“I’m a total coke addict…”

UK Prime Minister, Rishi Sunak revealed his vice for Coca-Cola whilst a student at Stamford in an interview in 2019; and he’s in good company as we have all seen the memorable advertising and probably at least tried the various offerings in our lifetimes – by John Ewart

 
From cute polar bear mascots, Taylor Swift’s refrigerator of diet coke, to the latest New Jeans K-Pop band’s single called ‘zero’. Coca-Cola is a genuine global brand, with operations supported by regional and global ambassadors, new product launches, and expanding their country presence; it has 225 bottling partners operating across 900 bottling plants and serves 2 billion drinks per day in more than 200 countries.

The largest 5 partners account for over 40% of total case volume. Mexican entities Coca-Cola FEMSA and Arca Continental serve Latin America; Europacific Partners (CCEP) caters to Western Europe, Australia, Pacific and Indonesia; Coca-Cola Hellenic addresses Eastern Europe; and Swire Beverages, addresses Asia and parts of North America.

The bottling process requires more than simply adding the secret syrup to a production line; extensive investment is required to ensure efficient bottling of an increasing number of Coca-Cola brands and drinks containers. A secure distribution network serves local ‘mom and pop’ stores to multinational hypermarkets, and recycling network has been established. Mexico has been one of the success stories of the Coca-Cola bottling model, and Aubrey Global Emerging Markets Fund holds positions in its two bottling companies, Arca Continental and Coca-Cola FEMSA. Arca merged with Grupo Continental in 2011 to service northern states of Mexico and selected Latin American countries, and in 2017, acquired an operation in the US southwest resulting in todays’ revenue mix of 41% Mexico, 35% USA, and 19% in LATAM, with 5% from snacks.

Arca has successfully expanded other areas and its portfolio now covers over 160 brands and 1700 products with mineral water Topo Chico a current favourite.

Coca-Cola FEMSA (KOF) is the larger of the two by beverage revenues with Mexico & Central America accounting for 60% and Central & South America 40%. An initial investor in the business, Coca-Cola retains a 28%.

Both companies have strong ESG initiatives and score well on our proprietary analysis. Reduced water consumption per litre of production is a key target, as is GHG emission reductions and increased recycled resin in bottle usage, complimenting extensive social initiatives in local communities which are a feature of many Mexican companies.

Bottling entities extend from Chile through Europe and to Japan, but not all have enjoyed the success of the Mexican operators.

Greek domiciled Coca-Cola Hellenic looked to various emerging countries to expand its business, unfortunately including Russia; following the invasion of Ukraine, the company ceased operations.

Coca-Cola Içecek is the operator of bottling assets in Turkey, but most operations now reside in Pakistan, Kazakhstan and Uzbekistan. Whilst we acknowledge the population and economic growth potential in these countries, events of recent years have reminded investors of the importance of political and currency risk; Aubrey had no exposure to Russia or Turkey over the last 5 years for this reason.

With a history of M&A in the industry, further consolidation will continue to be a contributory factor to the growth outlook. Coupled with the longevity of relationships with the Coca-Cola parent, the successful investment programmes and the portfolio innovation in areas such as product packaging and data management, we believe both Arca Continental and Coca-Cola FEMSA continue to represent attractive investment opportunities.