Coke's Recession Boomlet

A Coke kiosk tempts passersby in Shanghai's Xujiahui shopping district.

RYAN PYLE

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The global economy hasn't looked this bleak since the Great Depression. So things must be looking up for the Coca-Cola Co. For the first full year after the 1929 crash, Coke announced record profits and 3% sales growth. TIME called it "perhaps the most remarkable 1930 statement yet to appear." Almost eight decades later, Coke posted sales growth of 3% for the first half of 2009.

When consumers can't splash out on pricey items like new cars or even new clothes, they resort to cheaper pleasures, like a cold drink. That logic remains simple, even as Coke's business has grown far more complex. In 1930, Coke had profits of $13 million and operated in more than two dozen countries; last year it was $5.8 billion, on sales of $31.9 billion, in more than 200 countries.

An early globalist, the company relies more than ever on worldwide sales. Europe and North America have been stagnant, especially for the company's main brand, Coca-Cola, whose sales have been watered down by an onslaught of New Age drinks--and water. Coke has countered the trend by acquiring brands like Vitaminwater, but total case sales are off 2% in North America this year. Yet Coke has enjoyed 33% sales growth in India and 14% in China in the second quarter of 2009.

Coke has always measured its sales potential using the metric of bottles consumed per capita by country, and by that calibration, China and India remain untapped gushers. While the average American drinks 412 bottles of Coke products a year, it's just 28 in China and seven in India. With their billion-plus populations, "they're the future of the company," says Mark Swartzberg, an analyst with Stifel Nicolaus. "There is still a lot of economic development to happen for the world, and China and India are clearly leading the way."

China and India have been the future for much of the past. Coke landed in China in 1927, then retreated in 1949, when the People's Republic could not find room for a populist beverage. The company returned in 1979, the year Deng Xiaoping launched his economic-reform drive. In 2001, China was Coke's seventh biggest market; now it is No. 3, after the U.S. and Mexico.

Since then, growth on the mainland has been a steady progression of building bottlers and bottling plants along with retail distribution across a vast country. Coke now has distribution in almost every province.

Coke brands had a 52.5% share of China's carbonated-drink market last year, according to research firm Euromonitor International, while Pepsi's had 32.8%. Pepsi has held its ground against its bigger rival through sophisticated ad campaigns that have positioned it as the hipper drink in the eyes of many Chinese youths. Coke sponsors sports stars such as NBA center Yao Ming and Olympic diver Guo Jingjing, while Pepsi dominates in pop culture. It recently launched a Chinese music label and sponsors an American Idol--style music competition. In the matchup of flagship colas, Pepsi holds an edge with a 23% market share to Coke's 22.2%. But neither is the leading fizzy drink in China. That honor belongs to lemon-lime Sprite, with a 23.4% share--and Sprite belongs to Coca-Cola.