As I covered in my article 3 long-term threats to Coca-Cola Amatil the other day, shareholders in Coca-Cola Amatil Ltd (ASX: CCL) are typically focused on the domestic businesses and the headwinds they face – price competition, margin pressure, and so on.
But there's more to the business than just the Australian segment – in fact, 45% of CCA's volume gets sold overseas, and that figure is growing rapidly:
| Country | Australia | NZ + Fiji | Indonesia + PNG |
| Revenue per unit case | $8.45 | $7.96 | $4.41 |
| Volume (million unit cases) | 335.1 | 161.3 | 210.1 |
| Revenue/volume growth on pcp* | (3%)/(0.9%) | 8.2%/(0.3%) | (14.2%)/17.6% |
All figures taken from CCA's 2014 financial results. *pcp = prior corresponding period
The New Zealand and Australian markets look more or less mature, while Indonesia and PNG are growing rapidly. Fiji was reported to deliver 'strong volume and earnings growth'.
The key thing here for shareholders to take note of is that major gains aren't likely to come from the Australian or New Zealand markets. Both these sectors will face continued margin pressure from supermarkets and competition from PepsiCo and manufacturers of non-cola drinks.
In emerging markets like Indonesia, PNG and Fiji however, Coca-Cola is more free to 'write its own ticket' and has several opportunities it can capitalise on:
1. Weaker supermarket chains
Fiji, Indonesia, and PNG lack the intensely competitive Woolworths Limited (ASX:WOW) / Wesfarmers Ltd (ASX: WES) duopoly that is squeezing margins in Australia – giving CCA more freedom to price its goods to the market.
However, CCA noted in its recent report that declines in revenue per case were partly due to 'a notable intensification of the competitive landscape' as well as a depreciation of the Indonesian Rupiah and increases in material and wage costs. Cost increases weren't able to be fully recovered due to this competition.
2. Less infrastructure and fewer entertainment options
This is simultaneously a boon and a hindrance. On one hand it is significantly more difficult to distribute products, but on the other it is far easier for Coca-Cola to advertise its presence. Fewer cinemas, sporting stadiums, shopping malls and so on per capita make it easier to cover a variety of advertising mediums – and also mean that more people see the ads when they are presented.
As an example, there are just four cinemas in Fiji and all play (very effective, locally targeted) Coca-Cola ads pre-screening. In these circumstances it becomes very easy to get your product in front of consumers, which ties in with point #3, below.
3. Different consumer habits in Indonesia, PNG, and Fiji
While obesity and problems like diabetes are becoming a major problem, health advocates have a long way to go to changing habits of consumption. Individual awareness of the health risks of high-sugar beverages doesn't occur the way it does in Australia and New Zealand.
Even though soft-drinks, water, tea, and dairy products are growing strongly in all these nations, I would not be surprised to find that consumption has a long way to go before soft-drink growth stagnates and consumers turn to alternative beverages the way they are here.
Continued growth in Indonesia, PNG and Fiji appear quite likely, and if growth continues at current levels, Indonesia will surpass Australian volume in just three years.
CCA mentioned legislated wage increases in that country dragged down revenue, but that has a hidden benefit: As the minimum wage goes up, more people can afford to buy Coca-Cola products.
For long term shareholders willing to wait, Coca-Cola Amatil has great exposure to emerging nations in south-east Asia, and I expect investors will reap the rewards in time.
