Coca-Cola seeks opportunities beyond its current borders

Stagnant carbonated drink sales in developed markets have made soft drink makers like The Coca-Cola Company (KO) and PepsiCo, Inc. (PEP), look for opportunities in emerging markets. Carbonated soft drink demand has been declining due to market saturation and the shift in consumer tastes towards healthier drinks.

According to market intelligence firm Euromonitor International, the 2013 retail soft drink market size in China grew by 15.2% to $66.5 billion. The market size for Brazil and Mexico increased by 8.0% and 8.2%, to $22.5 billion and $28.3 billion, respectively.

In 2013, non-US unit case volume represented 81% of Coca-Cola’s worldwide volume. The countries outside the US, in which Coca-Cola’s unit case volumes were the largest, were Mexico, China, Brazil, and Japan, which together accounted for 31% of the worldwide volume.

The per-capita consumption in a region measures the average number of eight-ounce servings consumed each year. Coca-Cola’s per-capita consumption in 2012 was quite high in the US and Mexico.

However, Coca-Cola’s per-capita consumption in emerging markets like India and China was quite low, at 14 and 39, respectively. The low per-capita consumption indicates that Coca-Cola has tremendous scope for growth in both sparkling and still beverages in international markets.

A growing population, a higher standard of living, and increased consumer confidence are key drivers for beverage demand in emerging economies. However, international operations also mean risks in the forms of currency fluctuations and increasing regulations. For instance, in January 2014, Mexico implemented a tax on soda drinks in an effort to fight rising obesity and other health issues caused by sugary drinks.

Exchange-traded funds (or ETFs) like SPDR MSCI World Quality Mix ETF (QWLD) and the Consumer Staples Select Sector SPDR ETF (XLP) provide exposure to beverage stocks like Coca-Cola and PepsiCo.