Why Coca-Cola's Investments in Emerging Markets Are Right on the Money

Coca-Cola's plan for future growth won't be accomplished without investing in underdeveloped nations. Fortunately, management is up to the task.

Jun 21, 2014 at 2:00PM

The ongoing soda war between Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) has reached a standstill, at least in North America. Simply put: the domestic market is just about as saturated as it can get. Growth in the United States is especially hard to come by, as it's a good bet you can find Coca-Cola or PepsiCo products in virtually every household across the country.

But that doesn't mean the war is over; far from it. In fact, a new battle is being waged far across the globe. As both Coca-Cola and PepsiCo see flat-lining volumes in the United States, they're looking elsewhere for growth. Fortunately, there's tantalizing potential to be found in the emerging markets.

Underdeveloped nations in the Middle East, Africa, and Asia are growing much faster than their Western counterparts. Populations are rising fast there, and as these economies mature, it means tens of millions of new entrants into the middle class.

Seeing these demographic shifts, Coca-Cola has upped the ante abroad. The company recently announced a new round of significant investments targeting emerging markets. Along with its 2020 Vision plan, Coca-Cola has made it abundantly clear it intends to win on the battlefield of emerging markets.

Coca-Cola plants its flag
Coca-Cola recently announced it will invest $500 million over the next three years to build five new factories in Egypt and Pakistan. In an interview with Reuters, Coca-Cola's Middle East and North Africa president said the company sees double-digit growth potential for these markets over the long term.

This is a wise move, since the potential in rapidly growing markets is too great to ignore. Coca-Cola definitely has room to expand in these countries. Last year, just 15% of its case volume came from what it terms Eurasia and Africa. North America remains the company's largest geography, as it made up 21% of its case volume in the period.

Maintaining North America as its biggest business is problematic because there isn't much growth left here. Last year, unit case volume was flat in North America. The best results came from Eurasia and Africa, where case volume grew 7%.

Emerging markets set to outperform
Coca-Cola's investments build on its long-term strategic growth plan, which management laid out in its 2020 Vision. According to company estimates, growth in the beverage industry will be fueled by global expansion.

As emerging economies develop, there will be a broad shift toward urbanization and middle class expansion. To that end, Coca-Cola expects 20% growth in the global urban population and 50% growth in the number of people entering the middle class across the world.

Not surprisingly, PepsiCo has followed suit in recent years and is also busily building its business in underserved nations. PepsiCo operates in more than 200 countries. It holds 22 global brands, which are its biggest sellers. These 22 brands each collect $1 billion in worldwide sales every year. Just a few of them include Pepsi, Quaker, Gatorade, and Lipton.

And, like Coca-Cola, PepsiCo's international segments are growing much stronger than its North American divisions. For example, PepsiCo's beverage volume shrank by 2% last year in both the Americas and Europe. By contrast, beverage volume jumped 7% in its Asia, Middle East, and Africa segment.

Coca-Cola has the right strategy in mind
Coca-Cola's decision to accelerate its already-significant investments in the Middle East and Africa is a sound strategic move on the part of management. The company estimates most of the growth in the industry will come from developing nations across the world because those economies are expanding much faster than saturated markets such as the United States.

Coca-Cola still has room to grow abroad since the United States still represents its biggest-single geographic region. That's why investors should be excited about Coca-Cola making such sizable investments in building new factories and growing its business in emerging markets.

Warren Buffett's biggest fear is about to come true
Warren Buffett just called this emerging technology a "real threat" to his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. It won't be long before everyone on Wall Street wises up, that's why The Motley Fool is releasing this timely investor alert. Click here to learn more about what's keeping Buffett up at night and the one public company we're calling the "brains behind" the technology.

Bob Ciura owns shares of PepsiCo. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information