Comment - Quick Take: Coca-Cola Co Marches On

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The door looks to be open for The Coca-Cola Co to increase its stake in Aujan soft drinks operations following today's deal. Meanwhile, it is PepsiCo's turn to look on in envy.


Coca-Cola's announcement that it will spend US$980m to acquire 50% of a leading Middle East drinks group, Aujan, as well as bottling and distribution operations, is yet another example of the group's aggressive expansion strategy in emerging markets.

While Iranian operations are not included in the deal - Iran's political climate is not exactly conducive to American branded success - the deal with Aujan offers a strong pathway into soft drinks in the Middle East. There also looks to be a roadmap for Coca-Cola to increase its stake, or perhaps to make further joint-acquisitions with Aujan in the region. 

"This transaction creates a platform for further cooperation between The Coca-Cola Co, Aujan and existing bottling partners across the region," said Coca-Cola's president for Africa and Eurasia, Ahmet Bozer, today (14 December). Coca-Cola is committed to spending $5bn in the Middle East in the next ten years.

The other question arising from today's deal is: on a scale of one to ten, how envious are PepsiCo investors right now? Unmistakably, the balance of power pendulum is swinging into the red corner of US soft drinks.

Conversely, the very things that Coke was criticised for around five years ago have since turned into perceived strengths for the company. Namely, the argument went that Coca-Cola, partly through poor management, had not made enough effort to expand beyond its core soft drinks portfolio. Meanwhile, PepsiCo, with its forays into dairy and snacks, not to mention its earlier play in juice, looked much more able to cope with the demanding health-conscious consumers of the 21st Century.

The differing strategies of the two companies are evident in the Middle East. While Coca-Cola is betting on the drinks operations of Aujan, PepsiCo's big foray into the region has been to form a joint-venture with dairy group Almarai, named International Dairy and Juice Limited.

Now, though, a groundswell of PepsiCo investors appear to believe that their company has overstretched and, in doing so, has neglected its core business. Pepsi's share price has risen by just 2% in five years, while Coke's is up by almost 44% over the same period. 

It's true that Coca-Cola has had some catching up to do in terms of non-carbonated drinks, and it has also been forced to expand quickly into new regions, but the firm has stuck to its soft drinks roots much more closely than PepsiCo has. Investors, by and large, seem very appreciative these days.

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