24 June 1999: Coca-Cola has no plans to acquire its China bottling partners in the near future, despite the company“s decision to take over the remaining interests in its main South-east Asia bottlin…
24 June 1999: Coca-Cola has no plans to acquire its China bottling partners in the near future, despite the company“s decision to take over the remaining interests in its main South-east Asia bottling partner, Fraser & Neave Holdings (F&N). Currently, the China bottling franchises are held by Hong Kong“s blue-chip Swire group and Kerry group, the privately-held vehicle of Malaysian tycoon Robert Kuok. “We don“t have any plans to buy out either Kerry or Swire. We have a very good working relationship with both of them,” said P C Low, vice-president of Coca-Cola China Limited. Low was responding to speculation following Singapore-based F&N“s announcement that it would give up its franchise in return for a stake in Coca-Cola“s subsidiary Coca-Cola Amatil. F&N has bottling operations in eight Asian countries, spreading from Cambodia to Sri Lanka. It plans to keep control of its Malaysian operations. Some analysts said both Kuok and Swire had made heavy investments in new plants in recent years, and that both were working hard to build up their distribution networks to improve their profits. Others, who said the latest move reinforces a trend by the US conglomerate to buy out bottling operations from its crisis-hit partners, suggested that a similar move in China could not be ruled out entirely. Such deals have already taken place in the Philippines and South Korea. In November 1997, Coca-Cola bought out its largest bottling partner – Doosan Beverage – in Korea. The same year, San Miguel traded its lock on the Coca-Cola franchise in the Philippines for a 25% stake in Amatil, Coca-Cola“s outfit that operates its Coke franchise in Australia and holds interests in six other Asian countries. The company has also been pushing out smaller bottlers in favour of more work being done under its appointed anchor bottler, according to analysts. Unlike other operations, Coca-Cola elected two of Hongkong“s leading conglomerates as its anchor bottlers in China. The Swire group, which first got the Coca-Cola franchise in 1965, holds interests in nine bottling operations in China through its subsidiary Swire Beverages. Swire also operates Coca-Cola“s franchise in Taiwan. Kerry Beverages operates 10 Coca-Cola bottling franchises in China. Selling Coke in China apparently isn“t easy. Profit margins and consumption per head is still low, despite double-digit growth in sales, analysts said. Sales growth averaged 20% last year, and 19% for the first quarter of 1999, according to Low. China consumes only eight servings per capita, or one Coke every one and a half months per person. Mexico, with one of the highest Coke consumption worldwide, consumes 365 cokes per person in a year. Meanwhile, Coca-Cola has acquired the remaining 75% of F&N Coca-Cola pte from Fraser and Neaves in return for 5.6% of CC Amatil. The deal involves the bottling franchise in seven Asian countries excluding Malaysia. Coke“s interest in CC Amatil will fall to 37% if the deal is approved by the board. F&N posted a 74% fall in net profit in 1998-99 while interest costs rose 77%. Coke has moved away from direct involvement in its franchised operations but it bought out Russian bottler from Inchape in late 1998. One analyst said Coke has bought both businesses cheaply and may revitalize the operations and sell them.