Small is beautiful for Coca-Cola as volumes soar in China

Wed Apr 16, 2014 1:03pm IST

A boy sitting in a toy tricycle is pushed past shelves of bottled beverages at a supermarket in Nanjing, east China's Jiangsu province April 10, 2006. REUTERS/Stringer

A boy sitting in a toy tricycle is pushed past shelves of bottled beverages at a supermarket in Nanjing, east China's Jiangsu province April 10, 2006.

Credit: Reuters/Stringer

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(Reuters) - Strong sales volume growth in China helped The Coca-Cola Co (KO.N) beat quarterly revenue estimates as lower-priced, smaller soda bottles and juices attracted more price and health-conscious shoppers in the world's second largest economy.

Case volumes in China rose 12 percent in the first quarter of the year, boosted by marketing campaigns around the key Chinese New Year holiday shopping period, helping drive a global two percent rise in volumes.

Brazil, India and Russia also saw strong volume sales growth.

Coca-Cola, like rival PepsiCo Inc (PEP.N), has been battling falling soda sales in developed markets such as the United States, where its soda sales last year were the lowest since 1995.

Analysts said a focus on smaller, lower priced products in China was helping target consumers in fast-growing, smaller cities, where demand is outstripping larger urban centres.

"Our newly architected packaging portfolio in China is really working with the smaller packs and the new price points," Coca-Cola Chairman and CEO Muhtar Kent said on an earnings call after the results.

A greater focus on health among Chinese consumers also increased sales volumes of the Coca-Cola's Minute Maid Pulpy juice drink brand by 8 percent in the period.

Analysts cautioned the strong China results were partly due to weak growth in the first quarter of last year, when volumes were up just one percent due to a slowing economy and rising competition from local rivals.

Some Chinese consumers said the smaller sizes were cute as well as convenient. "The mini Coca-Cola is adorable, I love the small packaging," said a microblogger on China's Twitter-like Sina Weibo site.

Coca-Cola does not break out China sales separately. The business falls under its Asia-Pacific region, the company's second-biggest market by revenue, which accounted for 13 percent of overall sales in 2013.

WORLD CUP BOOST

Coca-Cola is looking to leverage this year's soccer World Cup in Brazil, where it is a key sponsor, to help revive soda sales which fell one percent globally for the quarter. Its soda brands include Coca-Cola, Sprite and Fanta.

A World Cup-linked campaign has already helped the Brazilian and China markets, the firm said in a statement.

Coca-Cola, which plans to invest $8 billion in China in the five years to 2017, accounted for 16 percent of the soft drinks market in 2012. The sector is worth an estimated 487.4 billion yuan ($78.33 billion) this year, according to consultants Euromonitor.

The growth in China contrasts with flat sales in North America, the company's biggest market, where an unusually cold winter and a shift away from fizzy drinks suppressed demand. European sales fell 4 percent.

Coke said in February it is looking to cut costs by $1 billion annually through productivity improvements by 2016, and would redirect much of the savings into increased advertising and marketing. [ID:nL3N0LN3XM]

NEW VENTURES

Coca-Cola has also been looking to diversify away from its soda business.

The company bought a 10 percent stake this year in Keurig Green Mountain Inc (GMCR.O) - known for its K-cup coffees - to help compete in the home soda-making market, dominated by Israel-based Sodastream International Ltd (SODA.O).

The partnership is looking to develop machines to dispense cold drinks such as juices and teas. Coke owns the Minute Maid juice and Honest Tea brands.

RBC Capital Markets analyst Nik Modi said Coke's global volume growth was "impressive" in a quarter marked by harsh weather, a strong dollar and the effects of tensions between Russia and United States.

"From here, we believe volumes will continue to accelerate," Modi wrote in an analyst note.

However, Coca-Cola was cautious, saying unfavorable currency rates would create a seven percent "headwind" for both second-quarter and 2014 full-year results.

The company's net income attributable to shareholders fell eight percent to $1.62 billion, or 36 cents per share, from $1.75 billion a year earlier. [ID:nBw1yqsmxa]

Excluding items, earnings were 44 cents per share, matching the average analyst estimate.

Revenue fell 4 percent to $10.58 billion, slightly ahead of analyst estimates of $10.55 billion, according to Thomson Reuters I/B/E/S.

The company's shares rose around 4 percent on Tuesday, bringing them back to where they were about a year ago. They ended at $40.18.($1 = 6.2220 Chinese Yuan)

(Additional Reporting by Lisa Baertlein in Los Angeles and SHANGHAI newsroom; Editing by Saumyadeb Chakrabarty and Miral Fahmy)

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