BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.
While syrup sales do not make up all of Coca Cola’s revenues, they are certainly an integral part of picture. In fact, they are an essential ingredient in the unique business model that the company has been running.
Coca Cola certainly does its own bottling and distribution, but it also sells syrup to other companies, letting them foot the bill and the effort involved in production and distribution.
Coca Cola stock looked like a sure winner for years. The company does possess a superb enduring competitive advantage and demand for its products has been high almost since its beginnings.
Global demand for sugary drinks is slowly but surely ebbing though, and with it, Coca Cola’s revenues. That said, the company is in the best possible position to come up with solutions to this conundrum and its selection of diet drinks has already begun addressing the problem.
Having started way back in 1894, Coca Cola is not just one of the oldest major companies out there, its brand-recognition is second to none. As such, it is obviously an attractive proposition for most investors and would-be investors.
What actually drives the price of Coca Cola stock though?
As mentioned, Coca Cola sells syrup for billions. This is made clear in its revenue stream. It is segregated into two parts: revenues resulting from concentrate operations and revenues derived off finished products.
The company owns its own bottling operations and distribution chains. All this goes under the finished products tab. It also sells concentrate to authorized bottling operators, who then proceed to turn the syrup into finished product, and distribute/sell it. This goes under the concentrate operations tab.
Authorized bottlers are part of a Coca Cola franchise network, which is overseen by BIG (Bottling Investments Group). The role of BIG is to keep small players in the game, by helping them out institutionally and financially if needed. It does not make economic sense for the company to let its smaller bottlers whittle away under economic hardship. It creates a logistical nightmare, as well as obvious image/brand issues.
Everything accounted for, BIG is in fact the largest global bottler. The revenues it rakes in are in line with this status.
It is clear that Coca Cola’s strength resides in its unique franchise-based bottling system. The goals of the company with its successful BIG program is to eventually end it. To achieve that, it needs to consolidate its bottlers, making them all individually sustainable and profitable.
The requirements set in this regard are not easy to fulfill. Coca Cola needs its bottlers to reduce carbon emissions, to recycle some 75% of the bottles and cans used in developed markets and to improve water efficiency. What this means in concrete terms is to have 100% of the water used for bottling returned to local communities.
These lofty goals need to be fulfilled by 2020. As far as investors are concerned, it is worth to keep their eye on how these requirements are progressing and on whether the BIG program is indeed wrapping up as planned.
BUY - rate is expected to increase, i.e. the first currency gains value against the second currency.
SELL - rate is expected to go down, i.e. the first currency is expected to lose value against the second currency.