Coke adds billion dollar brand from China to portfolio

SHANGHAI Thu Jun 2, 2011 5:33am EDT

SHANGHAI (Reuters) - Coca-Cola Co (KO.N), the world's largest soft-drink company, has made its first "billion dollar brand" from an emerging market , the company said on Tuesday, highlighting a strategy for growth with sales flattening in developed markets.

Minute Maid Pulpy, a juice drink dense with pulp, joins Coke's lineup of 13 other brands that have achieved sales of at least $1 billion, which include Coke Zero and Diet Coke.

It is the first time that a Coca-Cola brand, developed and launched in an emerging market has reached the billion-dollar mark, said Andres Kiger, senior director of integrated marketing communications for Coca-Cola in China.

"What makes this one important for us is that this was started here, in an emerging market, China, and that's a testament to China," he told Reuters.

It is also testament to the company's commitment to a market with 1.3 billion consumers, after the Chinese government blocked its $2.4 billion bid for Huiyuan (1886.HK) in March 2009, citing competition concerns.

That deal would have been the largest foreign takeover of a Chinese company and its rejection in the depths of the global financial crisis spawned fears China was raising barriers to overseas companies.

Minute Maid Pulpy, developed in China and released in 2005, is now sold in 18 markets including Algeria, Mexico, Malaysia and Vietnam.

Analysts say this trend of developing products for China and later exporting them to other countries is likely to continue.

"China is going to be used as a test base for new food and beverage products, because of its huge and diverse population. If it can succeed in China, chances are it will overseas," said Marie Jiang, a retail analyst with Pacific Epoch.

China's soft drinks industry is growing at a compounded annual growth rate of 12.8 percent, according to 2010 data from Euromonitor International. Its juice drink segment is growing at 16.2 percent annually, one of the fastest growing segments overall.

China's juice market is expected to more than double to $23.9 billion by 2015 from current figures, according to data from Euromonitor International.

Coke sees huge potential for its beverages in China, where per capita consumption is only 32 bottles of Coke products a year, compared to 150 in Hong Kong and more than 500 in the United States.

Coke's sales in developed markets have been slowing for years . To reach its targeted 5-6 percent annual earnings growth, it will need to focus increasing efforts on emerging markets that generate annual economic growth in that range, including China, India and Africa.

The company is increasing investments in developing countries as part of its strategy to double by 2020 its $100 billion of total global revenue in 2009.

Coke has said it will commit $2 billion in investment into China and last October opened three new plants in Inner Mongolia, Henan and Guangdong.

Coca-Cola has three "billion dollar" juice brands, including Minute Maid Pulpy, and says juice is its number-two priority behind sparkling beverages.

DRIVE TO LOCALISE

When French luxury brand Hermes International SCA (HRMS.PA) launched its luxury Chinese brand Shang Xia last September, it marked a point of recognition that China was a market of its own, analysts said.

"This past year was really the year where companies said, 'Hey wait a minute, China is now one of the, if not the most, important markets globally and we have to produce stuff for the market rather than importing stuff from other markets,'" said Benjamin Cavender a senior analyst with China Market Research Group.

To capture a slice of this vast market, over the past five years, Coke and others in the food and beverage sector, including PepsiCo's (PEP.N) Lay's potato chips and Procter & Gamble (PG.N) Pringles have been modifying their products to suit Chinese taste buds.

Lay's changed its packaging to have consumers eat out of a tube instead of a plastic bag because Chinese consumers may take a few days to finish their chips instead of polishing them off in one sitting.

Pringles' version of barbeque chips were modified to taste more sweet, like Chinese barbeque sauce, rather than the tangy U.S. barbeque sauce, Cavender said

In the apparel segment, menswear maker Ermenegildo Zegna offers more lines in China than in other markets as Chinese consumers demand the latest and the most variety.

Coke's move to make its juice more pulpy was a similar effort to adjust to local taste. It also came at a time when health advocates, who have attacked carbonated sugar beverages as part of the reason for an epidemic of obesity - including in China - helped juice the market for healthier drinks.

"There is now definitely a trend in China toward health. More and more consumers are willing to drink the juice beverages not the carbonated drinks," said Pacific Epoch's Jiang.

Last year, Coke launched Sprite Tea, a product that blended the flavor of green tea into Sprite. Minute Maid Pulpy has launched a white grape flavored juice mixed with aloe vera.

The drive to localize its products has taken shape in marketing as well.

Coke now conducts ad campaigns targeted at individual cities and organizes each event to suit the taste of the local populace. "The way to communicate with our consumers today in China is dramatically different than even when we launched Minute Maid, and we don't even want to think what 2015 is going to look like," said Kiger.

"There's such an evolution."

(Additional reporting by David Lin; Editing by Bill Tarrant)

(This February 1 story has been corrected in the 15th paragraph to show that Coca-Cola opened new plants in Inner Mongolia, Henan and Guangdong last October, not three plants in Inner Mongolia)