Beverages: Why Coca Cola is investing another $248m in Pakistan

Published: November 10, 2012

The new plants will follow the establishment of a Coca Cola facility, already completed in 2011, which manufactures Coke cans. GRAPHIC: JAMAL KHURSHID

LAHORE: 

It was an announcement made so quietly that it did not even make the headlines: having already invested $172 million in Pakistan this past year, The Coca Cola Company – one of the world’s largest beverage companies – is planning on investing another $248 million in the country over the next two years.

It may have something to do with the fact that Pakistanis are estimated to have spent approximately Rs110 billion ($1.3 billion) on carbonated beverages in 2011, according to an analysis by The Express Tribune based on figures compiled from industry sources. Coca Cola currently enjoys a 30% market share, second only to arch-rival PepsiCo.

“We see great potential in Pakistan’s future, which is why the company is investing significantly in upgrading infrastructure and adding value to allied industries,” said Rizwan Khan, general manager for The Coca Cola Company in Pakistan and Afghanistan.

The money will be spent on two new bottling plants, one each in Karachi and Multan, as well as investing in more coolers, which will be distributed amongst retailers to help with the company’s retail sales efforts. Company officials were quick to point out that the investment is not simply the recycling of profits and cash flows from existing operations in Pakistan, but green-field foreign direct investment that will flow into the country over the next two years.

The expansion plans come as rising demand makes it difficult for Coca Cola to keep pace with its existing production capacity in Karachi and Punjab. The new plants will follow the establishment of a Coca Cola facility, already completed in 2011, which manufactures Coke cans. Previously, Coca Cola used to import cans from its factories in other countries.

Coca Cola’s business model in Pakistan is somewhat unique. The global US-based parent owns a subsidiary called The Coca Cola Export Company, which has a Pakistan branch. That Pakistan branch conducts all marketing and brand building activities and manufactures the concentrate for the company’s signature beverages from a plant it owns and operates in Raiwind.

The concentrate is then sold to Coca Cola Beverages Pakistan, a joint venture between the US-based parent and Coca Cola Içiçek, a Turkey-based partner of the group. Coca Cola Beverages Pakistan operates six bottling factories in Pakistan, located in Karachi, Gujranwala, Multan, Lahore, Rahimyar Khan, and Faisalabad.

Coca Cola used to have eight franchisees for its bottling facilities in Pakistan, but in the mid-1980s the company felt that the business model was not working. It then spent the next decade buying out every single franchisee in Pakistan, consolidating them under one umbrella to form Coca Cola Beverages Pakistan. This entity was a wholly-owned subsidiary of the US-based parent until 2008, when Coca Cola Içiçek took a 49% share.

The company declined to provide a precise revenue figure or growth numbers, but said that it buys close to Rs13 billion in raw materials from its 300 local suppliers. According to Coca Cola Içiçek’s annual report, the company’s revenue growth rate in Pakistan is in the high teens. Coca Cola has over 4,000 employees in Pakistan, and employs another 6,000 indirectly. Company officials say that it paid Rs11 billion in taxes last year.

Taxation is something of a sore point for Coca Cola, since it is forced to pay excise duty on both the concentrate and the finished product, in addition to paying sales taxes on the final product. It also pays the full corporate income tax on its net income. In 2010, the federal government removed the requirement to pay excise duty on the concentrate, but Coca Cola still feels that the burden of what it calls double taxation needs to be lightened.

“Our aim is to inspire economic activity, create employment and increase tax revenue for the government. However, it is the government’s responsibility to ensure that a productive investment and business operating environment is provided to local and international companies,” said Khan.

In the meantime, Coca Cola has tried to cut back on other costs, notably its logistics and distribution costs. One innovation it has introduced is called “pre-sell”, where instead of simply going up to every retailer with a truck, the company asks for orders to be placed via text messages. This method has saved the company approximately 30% in man-hours of delivery time.

Published in The Express Tribune, November 10th, 2012.

Reader Comments (32)

  • Haider Bakhtiar
    Nov 10, 2012 - 7:38AM

    a 110 billion on carbonated beverages!!!

    any links to the survey conducted?

