by strong international demand that offset declining sales at home.
“Our International operations, in particular the emerging markets, continue to drive our growth, more than offsetting the challenges that we are addressing in North America. We anticipate that the operating environment, especially in North America, will continue to be challenging as we finish 2008 and move into 2009”, said Coca-Cola Company’s Chief Executive Officer Muhtar Kent.
The current turmoil in international markets may be a hard pill to swallow, but will not materially change the soft drinks industry’s prospects, Kent said at an industry conference in Las Vegas on Monday.
In fact the US non-alcoholic and ready-to-drink beverage market is expected to grow faster than other consumer businesses such as alcoholic drinks or cosmetics.
The Coca-Cola President added that over the next several years the global USD 650 billion non-alcoholic and ready-to-drink beverage business is expected to grow faster than the world’s GDP. By 2020, the industry will likely be a trillion dollar industry.
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The Coca-Cola President added that over the next several years the global USD 650 billion non-alcoholic and ready-to-drink beverage business is expected to grow faster than the world’s GDP. By 2020, the industry will likely be a trillion dollar industry.
Kent argues that Coca-Cola and the US soft drinks industry will benefit from natural growth factors.
Firstly, he points out to the increase in middle class consumer numbers. In BRIC countries, the middle class population is expected to grow by 700 million people by 2020. Along with the 250 million in other developing nations and another 50 million in the US, Kent sees huge potential in the forecasted 1 billion new consumers. |
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Middle class growth combined with increasing urbanisation is what the Coke CEO identifies as the second natural growth factor. It is expected that 65 million people will migrate to urban centres per year - “The equivalent of adding a city the size of Los Angeles to the world every 80 days”, illustrates Kent.
The third and last factor contributing to the beverage industry’s growth is the natural conversion to ready-to-drink beverages, which comes in tandem with growing middle-class and urban lifestyles. Simply, a wealthier and growing population which will adopt city lifestyles and eating habits will be in the need of convenience of easy and ready-made beverages.
Kent argues that each year about 5,000 new non-alcoholic beverages are launched in the US. This, itself, has big potential. Meanwhile, Coca-Cola’s international portfolio consists of 500 brands and more than 2,500 products.
The Coca-Cola CEO believes that the main segment for growth in non-alcoholic beverages is sparkling drinks, for which he provides the example of Coca-Cola Zero, the company’s biggest product launch in 22 years. Sparkling drinks, described by Kent as “the oxygen of the industry” will be the main contributors the US beverage sector’s growth.
With such attractive prospects, Coca-Cola believes there is no need to expand out of the soft drink category.
Kent said that analysts, with whom he had discussed about the InBev-Anheuser Busch deal, had asked him about the possibility of Coca-Cola expanding beyond non-alcoholic beverages into areas like alcoholic drinks, and he replied “No”.
“As a system we have always been and always will be in the business of non-alcoholic and ready-to-drink beverages. This is where we excel. This is what we do best”, he said.