The Coca-Cola Co. (NYSE: KO) unveiled plans to buy a 29.4% stake from Coca-Cola Amatil’s Indonesian business. The investment is worth US$500M and will be used on new factories, warehouses, and other infrastructure.
“This investment will allow us to capture the growth opportunity in one of the largest and most dynamic countries in the world as we enable our system to be even more responsive to consumer and customer needs,” said Coca-Cola International President Ahmet Bozer.
Coca-Cola Amatil is a distributor of Coke in the Asia Pacific region and has operations in Indonesia, Australia, New Zealand and several other countries. The company is facing increased competition from rivals such as Big Cola, produced by Peruvian-based Ajegroup, and recently announced that earnings in Indonesia and Papua New Guinea fell by over 80% year-on-year during the first half of 2014.
However, the company is expected to return to profitability in 2015 and is targeting mid-single digit growth over the next several years, while paying out 80% of its earnings in dividends. These predictions are similar to those of market analysts, who anticipate a 22% decline in net profit in 2013 and a 4% rise in 2015, on average.
“We are confident that the combination of revenue and cost initiatives we have under way will restore the business to growth,” said Alison Watkins, managing director of Coca-Cola Amatil.
The Southeast Asian distributor is going through major changes and is shifting from a model based on price-led revenue growth, to one based on more transactions. This will be done through a better variety of products and prices. Analysts say that a change in pricing strategy is sorely needed, as Coke sells for 50-60% higher than main rival Pepsi in Indonesia.
In September, the bottler released a smaller 250ml can and also plans on launching a low-priced bottled water brand, Pure Springs, to compete in Indonesia’s lucrative bottled water market.