Coke to Invest $2 Billion in China

March 6, 2009
A new R&D center in Shanghai will employ 600 to develop new products.

As it looks to dramatically increase its presence in the world's largest market, Coca-Cola said on March 6 it would invest two billion dollars in China. The ambitious development means the world's biggest soft drink maker will more than double the $1.6 billion it has spent in China since the nation opened up to the world with economic reforms in 1979.

Coca-Cola made the announcement as it unveiled the first part of its planned investment: a $90 million research and development center in Shanghai, where 600 staff will develop new products. "The Coca-Cola Company will continue to invest another two billion dollars in the next three years in terms of new plant and distribution infrastructure, sales and marketing, and R&D," company president Muhtar Kent said.

It was the second major announcement Coca Cola has made in China in six months. Coca-Cola is awaiting Chinese government approval for its proposed $2.4 billion takeover of China Huiyuan Juice Group, which was made public in September. If approved, analysts say it will be the largest takeover of a Chinese company by a foreign firm. China's Ministry of Commerce is expected to issue its verdict on whether the deal meets new anti-monopoly rules on March 23.

Coke is looking to emerging markets, and China in particular, for growth as its global revenues slide. Its 2008 fourth-quarter profit dropped 18% to $995 million as it faced falling demand amid a sharp global economic slowdown. For the full year, the soft drink maker's profit decreased 3% to $5.8 billion.

"Given the current global economic gloom, risks here (in China) seem lower because (Coca Cola) is more certain about the growth potential of China's beverage market," Chen Gang, a Shanghai-based analyst with Sinolink Securities said. Coke is likely to expand its product lines to woo more customers in the nation of more 1.3 billion people, targeting consumers ranging from teens to the elderly, Chen said. China's beverage market, including sparkling drinks, teas and juices, is expected to continue growing at a pace of more than 16% in coming years, the brokerage said.

The bid for Huiyuan, one of China's best-known juice brands, is part of Coca-Cola's global drive to buy up juice, water and other non-carbonated drink producers around the globe to diversify its product lines. Coca-Cola and its rival PepsiCo do not release China-specific sales figures, but Coca-Cola is believed to be the market leader in carbonated drinks, while Chinese drink maker Wahaha dominates the non-carbonated segment, according to analysts.

As part of its global efforts to expand beyond carbonated drinks, Coca-Cola acquired Russian juice business Multon in 2005 and Mexico's second largest juice, nectar and fruit flavoured beverage producer Jugos del Valle, in 2007.

If it acquires Huiyuan, the takeover would be Coca-Cola's second largest after it bought specialist water and energy drinks maker Energy Brands, Inc., known as Glaceau, for $4.1 billion in 2007.

Copyright Agence France-Presse, 2009

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