Coca-Colas margins in China are already tight

Coca-Cola's margins in China are already tight

The Coca-Cola Co's attempts to keep pace with PepsiCo's promotions are causing "headwinds" in China's competitive soft drinks market, an analyst has warned.

CLSA analyst, Caroline Levy, said on Friday (31 May) that a “win a free bottle” offer from PepsiCo's Chinese partner Tingyi has been quickly matched by a similar promotion from Coca-Cola. Coca-Cola has also “selectively” matched Tingyi's 20% package-size increase, Levy said.

“We believe the long-term outlook for China’s growth is bullish, but intense competition across all drink categories will provide headwinds for the foreseeable future,” she said.

The promotions could further erode already tight margins for Coca-Cola in China, which, according to Levy, accounts for 8-9% of its volumes, but just 2-3% of profits.

However, the note added: “(Coca-Cola) continues to have superior share gains, pricing power and brand building. We consider execution in the Coke system to be among the best we’ve seen in 20 years.”

Meanwhile, Levy said bottler restructuring moves in the US, announced in April, will not come into effect for at least another two years.

Under the plan, five independent bottlers - Coca-Cola Bottling Co Consolidated, Coca-Cola Bottling Co United, Swire Coca-Cola USA, Coca-Cola Bottling Co High Country and Corinth Coca-Cola Bottling Works - will have the option to take distribution territory from Coca-Cola's in-house network.