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Coca-Cola Rejection by China Means Building Sales the Hard Way
By Duane D. Stanford
Bloomberg
March 18, 2009
March 18 (Bloomberg) -- China's rejection of Coca-Cola Co.'s $2.3
billion bid to buy the country's largest juice maker leaves the company
to compete with PepsiCo Inc. the hard way, by building sales of existing
products.
China's Ministry of Commerce barred Coca-Cola's purchase of China
Huiyuan Juice Group Ltd., saying it might have used its "dominant
position" to push up prices and limit choices for consumers. Coca-Cola
would have roughly doubled its juice market share with the deal, said
Jason Pride, director of research for Haverford Investments.
"It would have given them better access to China when they are going
head-to-head with Pepsi," said Pride, whose Radnor, Pennsylvania-based
firm has $5 billion of assets under management including shares of
Coca-Cola and PepsiCo. "It slows Coca-Cola down in China."
Coca-Cola and PepsiCo are in a race to buy juice and dairy-beverage
brands in developing countries to diversify beyond soft drinks and
win customers by catering to local tastes. PepsiCo and its chief bottler
agreed last year to pay $1.4 billion for a 75.5 percent stake in Russia's
largest juice maker, OAO Lebedyansky and are seeking to buy the rest.
Coca-Cola, based in Atlanta, controlled 52.5 percent of the Chinese
soda market by volume in 2008, compared with PepsiCo's 33 percent,
according to market research company Euromonitor. Coca-Cola had 12
percent of the fruit- and vegetable-juice market, while Huiyuan had
an 8.5 percent share. The Chinese beverage company controlled 33 percent
of the nation's pure-juice market.
"We will now focus all of our energies and expertise on growing our
existing brands and continuing to innovate with new brands, including
in the juice segment," Chief Executive Officer Muhtar Kent said today
in a statement.
Pulpy Orange
Minute Maid Pulpy Orange is one of Coca-Cola's best-selling juice
drinks in China, where it was developed before being introduced in
2004. Sales were expanded to India in 2007.
Coca-Cola plans to invest $2 billion in China over the next three
years as part of its attempt to win more of the nation's 1.3 billion
consumers, it said this month.
The investment plan includes a $90 million technology center that
opened in Shanghai March 6. Coca-Cola's proposed investment is 25
percent more than the $1.6 billion it has spent in China since returning
in 1979.
China's denial of the acquisition is the first under an anti-monopoly
law that's been criticized for a lack of openness.
"Having two companies with way under 25 percent market share come
together and try to make efficiencies is not anti-competitive," Pride
said. "Protectionism is an evil beast that destroys overall global
economic prospects."
Coca-Cola fell 34 cents to $41.11 at 12:50 p.m. in New York Stock
Exchange composite trading. The shares declined 8 percent this year
through yesterday. PepsiCo dropped 85 cents, or 1.7 percent, to $48.40.
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