In the Spotlight – Coca-Cola Co's Malaysian adventure
The Coca-Cola Co this week began construction of a bottling plant in Malaysia in the first step of a MYR1bn (US$285m) investment in the country over the next five years.
The firm is hoping to boost further growth in what it claims is “a very important South East Asian market”, and a market that has recently seen investment flow in the wrong direction.
Last year, Malaysia recorded a net outflow of direct investment of MYR24.9bn (US$7.5bn) after an outflow of MYR26.1bn in 2008, according to Reuters. The country lagged behind many of its reforming regional peers like Indonesia in its bid to win foreign investment as Malaysian companies invested overseas.
Coca-Cola said its investment is expected to create up to 800 jobs at the bottling plant located in Enstek Industrial Park in Negeri Sembilan, and between 6,000 and 8,000 jobs with local suppliers.
The expansion results from Coca-Cola’s “amicable separation” from long-time bottler Fraser and Neave of Singapore, according to Glenn Jordan, president of Coca-Cola’s Pacific Group. The contract, worth $127m per year, will expire in September 2011 and Coca-Cola is expected to use some of that cash for the construction of the eco-friendly plant.
The plant will provide Coca-Cola and Sprite for the Malaysian market and may allow it to close in on the brand leader in the South East Asian market, the afore-mentioned Fraser & Neave.
According to Euromonitor, Malaysia's off-trade market for non-carbonated soft drinks grew by 5.4% in volume from 2004 to 2009, to 228.4m litres. Carbonated drinks volume experienced slower growth at 3.2%, to 47.1m.
Fraser & Neave Holdings, retained its brand leadership position in soft drinks in 2009 with its namesake brand, as well as claiming the second position with its 100 Plus brand.
The Coca-Cola brand was fourth behind Yeo Hiap Seng’s Yeo’s brand, while Sprite was only tenth.
A year earlier, in 2008, a number of domestic players enjoyed positive performances.
Power Root saw its value share rise slightly from 2007 as it continued to expand its presence in energy drinks, and new entrants such as Tong Gee Trading also created more excitement for soft drinks in 2008, Euromonitor noted. This “excitement” in the Malaysian market may have proven to be the catalyst behind Coca-Cola’s recent investment announcement.
Coca-Cola says the new plant will provide the 27m local consumers with “easier access” to a wide range of its products.
Currently, the annual per capita consumption of Coca-Cola products in Malaysia is “well below that of many ASEAN countries”, the firm said.
Indeed, the slowing economy from 2008 onwards, coupled with rising fuel prices, has caused consumers to tighten their belts and limit their consumption of soft drinks. And of course there has been growing health awareness among consumers, resulting in an increased move from carbonates to healthier drinks like fruit and vegetable juices or even just plain tap water.
Last month, Coca-Cola reported an increase in fourth quarter profits, boosted by volume sales in international markets such as India and China.
Fourth-quarter volume rose 7% in Latin America, 11% in the Pacific region, 1% in Europe and 5% in the company's Eurasia and Africa divisions.
Asia accounts for 18% of Coca-Cola’s global sales, and having now freed up $127m a year from the termination of its F&N contract, there is no reason why Asia can’t be the firm’s biggest driver of growth this decade.
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