“Happy water” to turn the tide
Recently, Coca Cola released a disappointing third quarter performance report. The next day, the company publicly said that a number of countries around the world had taken measures to block crowds, including closing restaurants, theatres and sports events, leading to a continued decline in its global sales.
However, Coca Cola stressed in particular that sales in China will continue to grow this year.
It is understood that Coca Cola’s revenue in the third quarter of this year was 8.65 billion US dollars, down 9% from the same period last year, but improved compared with the second quarter. In the second quarter, Coca Cola’s revenue was $7.150 billion, down 28% year-on-year; of which, the net profit from April to June this year was $1.8 billion, a decrease of 32% over the same period.
Coca Cola said sales of its water and sports drinks fell by 24% and coffee and tea by 31% in the second quarter, where the decline was most pronounced. In contrast, soft drink sales performed better: global sales fell by 12%, with zero coke down 4%.
From the perspective of business regions, Coca Cola’s revenue in North America in the third quarter reached 3.088 billion US dollars, which is still one of the most important revenue regions of Coca Cola; the revenue of Europe, Middle East and Africa was 1.693 billion US dollars, ranking second; and the Asia Pacific market was ranked third with us $1.334 billion. Compared with the same period last year, the revenue of North America market decreased by 2%, while that of Latin America decreased by 23%, the largest drop; the Asia Pacific market decreased by 9%.
It is worth noting that after the release of the results, the chief financial officer of Coca Cola specially emphasized and praised the “counter trend” growth of the Chinese market.
“Although China was (probably) one of the first countries to have an outbreak, Chinese consumers are now more or less back to the state they were before the outbreak.” Said John Murphy, Coca Cola’s chief financial officer. China novel coronavirus pneumonia has been consistent from beginning to end to the rapid recovery of the economic order, but in the United States, where the new crown pneumonia is diagnosed and the death toll is the largest, people can only “try to slow down a more normal life,” he said.
According to the performance report, Coca Cola’s global single box sales fell by 4% year-on-year in the third quarter and 4% in Asia, mainly due to the epidemic in India and Japan. In the earlier second quarter, except for the Asia Pacific region, Coca Cola’s sales revenue in all major regions of the world, including North America, Europe, Latin America, etc., were significantly lower than those in the first quarter.
The company stressed that this decline in revenue was offset by strong growth in carbonated soft drinks in China.
According to the data of Kaidu China, the sales of carbonated drinks in China were not greatly affected during the epidemic period and maintained a relatively stable growth in the second quarter. Coca Cola’s third quarter report also showed that the downward trend of single box sales in the Asia Pacific market continued to improve, from 18% in the previous quarter to 4%.
However, what can not be ignored is that Coca Cola is a global giant after all, and its largest business is still in “home” North America. The success of epidemic control in China can not completely solve the adverse situation brought about by global economic fluctuations.
In novel coronavirus pneumonia, Coca-Cola emphasized again that it plans to cut its 430 major brands by about half to 200, so as to speed up the continued spread of the new crown pneumonia. According to the Wall Street Journal, both tab cola, the predecessor of diet coke, and Zico coconut water, the biggest competitor of Vita cocoa, have been cut off. At the same time, Coca Cola plans to stop selling Hubert’s lemonade in retail stores and close products such as odwala juice and smoothies. Of course, reducing SKUs is only part of the restructuring plan. Coca Cola revealed that a large number of layoffs and adjusted marketing strategy will follow.
Coca Cola Chief Executive James Quincy pointed out at an analyst meeting that more and more countries have announced new restrictions and that more blockades are likely to come as winter approaches in the northern hemisphere. “We are ready for the coming setback,” he said
An inseparable “blessed land”
Interestingly, while shrinking its global business, Coca Cola continues to increase its Chinese market. And the strong performance of the Chinese market in the first three quarters seems to be a reward for Coca Cola’s practice in the Chinese market. Even in the second quarter before the outbreak, Coca Cola’s Soda category still increased by 14% year-on-year. Among them, Coca Cola brand performance was the best, and the sales of Zero sugar coke increased significantly.
