Coca-Cola Moves Like A Glaceau Into Chinese Energy Drink Mar

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Thracian

July 14th, 2010, 8:29 pm

The Coca-Cola Company, which competes with PepsiCo and Dr Pepper Snapple Group in the beverage market, is the world’s largest manufacturer, distributor, and marketer of non-alcoholic beverage concentrates and syrups. :mrgreen: :mrgreen: :mrgreen:

Coca-Cola derives most of its revenues from international operations, particularly in Europe and the Asia Pacific region. In recent years the company has successfully launched a new line of vitamin water products in China under the Glaceau brand. (We account for vitamin waters and other energy drinks under the Powerade & Other Brands division, which contributes about 13% of Coca Cola’s stock value according to our estimate.

Below we explain the significance of Asia Pacific markets for Coca Cola’s energy drinks business.

Healthy appeal and effective marketing drives Glaceau in China

Coca-Cola acquired Glaceau in 2007 for $4.1 billion, partly in order to increase its presence in the growing Chinese energy drink market. Chinese consumers have embraced Glaceau vitamin water, which now competes strongly with Red Bull (distributed by the Austrian company Red Bull GmbH) in the Chinese market.

Coca-Cola officials attribute Glaceau's wide appeal to its lack of artificial flavors and preservatives. Coca-Cola's Glaceau marketing has focused on directly engaging potential customers instead of saturating the market with TV advertising. For example, Coca-Cola has launched Glaceau pop-up shops in Shanghai and Beijing that offer body-painting and label-designing activities in addition to free vitamin water.

However, Glaceau's relatively high price point could limit its customer base. Glaceau is currently distributed mostly in high-end restaurants and retail outlets and seems to be aimed at upper-income consumers.

Asian markets, including China, are critical for Coca-Cola's energy drinks business

North America accounted for about 37% of global energy drink consumption in 2008, followed by Asia Pacific with 30% and Europe with 21%, according to research by Zenith International. Although Asian markets suffered a decline in 2008 due to a steep fall in sales in Thailand during the economic crisis, they are likely to rebound going forward. Last year Chinese energy drink sales reached 5 billion yuan, registering an annual growth of 45%, according to the market research group China Investment Research Consultant.

The growing Chinese energy drink market represents a great opportunity for Coca Cola to push its products and gain market share. See below how a faster increase in global market share for Powerade and other brands could boost Coca Cola’s stock. We forecast an upside of close to 4% for Coca-Cola's stock if the company manages to capture a 30% energy drink market share by the end of our forecast period.

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