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  • jism
    Nov 10, 2012 - 8:36AM

    the headline, caught my attention,thought would be a informative piece, clicked the link and found that the pic depicting Pakistan’s territory was a bit strange, couldn’t stop laughing.

    “If wishes were horses, beggars would ride”

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  • Nov 10, 2012 - 9:49AM

    Music is aiding Coke in its fight against Pepsi in the cola wars in Pakistan. By sponsoring “Coke Studio,” a local version of “MTV Unplugged”, Coke has gained significant market share at Pepsi’s expense, according to a report in the Wall Street Journal. While Coke now claims 35% of all cola sales in Pakistan, Pepsi’s market share is now down to 65% from a high of 80% in 1990s which was achieved mainly through sponsorship of cricket in Pakistan.

    http://www.riazhaq.com/2010/07/music-drives-coke-sales-in-pakistan.html

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  • jism
    Nov 10, 2012 - 9:58AM

    went a little off topic in the above comment.
    anyway, Pakistan needs to get an all round approach, the investment is good, but the money is invested in a bad thing, considering health factors, these soft drinks have many side effects like obesity, cancer, aging etc.
    And most of these soft drinks are not the kind of manufacturing companies which lead to direct generation of jobs, these are mostly highly automated companies, although there will be indirect job creation, but it will not be proportionate to the level of money being invested.

    considering the pollution factor as well, they are not better. They take out huge quantity of water from rivers and reservoirs, then convert them into soft drinks and sell them at higher prices, and these soft drinks have no health benefits. The water that can be consumed with little purification is converted to a soft drink, which only adds to more health complications.
    and in India, these soft drinks were found to contain traces of pesticides, and we all know the health hazards of pesticides.

    Pesticides in soft drinks

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  • imtiaz
    Nov 10, 2012 - 10:18AM

    You don’t need a survey. Just a market share analysis and your own sales figures.

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  • T Shah
    Nov 10, 2012 - 10:24AM

    our people are thankless, when no investment, they cry for it, when people invest, they wonder why so much investment, stop complaining all the time and stop finding fault, this is great news, it will create so many jobs, we should thank coke and encourage more companies to come and invest.

    Stop placing rocks in front of investors, get out of the way.

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  • Nov 10, 2012 - 10:41AM

    Music is helping Coke in its fight against Pepsi in the cola wars in Pakistan. By sponsoring “Coke Studio,” a local version of “MTV Unplugged”, Coke has gained significant market share at Pepsi’s expense, according to a report in the Wall Street Journal. While Coke now claims 35% of all cola sales in Pakistan, Pepsi’s market share is now down to 65% from a high of 80% in 1990s which was achieved mainly through sponsorship of cricket in Pakistan.

    http://www.riazhaq.com/2010/07/music-drives-coke-sales-in-pakistan.html

    Recommend

  • CallArmyinKhi
    Nov 10, 2012 - 11:48AM

    Bring it on! Coca Cola is 10 times better than its arch rival Pepsi.As for Pepsi, they need to go back to its 90′s strategy of using cricket players in its advertisement and songs.

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  • shah
    Nov 10, 2012 - 1:00PM

    That innovative method was used by other companies 10 years ago .. and you have innovated it now ? why not place orders through Email ? That will be much better method of innovation and it will save costs of purchasing mobiles and sms packages for the procurement department.

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  • SM
    Nov 10, 2012 - 4:13PM

    Great work Farooq Tirmizi. Its always great to hear good news from Pakistan especially if it has something to do with providing employment to its people. I would request ET to increase the number of such features.

