Coca-Cola to Invest $300M in Vietnam

The Coca-Cola Company (KO - Analyst Report) recently announced a new investment plan over the next three years to boost growth in Vietnam. The cola giant is strategically shifting its focus to the fast growing emerging nations as developed countries are nearing market saturation.

Coca-Cola plans to make a system investment of $300 million in Vietnam over the next three years to build new infrastructure, create jobs, develop strong partnerships and build its brands in the country. With this additional investment, which will begin in 2013, Coca-Cola and its bottling partners’ total investment in Vietnam will shoot up to $500 million between 2010 and 2015.

In addition to Vietnam, Coca-Cola is showing keen interest in other emerging markets like India, Russia and China, capitalizing on the high-growth nature of these countries. Coca-Cola has already invested over $2 billion in India and remains very optimistic about its Indian operations. Coca-Cola has been witnessing double-digit business growth in India aided by its top brands like Thums Up, Sprite and Maaza. Further, Coca-Cola, along with its bottling partners, will make an investment of $3 billion over the next eight years to build consumer marketing, infrastructure and brands in India.

Further, Coca-Cola has plans to invest $4 billion in China over three years starting in 2012, thus raising Coca-Cola's total investment in China between 2009 and 2014 to $7 billion. China is also expected to serve as a double-digit growth market over the long-term. Coca-Cola also plans to invest $3 billion in Russia between 2012 and 2016 and $8 billion in Brazil through 2016.

Currently 43% of the company’s business is being generated in developed markets (U.S., Western Europe, Australia, and Japan), 37% in developing nations and 20% in emerging markets. Management believes that due to the higher growth rates in emerging and developing markets, each of these geographic segments will contribute 33% of the company’s business by the end of 2020.

Our Recommendation

We currently have a Neutral recommendation on The Coca-Cola Company. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).

We are encouraged by the company’s global reach, strong brand power, expanding presence outside the U.S. and its solid cash position. Moreover, the company’s acquisition of Coca-Cola Enterprises’ (CCE - Analyst Report) bottling business and its productivity initiatives are expected to result in significant cost savings.

However, Coca-Cola needs to ramp up its advertising spending to match arch competitor PepsiCo Inc.’s (PEP - Analyst Report) increased focus on North American beverages. Soft economic conditions and tough currency environment also concern us.