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Coca-Cola's Latest Acquisition Highlights New Push Into Non-Carbonated Beverages And International Growth

Coca-Cola and Coca-Cola FEMSA acquire soy based beverage brand AdeS.

Coke Femsa's network and distribution a perfect fit to expand the brand into new territories.

Coca-Cola not sitting back on carbonated beverage declines and continues to acquire new opportunistic companies.

Coca-Cola (NYSE:KO) announced an acquisition last week with its franchise partner Coca-Cola FEMSA (NYSE:KOF). The deal brought a leading soy beverage maker to the portfolio of non-carbonated beverages from the bottling giant. This latest acquisition, while small in dollar terms, is huge in a continued path of diversification and international expansion. Coca-Cola and Coca-Cola FEMSA are both winners here and investors should take note.

The Big Deal

Coca-Cola and Coca-Cola FEMSA agreed to acquire AdeS from Unilever (NYSE:UL) for $575 million. The acquired company is the leading seller of soy based beverages in Latin America. Currently, AdeS has a presence in Brazil, Mexico, Uruguay, Paraguay, Bolivia, Chile, Colombia, and Argentina. AdeS was founded in 1988 in Argentina. In 2015, AdeS had sales of $284 million, moving 56.2 million cases.

Coke had gone on to say that the deal "compliments and reinforces our non-carbonated beverage portfolio offer." The deal has high potential to "leverage the Coca-Cola system's route to market". Take a look at the map to see where AdeS currently sells.

This acquisition and the continued expansion into non-carbonated drinks is essential for Coca-Cola and its future. Fifteen years ago, stills (non-carbonated beverages) made up less than 10% of Coke's overall revenue. That figure has risen to 25% and is rapidly growing as carbonated soft drinks fall in side by side fashion.

Acquisitions Piling on for 2016

Coke's latest acquisition strengthens an already productive year in diversification and international expansion. Earlier in January, Coke purchased a 40% stake in Chi Ltd, Nigeria's largest juice maker from TGI Group. Plans call for Coke to purchase the remaining 60% not owned within a three year time frame. In April, Coca-Cola agreed to acquire the beverage business of China Culiangwang Beverages, which includes multigrain beverages, for $400.5 million.

The acquisition of the stake in Chi was part of an ambitious plan put forth by Coke to grow sales in Africa. In 2014, Coke announced a plan to invest up to $17 billion in Africa from 2010 to 2020, more than double the amount it spent in the region in the decade prior. Africa is an area of great growth for carbonated and non-carbonated beverages. Soft drink volume growth was up 13% in the region for SABMiller, a large Coke bottler in Africa.

Putting it all in perspective is the fact that Coca-Cola had a 45% market share of the $18.1 billion soda market in the Middle East and Africa regions in 2015, but had only a 3.5% share of the juice market. The highly fragmented juice market of the region is worth $8.0 billion. TGI, the prior owner of Chi, held the number two market share position, trailing only Iran's Alifard Co. Chi has leadership positions in fruit juices, ice tea, snacks, and value added dairy products.

Growth of Non-Carbonated Beverages

My last Coca-Cola centered article focused on milk, another non-carbonated beverage. My 2014 article hit on Fairlife, a brand being rolled out nationwide as part of Coke's VEB (venturing and emerging brands). Co-owned by Coke, Fairlife was a premium organic milk that was aiming to put a dent in the growing market of specialty milks. It also helped that Coke's team that was...


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