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  • Haroon Rashid
    Nov 10, 2012 - 5:28PM

    Mr Rizwan Khan you’re doing excellent job, promoting Coke to the mal-nourished youth with Cola waters in Pakistan. In major school chain network Coke is the proprietory drink in major chain school network.
    In Pakistan children goes to school without any breakfast, milk, banana etc., The powerful Coke which is banned in India used to flush toilet is cnsumed by innocent youth children hungry without milk, bread, banana, spend Rs.15-00 for Coke bottle. This addiction spoils their throat, and lot of issues of wellness.
    On the World Consumers Day which Coke sponsored at the Beach Luxury Hotel, local NGO offered to offer Coke to every school as the official water.
    Coke should offer milk bottle, banana, free in schools as a soothner for consuming Coke.
    The soothner is not the music it would be a glass of free milk at the schools, hospital of children, a banana at the school, and hospital as part of CSR of Cola drink. Coca Cola would get tax exemption for all CSR contribution for milk distribution, banana distribution, and this would also help them avoid double taxation from FBR and blessings from children of Pakistan

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  • arya
    Nov 10, 2012 - 6:35PM

    way behind!!!! coke investment in India will be 5billon$.

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  • Historian 1
    Nov 10, 2012 - 6:56PM

    @ arya: this is because your population is 5-6 times. Learn some maths dude.

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  • Jewcifer
    Nov 10, 2012 - 7:06PM

    All the fuss about sugar water.

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  • Tariq Shah
    Nov 10, 2012 - 9:31PM

    @arya:
    instead of competing with a nation 5 times smaller, have some shame and compete with China, that is your match, but you cowards show your true character and that is bullying smaller nation, even then you cant bully Pakistan. We are proud to take on a nation 5 times bigger, but you should be ashamed, had you any…..now buzz off to an Indian site, the smell of masala dosa is killing me.

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  • omegle
    Nov 10, 2012 - 10:19PM

    @Historian 1:
    what about while talking about poverty? no maths?

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  • Tariq Shah
    Nov 10, 2012 - 11:11PM

    @omegle: exactly,, India has the worlds largest population of poor people, when I say poor, I mean dirt poor, born on a footpath and dying on a footpath poverty, there are 200 million people below UN acceptable poverty levels in India, more than the entire population of Pakistan, Pakistani poor are lower class compared to Indian poor. I have seen Indian poverty and there is no comparison,

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  • Nov 10, 2012 - 11:19PM

    @Haroon Rashid: I think your worry is overblown considering the fact that per capita consumption of carbonated drinks in Pakistan is just 5 liters and in India 3 liters.

    Compare this with milk, a healthier alternative, whose consumption in Pakistan is 223 Kg per person and 96 Kg per person in India.

    http://www.riazhaq.com/2012/10/pakistan-among-top-meat-consuming.html

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  • Ali S
    Nov 10, 2012 - 11:43PM

    @Haider Bakhtiar:

    It’s actually a fairly realistic figure if you calculate it. A 250ml ‘botal’ of coke costs Rs 20 (so that’s 5.5 billion bottles a year), if you divide it by the population (170 million) that means that on average every Pakistani drank 32 bottles of Coca-Cola products per year (or one bottle a month). School and college students alone buy one bottle daily, then add in weddings, parties, restaurants etc. and the larger bottles that people buy for home.

    The revenues aren’t just from selling Coke, it also includes Fanta, Sprite and mineral water brands that are owned by the Coca-Cola company. Just imagine how much more we could have achieved if we spent a fraction of that money on clean water resources for our population.

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  • Nov 11, 2012 - 12:15AM

    Ai S: “that means that on average every Pakistani drank 32 bottles of Coca-Cola products per year (or one bottle a month).”

    The actual data shows Pakistanis consume 5 liters per person per year or 20 bottles of 250 ml each. Compare this with just 3 liters per person per year in India which is the lowest in the world ad 170 liters per person per year in US which is the highest.

    http://www.slate.com/articles/healthandscience/mapoftheweek/2012/07/mapofsodaconsumptionamericansdrinkmorethananyoneelse_.html

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  • Char Latan
    Nov 11, 2012 - 12:54AM

    Reasons to be poor in Pakistan versus India according to learned scholars:

    Pakistan is the land of Milk & Coca Cola while the poor in India have to survive on the smell of Masala Dosa.
    The poor in India can’t even use “the facilities” (railway tracks) in peace due to the busy train traffic. The poor in Pakistan using the same type facilities could do so without fear.

