Erin Lash
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Morningstar | Coca-Cola’s Vast Distribution Network and Brand Equity Should Support Its Top-Line Trajectory

Coca-Cola’s unparalleled brand strength and global distribution network have allowed it to generate excess returns on invested capital despite a decade of volume declines in the carbonated soft drink market. We think Coca-Cola will maintain its leading position in the domestic beverage market (we estimate it holds a high-20s share of nonalcoholic beverages and above 40% share of carbonated soft drinks) due to substantial barriers to entry created by its deep-rooted retail relationships, vast bottling and distribution network, and economies of scale. We also see significant opportunity in international markets, where Coca-Cola’s carbonated soft drinks tend to enjoy greater share than Pepsi, and in the noncarbonated category (particularly following the acquisition of Costa, a leading coffee company in the U.K.), which now contributes around 30% of volume, compared with around a fourth of volume in 2010. Furthermore, we believe Coca-Cola’s substantial investments behind its brands (with advertising spending around $4 billion, or 13% of sales, in 2018) will further entrench its relationship with retailers.With its U.S. bottling system fully refranchised by the end of 2017, its operations have become less capital-intensive and more profitable given the shift to a higher-margin concentrate model. We expect operating margin around 33% (versus 27% in 2018) and adjusted returns on invested capital around 24% (above the 15% average over the past five years) on average over the next decade. When the firm consolidated these bottlers in 2010, they lacked clearly defined territories and centralized IT, and we believe these issues were remedied by the acquisition. Moving ahead, we expect the refranchised bottlers to have more efficient operations as well as better aligned incentives with Coca-Cola. Moreover, the relationships that Coca-Cola has cultivated with its international bottlers have been key to its success abroad, allowing the firm to better understand local markets and develop relationships with distributors and retailers. Coca-Cola has also made equity investments in some of these operations, allowing it to maintain control of its largest bottling partners.
Coca-Cola Co.

Coca-Cola is a nonalcoholic beverage company. The company owns or licenses and markets nonalcoholic beverage brands, which the company groups into the following category clusters: sparkling soft drinks; water, enhanced water and sports drinks; juice, dairy and plant-based beverages; tea and coffee; and energy drinks. The company's nonalcoholic sparkling soft drink brands include Coca-Cola, Diet Coke, Fanta and Sprite. The company markets, manufactures and sells beverage concentrates and syrups, including fountain syrups; and finished sparkling soft drinks and other nonalcoholic beverages. The company's operating segments are Europe, Middle East and Africa; Latin America; North America; Asia Pacific; and Bottling Investments.


Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Erin Lash

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