Why Coca-Cola Is Set to Deliver Strong Growth Ahead

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Dec 04, 2014

I was again made to believe that there are companies which are always investor favorites to since they provide returns despite facing difficulties. The biggest beverage manufacturer, Coca-Cola (KO, Financial), holds its head high without being knocked down by the headwinds of a troubled economy, cold weather and popular cost inflation. It posted great second-quarter results recently which pleased investors and beat the market’s expectations. Let’s delve deeper.

Benefiting due to better pricing

Higher product prices have led to a rise in its revenue. Despite weak demand from the European market, the overall volumes grew by 4% last quarter, affecting the top line favorably. One of the key drivers was the expanding international presence of the beverage giant, especially in emerging markets such as China and India. Coca-Cola has been eyeing India for a long time now and it plans to invest largely in the country over the next few years. In fact, India is not the only target. The company has plans to spend almost $30 billion over the next few years to expand its reach globally. This will add to the leader’s market share which is already ahead of its closest rivals, PepsiCo (PEP, Financial) and Dr Pepper Snapple (DPS, Financial), who lag quite behind.

Smart strategies

Moreover, Coca-Cola has enjoyed volume growth in all segments except Europe where it witnessed a volume drop of 4%. This is because of restrained spending habits of the residents. Also, the cooler weather played a major role to affect the cold drink sales unfavorably. But the company was smart enough to fight this problem by raising the product prices and increasing focus on providing a variety of smaller packages since it gives them higher margins.

This move comes as an answer to its rivals’ strategies of gaining market share. PepsiCo’s attempt to remove the label of cancer warning from its drinks by making its drinks healthier and Dr Pepper Snapple’s introduction of Orangina, a healthy drink in an eco-friendly package, in its key markets are yet to attract benefits before which the giant came in with its big step. It is interesting to watch the fight since the consumers and the nature at large are getting benefited. And positive PR has never been bad for a company.

The biggest beverage maker plans its expansion in India since they want to capture an untapped market where they see a lot of potential. It wants to enjoy the first mover advantage in emerging markets. Another reason behind the move is saturation in developed markets where further revenue growth looks difficult. The consumers in the developed markets are now shifting largely to healthier drinks such as juices and RTD teas from the sweet colas which are bad for health and leads to the most common problem of obesity.

Conclusion

After understanding the initiatives of Coca-Cola and its efforts to fight a list of hardships this company has attracted a lot of attention from investors. Its sustained expansion plans, cost-saving initiatives and strategies to push volumes has won investors’ hearts. Moreover, small hiccups in performance are normal for any company until it is on track and in line with expectations. With the expansion in the emerging markets and its strategy of small packaging this beverage giant looks to have a long way to go.