COFCO Coca Cola’s performance report showed that in the first half of the year, the company’s sales revenue of sugar free and “fiber +” series increased by nearly 50%, while the sales revenue of modern cans and mini cans increased by nearly 60%. Swire, another major bottler of Coca Cola in China, had a 3% year-on-year increase in revenue in the first half of the year, including 6% increase in soda sales, 9% increase in non gas drinks, 13% increase in drinking water and 143% rise in energy drinks.
In April this year, Coca Cola officially set up a dairy market in China. It has been approved to establish a new joint venture with Mengniu Dairy to produce and sell low-temperature milk products in China. In the future, the investors and investors will complement each other in dairy product R & D, dairy processing technology, brand influence and distribution channels to develop new brands.
In June, Coca Cola China extended its tentacles into social e-commerce. Innocent (innocent) invested by Coca Cola Co., Ltd. launched fresh fruit products in the Chinese market, opened up new sub categories, and promoted the exploration and layout of Coca Cola in the juice market. At the same time, it was sold nationwide for the first time through social e-commerce online channels. In addition, Coca Cola has launched more than 10 new products in the Chinese market, including collagen peptide plant drinks, Yiquan bitter lemon flavor soda water, white peach flavor and lemon flavor fruit and vegetable extract bubble water.
It is understood that in the third quarter, Hubei Taigu Coca Cola’s new production line has completed the bidding, and is expected to be officially put into production by the end of April next year. In July, COFCO Coca Cola started construction of its first plant in Guizhou, with an estimated total investment of 270 million yuan in the first phase, which is planned to be completed and put into operation by the end of 2021.
In September, COFCO Coca Cola and Costa Costa Costa reached strategic cooperation on coffee quick selection business, looking for new growth points in the coffee market.
In addition, Coca Cola launched a new round of strategic restructuring at the end of August this year. In the new organizational structure of global operations division, Coca Cola Greater China region has become one of the nine major operation divisions. This change highlights the importance that Coca Cola attaches to this strategic market in China.
In fact, in addition to the fact that Coca Cola continues to increase its weight in China, in addition to the fact that China has indeed taken the lead in epidemic prevention and control and the rapid recovery of economic life, the more important reason is that there is still a lot of room for China’s beverage industry to tap. To borrow an old saying in the beverage industry, “there are 400 million people in China who have never drunk Coca Cola.” This group of people who have never drunk Coca Cola exceeds the total population of the United States.
According to Sullivan data, the retail sales of China’s soft drink industry increased by 6.6% to 991.4 billion yuan in 2019, showing a steady growth trend from 2014 to 2019. At present, China’s soft drink market has formed a stable 6 + n pattern. Six categories, including packaged drinking water, protein drinks, juice drinks, functional drinks, carbonated drinks and tea drinks, will occupy 77.8% of the soft drink market in 2019.
Sullivan predicted that China’s soft drink market will maintain stable growth from 2019 to 2024, with an average annual compound growth rate of 5.9%, mainly due to the acceleration of urbanization, the rise of disposable income and the upgrading of consumption.
On the other hand, due to the low industry threshold, a large share of single category leaders, the rise of emerging brands, the rise of new media and other reasons, the structure of China’s soft drink market is still relatively scattered. According to Euromonitor data, Cr5 of soft drinks in China in 2019 was 34%, lower than the average Cr5 level of 65% in the United States, Japan, the United Kingdom and South Korea.
CICC analysts believe that due to the low concentration of the beverage industry at present, the integrated enterprises operating in various categories will further integrate the market through internal diversification and extension expansion with stronger product life cycle management ability, perfect distribution network and abundant capital strength.
In short, Coca Cola is far from exhausted. Considering that carbonated drinks account for about 70% of the total sales volume of Coca Cola, it can be said that carbonated drinks are still the most profitable and fastest growing category of Coca Cola in China. Chinese mainland is the fastest growing market in all the markets Coca-Cola runs, surpassing China, Hongkong, China, Taiwan and the US market. Coupled with its excellent performance in response to the epidemic, it is no wonder Coca Cola is increasingly dependent on the Chinese market.
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