Emerging markets are getting thirsty. PepsiCo (NASDAQ:PEP) just announced it would pour $5.5 billion into India over the next few years as it builds out its manufacturing capabilities that will see it double production there within seven years.
The announcement comes just days after Coca-Cola (NYSE:KO) said it was investing more than $4 billion in China to build factories between 2015 and 2017, which is in addition to the $4 billion it's spending in the country between 2012 and 2014.
The investments come as both beverage makers experience difficult environments in the Americas, particularly in Latin America. Pepsi's revenue there declined 4.5% in 2012 and was down 2% last quarter. While Coke has done somewhat better in Latin America, with sales rising 3% last year, third-quarter sales were essentially flat and case volumes dropped 3%. With Mexico just approving a tax on soda that backers say ought to curtail consumption anywhere from 16% to 24%, and with the country representing the bottlers' largest market in the region, it could be a trying time south of the border.
China, however, represents the next largest market for Coke, and Pepsi says the country is poised to become the world's largest beverage market by 2015. Whereas consumption of carbonated soft drinks has declined in developed countries, affecting all bottlers -- Beverage Daily recently reported that Coke, Pepsi, and Dr Pepper Snapple (NYSE:KDP) have seen a 7% drop in diet carbonated drink sales so far in 2013 -- they've been on the rise elsewhere. Coke remains the top drinks leader in China, with a 16% share. Meanwhile, Pepsi is seeing volumes growth in emerging markets elsewhere around the globe: It's enjoying double-digit growth in the Philippines, Pakistan, and India.
India represents perhaps the most compelling opportunity after China, with sales growing at a 4.5% compounded rate. Cola drinks comprise 62% of the market and the analysts at Research & Markets say Coke and Pepsi have a combined market share of 95% there.
Yet as Coca-Cola notes, the average Indian consumes only 12 eight-ounce bottles of Coke a year, compared with 230 in Brazil and 92 bottles elsewhere around the world. The drinks maker had previously pledged to invest $3 billion in India to take advantage of the opportunity.
As volumes decline here at home and tastes change to beverages like juices and energy drinks, Coke and Pepsi have a unique opportunity to slake the thirst of consumers in China and India,which could lay the foundation for future big growth pops.