If Coca-Cola (NYSE:KO) could build a second Great Wall in China, it probably would. Why? To keep out all other competitors in the beverage industry, of course. Wouldn't you want this valuable region all to yourself?
A recent Reuters article reported some good news for Coke in the important China marketplace. Last year, sales grew 16%; so far this year, they have increased by a full 20%. Paul Etchells, Coca-Cola's president of operations in China, indicated in the article that Brazil would be supplanted as the beverage maker's third-biggest territory in a "couple of years." The biggest sales territory is the United States, followed by Mexico.
We've all heard about China's tremendous growth potential. As the nation becomes ever more capitalistic, and as its middle class continues to expand, opportunities for American companies increase in direct proportion. Selling consumer products to the Chinese should bring in a lot of dough, as well as generate lasting brand loyalties. It's often been said that if one is wary of owning foreign stocks, then owning big-cap companies with multiple operations abroad is the next best thing. I'm not going to proffer that Coca-Cola is a pure play on China, but I do believe that Coke gives you some exposure at very little risk.
Think long-term here. Think about what Chinese consumers will be purchasing years from now. Many of the products we use on a daily basis will become more and more relevant to China as time goes on. The country is not just a catalyst of demand for petroleum products -- it'll also bear wonderful tidings for all kinds of companies.
This is a thesis the Fool has covered before. W.D. Crotty found Yum! Brands (NYSE:YUM) to be another low-risk way of betting a portion of one's portfolio on China's prospects. The road isn't always easy, however: Even while the country is attracting all sorts of businesses and expansion initiatives, the investments can still stumble. Plus, Selena Maranjian surveyed the negative side of conducting trade in China.
Nevertheless, it seems that China is a priority for Coca-Cola, PepsiCo (NYSE:PEP), and just about every other entity. The crucial thing for Coke is to ensure that it properly integrates its product lineup into the culture at large; since the company has been at the international game for years and has always focused on local customization schemes, I believe it is up to the challenge. By no means should my positive take on the China sales numbers reflect a complacent viewpoint on Coke's current woes -- not one shareholder (yes, I am one of them) should forget that overall case-volume growth is not going to be pumped up by this success alone. (The stock certainly didn't rally on this information.) As I've stated before, increased quality in marketing programs is key to future success. In the meantime, though, remember that while Coke might remain value-priced for a while, there's that nice dividend history to keep a shareholder comfortable during the wait for price appreciation.
Recent Coca-Cola coverage:
- Should Coke Join Your Team?
- Coke Shakes Up Sodas
- The Coca-Cola Cash Cow
- Coke Shareholders Get a Raise
Come on over to the Coca-Cola discussion board to let us know what you're thinking.
Coca-Cola is a pick of the Motley Fool Inside Value newsletter. Philip Durell doesn't kid around -- he finds serious value at acceptable risk. See how he is faring by signing up for a free trial.
Fool contributor Steven Mallas owns shares of Coca-Cola. The Fool has a disclosure policy.
