The Coca-Cola Company (NYSE:KO) holds the 3rd place rank on the list of the world's most valuable brands name but has not performed well in fiscal year 2013. The company's global volume only increased by 2%, and the total revenues and operating income both declined 2% and 5%, respectively, in 2013. However, the future prospects of the company look good with a solid growth in emerging markets and innovative steps made towards introduce new products in developed markets.
Emerging Markets Exposure
As the global economy recovers, emerging markets like Brazil, China, and India will represent huge growth opportunities for the company.
Brazil is one of the largest markets for the company and contributed nearly 7% of the company's worldwide volumes in 2013. In addition, the country's liquid refreshment beverage market was worth around $43 billion in 2013 and in the future it is expected that the Brazilian market will grow at a CAGR of 6% and reach $54 billion by 2017 due to the improvement in economic conditions and increases in disposable income levels.
FIFA World Cup & 2016 Olympics Will also Boost the Company's Sales in Brazil
Coca-Cola is one of the biggest sponsors of the 2014 FIFA World Cup and 2016 Summer Olympics that will both be held in Brazil. These global events will bring large crowds arriving from all over the world and could increase the demand for cold beverages in the country. The company currently has an approximately 27% market share in the Brazilian beverage industry and it is expected that if company effectively maintains its current level of market share it will be able to generate nearly $3 billion additional annual retail sales by 2017.
The company has a plan to make China its biggest market as part of its 2020 vision and invest over $4 billion in China to build new plants between 2015-2017. Chinese consumers are increasingly opting for healthier alternatives in food and drink and to capitalize on this changing behavior the company's juice market could be crucial for its growth prospects. Juice is the largest category of China's beverage industry and was worth nearly $13.88 billion in 2013. Coca-Cola currently leads the juice industry in China and grew by 5% on a y-o-y basis in terms of volumes. The growth is primarily driven by the stronghold of Minute Maid, Rani, and Minute Maid Pulpy juice categories. With increasing disposable incomes and a growing middle class it is expected that the juice market will continue to grow and reach annual revenues of approximately $25 billion by 2017.
India is currently Coca-Cola's seventh biggest market and the company has a plan to make the Indian market its fifth largest market by investing nearly $5 billion through its 2020 vision. In recent quarter results India contributed nearly 8% in total volume growth and this marked the 30th consecutive quarterly growth for the Indian market. It is expected that with increasing urbanization, the rising middle class, and increasing personal consumption expenditure the Indian market will continue to drive greater demand for the company's beverages.
Developed Markets Exposure
Over the last few years the volume of carbonated beverages sold in the U.S. fell because consumers have shifted their beverage preferences from high calorie and carbonated soft drinks "CSD" to healthier alternatives such as bottled water. Coca-Cola has looked to keep up pace with this current trend by diversifying its portfolio. But unlike the CSD market in the United States where the company accounts for over 40% of the volumes it trails Nestle Waters with a share of only 15% in the fast-growing bottled water market. However Coca-Cola has a strong brand image in the U.S. and also has the distribution networks and relationships in place to get its premium water on shelves across the U.S. I believe that with a good marketing strategy the company will increase its share in the coming years.
In addition, the company has introduced new Coca-Cola products using non-chemical sweeteners like Diet Coke and Coke Zero. Recently Coca-Cola re-launched its zero sugar and zero calories drink, Coke Zero, after nine years. It was first launched in the U.K in 2006. According to the market director of Coca-Cola the "Just Add Zero" campaign is an icon to a new generation.
"This is set to be a massive year for Coke Zero and we are confident that this campaign will help the brand take center stage. Coke Zero has seen a healthy sales growth in the U.K. in a short span of time and now we are making a new edgier direction with a "Just Add Zero" platform which we believe is a life philosophy."
The company's overall performance in 2013 was not satisfactory but the future prospects are looking good. I believe that the emerging markets will provide significant growth in the coming years and improve the company's top and bottom lines. Coke Zero and efficient marketing of the bottled waterline will also boost the company's sales in the U.S. and further strengthen the company's future position in the beverage market. I offer a strong buy recommendation.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: The article has been written by APEX Financial Consultants. This article was written by one of our research analysts. APEX Financial Consultants is not receiving compensation for this article (other than from Seeking Alpha). APEX Financial Consultants has no business relationship with any company whose stock is mentioned in this article.