Friday, April 26, 2013

Worldwide Daily Beverage Consumption

Back in the year 2000, the worldwide daily beverage consumption totaled roughly 48 billion servings.

At that time, Coca-Cola's (KO) shares of this consumption was a bit over 2 percent.

Roughly 1 billion servings each day.

These days, the worldwide number of servings consumed per day has increased to 57 billion with Coca-Cola's share now at 3.2 percent.

So, via what is the world's largest beverage distribution system, Coca-Cola now accounts for roughly 1.8 billion servings each day and the company now reaches consumers in 200 plus countries.

Some simple math shows that Coca-Cola picked up 8.9 percent of the 9 billion servings of incremental daily beverage consumption since the year 2000.*
(The .8 billion increase in Coca-Cola's volume -- from 1 billion to 1.8 billion -- divided by the difference between the estimated worldwide daily beverage consumption in 2012 compared to 2000.)

More than its fair share of the increased consumption. If it continues, Coca-Cola will naturally get an increasing share of worldwide daily beverage consumption over time. We'll see if it does but, considering the company's advantages, it seems not a stretch to expect them to continue doing just fine in this regard.

The bad news is that carbonated beverage sales in the U.S. remains challenging. The good news is a bunch of the company's profits come from elsewhere with no shortage of opportunity in the emerging markets.

Carbonated beverage sales are also a challenge in Europe but the region still remains a nice source of profits.

See page 34 of the latest 10-Q or page 57 of the latest 10-K for more details on the company's operating income and margins in different parts of the world.

This Fortune article points out that the average American consumes 400 servings of Coca-Cola products each year. That number includes non-soda beverages, of course. The American beverage market seems rather saturated to say the least.

Global average consumption of Coca-Cola products is more like roughly 90 servings each year.

Over time no doubt that gap should be an opportunity though it likely closes rather slowly over time.

Coca-Cola will certainly -- like any business -- have its ups and downs but the company currently has very attractive core business economics.

High and durable return on capital.

Chances are, the company will continue to have very sound economics even if possibly somewhat less so than in the past.

Durable advantages make more than solid increases to intrinsic value over time quite likely.

So it remains quite a business with plenty of prospects but, unfortunately, the stock seems awfully expensive these days.

"Risk is not inherent in an investment; it is always relative to the price paid." - Seth Klarman in his 2010 Annual Letter

The initial price paid relative to current value matters even for the highest quality businesses.

Adam

Long position in KO established at much lower than recent prices. No intention to buy or sell near current prices.
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