Coca-Cola sets up new bottling plant in China
By Zhan Lisheng (China Business Week)
Updated: 2004-09-22 14:24

The plant, located in Huizhou, a Pearl River Delta city, is Coca-Cola's 28th bottling plant and 34th manufacturing plant on the Chinese mainland.

Involving an investment of 170 million yuan (US$20.48 million), the Huizhou-based plant is capable of an annual production output of 400,000 tons of carbonated beverages.

The Huizhou plant is Coca-Cola's 4th carbonated beverage bottling plant as well as the 5th production base in the province.

Coca-Cola signed an agreement six months ago to open a new bottling plant in Zhanjiang, a city in the west of the province.

With an investment of 46 million yuan (US$5.56 million), the Zhanjiang plant will cover an area of around 22.67 hectares and will start operations at the end of this year.

The Huizhou plant is expected to meet the intensifying market demand in the east of the province and Shenzhen, while the Zhanjiang plant is expected to satisfy the surging market demand in the west of the province.

Coincidentally, PepsiCo, Coca-Cola's global rival, initiated the construction of a bottling factory in Jieyang, a city in the east of the province, two months ago, It also announced to open a new bottling factory in Zhanjiang.

PepsiCo has earmarked 70 million yuan (US$8.43 million) for the Jieyang plant, and will investment 65 million yuan (US$7.83 million) in a bottling factory in Zhanjiang, to tap the market in both the east and west of the province.

Yang Lihong, communications director of PepsiCo Investment (China) Ltd, told China Business Weekly that PepsiCo bases its strategy to open new plants on nothing but the market demand, including the rival's location of production facilities, or special attempts to tap the rural market.

"When the market in a place intensifies to such a extent that setting up a new plant will be more economical and convenient, we will set up a new facility there," Yang said.

Though a latecomer, PepsiCo has achieved great success in the Guangdong market, she said.

And the market share in the province has been satisfactory.

Despite the fact that Coca-Cola has a larger market share in China than PepsiCo, PepsiCo has won a market share in Guangdong, reliable sources say.

She said the bottling plant in Jieyang will reduce the supplying pressure on PepsiCo's Shenzhen plant.

PepsiCo began to invest in China 22 years ago by setting up a joint venture in Shenzhen, which manufactures bottled soft drinks.

It also invested US$23 million into a new bottling factory in Shenzhen in 2002.

PepsiCo has set up carbonated beverage bottling factories in Guangzhou and Shenzhen. It also has a non-carbonated beverage production base in Guangzhou, which involves an investment of 190 million yuan (US$10.84 million), the largest non-carbonated beverage base in Asia.

The director said that setting up new plants either in Jieyang or Zhanjiang will put PepsiCo in a better position in the province's competitive beverage market.

For one thing, she said, the logistics cost will be much lowered.

Studies indicate that logistics costs account for 20 per cent of a beverage company's total costs in the past few months, compared with the previous 10 per cent in the province, owing to increased fuel prices.

She added that PepsiCo will be able to respond more quickly to customers' demand.

Nevertheless, experts said, the strategy of both PepsiCo and Coca-Cola to open new bottling factories in the east and west of the province indicates the beverage giants' attempts to win over a larger market share in the rural areas of the province.

According to Chen Shuojian, a marketing expert with Guangzhou-based Zhongshan University, the beverage market saturation of the large cities has decelerated the sales growth of beverage suppliers and has intensified the competition in big cities.

"They began to realize that the tremendous rural market is very important to their sustained business growth," Chen said.

As the global beverage giants have attached much greater importance to the market in big cities than smaller cities or rural areas, competition there has long been less fierce.

Similar to PepsiCo, Coca-Cola's first few factories are based in Guangzhou, Zhuhai and Dongguan, in the Pearl River Delta, which is one of the most economically dynamic regions of the province and of the nation as well.

And Wahaha, a domestic carbonated beverage supplier based in Huangzhou, the capital of East China's Zhejiang Province, is said to have strengthened its foothold in the rural market, with its "Future-Cola" series.

Advantageous location of a plant is one thing, the expert said, both Coca-Cola and PepsiCo should make great efforts to modify their sales strategies before they can secure a foothold in smaller cities and the vast rural areas.

And pricing strategy will be another factor crucial to their sustained development in those regions, Chen added.