    So much to learn here.

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  • Pakistani Canadian
    Nov 11, 2012 - 1:23AM

    @Ali S:

    every Pakistani drank 32 bottles of Coca-Cola products per year (or one bottle a month)

    Might want to run the math again on the above…

    Recommend

  • arya
    Nov 11, 2012 - 1:28AM

    @tariq yes, we have poverty!!!! so what…we r now worlds on of the fastest growing economy,we achieved it, not like amreka de ta hain to mulk chalta hain” hassan nisar. our beloved nation’s age just 65 bt our achivements r big , but look to ur self… bloodshed everywhere, every day, every places r common in pakistan. as we r a big country our problems r big bt in near future we will fix it dont bother…. They r inveting because we have the capacity to buy their product, even in china they r investing 4 billion$ “mehenat karo or khao… tukro may palnewalo hamay gyan mat do”

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  • Born Political
    Nov 11, 2012 - 2:36AM

    @Jism, You found politics even in this piece :) High time to start watching other things than talk shows, Start with two & half men

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  • Zeux
    Nov 11, 2012 - 5:24AM

    @jism:
    Seen many indian maps in which Northern Areas of Pakistan are made part of india. Take your country out of fantasy before laughing at us.

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  • Nov 11, 2012 - 6:57AM

    @Haider Bakhtiar:

    ” a 110 billion on carbonated beverages!!!
    any links to the survey conducted? “

    To collect this information any survey is not required. You simply look at the sales figures of beverage manufacturer companies, This is available in company ‘s annual balance sheet available on public domain

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  • Damon Salvatore
    Nov 11, 2012 - 5:11PM

    Yes DIE PEPSI DIE!!!!!! Inshallah one day coke’s coverage would be far more than that other pathetic drink!! Its easily believable since hardly anyone likes pepsi, people drink it cause the have no choice. And supporters like me would rather stay thirsty than TASTE PEPSI! In short Coca Cola Rules!! and it shall prevail all over Pakistan one day demolishing every sign of pepsi!!!!!! MUHAHAHAHAHAHAHAHAHA

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  • Nov 11, 2012 - 10:19PM

    @Damon: “Its easily believable since hardly anyone likes pepsi…”

    Not true! In fact, both Coke and Pepsi are experiencing double digit growth in India and Pakistan.

    In Pakistan, Pepsi’s Frito-Lay snacks volume grew 27% and in India by 12%. Pepsi’s beverage volume was up 25% in Pakistan last year and 23% in India.

    And with just 5 liters per capita annual consumption in Pakistan and 3 liters in India, there’s a lot of room for continuing growth of both Coke and Pepsi.

    http://www.riazhaq.com/2012/09/strong-food-beverage-demand-draws.html

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  • Hafeez Pasha
    Nov 11, 2012 - 11:43PM

    All sugary carbonated drinks are unhealthy.

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  • Humayun
    Nov 17, 2012 - 9:40AM

    Good Read and Encouraging Initiative – parcticularly liked the innovation part at the end.

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  • Haroon Rashid
    Nov 17, 2012 - 11:01AM

    As we all know advertising is without any “code of conduct” for the advertiser/sponsor. The honorable office of the Compoetiton Commission of Pakistan endorsement is important, as far as advertising/portraying the youth/schools, sport events in the advertising.
    The story of tobacco/smoking which today is with the warning label to stop smoking. All cola waters should have a warning label to prevent youth for consumption, with a warning, school canteen/cafeteria should immediately stop stocking, disldiplay/advertisng cola waters, in school. Scientific studies from UNESCO, WHO, should be taken for promotion of any Cola water for advertising/promotion.
    Coke has a positive thing as fruit juice which are Minute Maid, and other brands of fruit juices, should also start selling dairy product as bottled fiz milk, for the youth etc.
    Tax relief should be given to market milk, juices bottled, or Tetra Pak etc., to encourage the use of such drink.

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  • Muhammad Aslam
    Dec 18, 2012 - 4:35PM

    Weldon and I like i thanks

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