Coca-Cola Co.'s growth plan in Southeast Asia's biggest economy
has hit a bottleneck, as its Indonesian affiliate slows the rollout
of a US$500 million investment there, citing economic weakness.
The Atlanta-based beverage giant showed its resolve in the
world's fourth-most-populous nation when it paid US$500 million in
April for a 29.4% stake in the Indonesian bottling operations of
Australia-based Coca-Cola Amatil Ltd., which bottles and
distributes its products in Australia, New Zealand, Indonesia,
Papua New Guinea and several Pacific island nations.
The investment was earmarked to boost capital expenditure in
Indonesia, lifting production capacity, expanding warehouses and
adding coolers at retail outlets.
Indonesia, a country of 250 million people where the beverages
market is still in early development, is crucial for Coca-Cola.
Southeast Asia accounts for about a quarter of Asia-Pacific's
ready-to-drink beverage market, according to market research
company Euromonitor International. As volume sales of carbonated
soft drinks in developed markets decline or stagnate, emerging
markets have become even more important.
But Amatil has spent only 31 million Australian dollars (US$22.7
million) in its Indonesia and Papua New Guinea division combined
through the first half of this year, about a quarter of the total
spent for all of last year and 16% of its 2013 expenditure.
Martin Gil, head of Coca-Cola Co.'s Indonesian subsidiary, PT
Coca-Cola Indonesia, which oversees marketing and concentrate
sales, said the joint venture was fully committed to spending the
US$500 million eventually, and that Coke and Amatil are "fully
aligned" in their plans.
"If you had a growth plan you wanted to achieve in 3-5 years, it
becomes 5 to 7 years now, so a delay of about two years," he
said.
Mr. Gil said that long-term, the company still sees Indonesia as
a key growth source. "We are investing for that future," he
said.
The slower pace is a response to Indonesia's most severe
economic tumble in six years, with consumer purchasing power
weakening and sales of everything from motorcycles to apartments
suffering. Annual growth in Indonesian retail sales, as measured by
a central bank index, was 7.2% in September, down from almost 18% a
year earlier.
Indonesia isn't the only soft spot for Coke, which has relied
heavily in the past on emerging markets for growth. The soda giant
has warned it will miss sales targets for a third straight year,
hurt by economic slowdowns in key countries including Brazil,
Russia and China. It also estimated in October that weakening
foreign currencies would have a negative impact of seven percentage
points on revenue this year.
Coke also is in the midst of a five-year, $3 billion
cost-cutting plan and is trying to shed bottling assets to focus on
the more profitable business of selling soda concentrate. But it
agreed last year to buy the stake in the Indonesian bottler amid
concern that Amatil, which handles about 2% of Coke's global
volumes, according to Citi Research, wasn't investing enough
there.
Amatil, which initially said the US$500 million would be
invested within four years, now says the spending will keep pace
with volume growth. The company said volume in Indonesia rose a
seasonally adjusted 3% year-to-year in the first half, below its
expectations. Amatil declined to offer a new time frame for the
investment, but noted its continuing construction of a distribution
center.
Some industry observers question whether Amatil is a good fit
for Coke in Indonesia, an underdeveloped market requiring more
long-term investments than the mature Australian market that
generates the bulk of Amatil's profit. The Indonesia-Papua New
Guinea division accounted for almost half of Amatil's capital
expenditure in 2013 and 2014 as the company sought new growth
sources and reduced reliance on Australia.
"Amatil is a little bit on borrowed time," said Ian Shackleton,
a beverage analyst at Nomura in London. He added that Coke could
try to find another bottling partner in Indonesia or increase its
stake if business doesn't pick up.
Coke watchers don't expect a deeper shake-up soon because the
soda giant is busy on several other fronts. In China, where its
sales have slowed after several years of double-digit growth, the
company broke ground on two plants in August, part of a plan to
invest $4 billion from 2015 through 2017.
A bigger and more pressing issue is Africa, where Coke's main
bottler, SABMiller PLC, agreed in November to be acquired by
Anheuser-Busch InBev NV. Coke now has to decide if AB InBev will
become its chief bottler in Africa despite AB InBev being a key
bottler in Latin America for rival PepsiCo Inc.
Indonesia's most popular beverage segment is bottled water,
dominated by France's Danone SA. Carbonated drinks made up just 4%
of total soft-drink sales in Indonesia in 2013 according to
Euromonitor International, leaving Coke battling over a small
segment with low-price competitors including Peru's Aje Group and
Japan's Asahi Breweries Ltd. Coke also competes in bottled water
and other noncarbonated drinks.
Indonesia's complex regulatory environment is another hurdle. A
water law that served as the basis for its operations was revoked
this year, and there is talk of taxing drinks with added sugar.
Write to Ben Otto at ben.otto@wsj.com and Mike Esterl at
mike.esterl@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
December 04, 2015 06:55 ET (11:55 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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