Has the Fizz Gone Out of Coke?

Not everyone who is a part of the U.S. stock market scene can be expected to pay much attention to developments in other countries. However, this can be a portent of times to come when global companies are involved. A company which fails to make a mark abroad will lose favor on its home stock market as well.

Stock market owners of the Coca-Cola Company must have earned some modest dividends from concentrate shipped to India over the past decade. However, the company has lost the premier rank in this key market of the future, to its eternal rival PepsiCo. The local company is not widely held on the stock market, but all indications point to inferior business performance.

Carbonated beverages are favorite whipping boys for pressure groups and non-government organizations? Should the stock market worry about this? It is not relevant in short-term financial terms, but it does have an impact on long-term and relative values. Companies such as Coca-Cola were better placed on stock market trading floors before Information Technology, semi-conductors and other modern enterprises entered the fray.

The view that companies such as Coca-Cola are past their life-cycle peaks should not be dismissed out of hand by any serious stock market investor. The legend of how the concentrate recipe is kept secret in Atlanta has begun to grow stale, and we could well see major shifts in consumption habits of a new health-conscious generation.

Advertising, sponsorship of top sports events, lucrative endorsement contracts for celebrities, and sheer distribution power may extend market presence of yesterday’s super-stars, but they will cut no ice with those who operate on the stock market with permanent stakes.

Coca-Cola’s defense of its product quality in India does not address a critical weakness in its system of awarding franchises to bottlers. The manufacturing involves a batch process, and the widely dispersed plants operated by independent service providers place the brand at severe risk. Coca-Cola executives must chuckle at amateur attempts to expose the Achilles heel in India, but it should serve as a warning for the stock market nevertheless!

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