Coke vs. Pepsi in One of Asia's Largest Untapped Markets


In the mature markets of the U.S. and Europe, the world of carbonated drinks is what it is: Coca-Cola (NYS: KO) has its fans and its share of the market; PepsiCo (NYS: PEP) has its fans and its share of the market. People's tastes and the current market shares likely won't change there. If they do, it will be by very little.

It's in emerging markets that the battle between the two beverage giants still matters, and now that old war has opened on a new front, in a country with more than 60 million untapped consumers: Myanmar.

The place
Myanmar is the country formerly known as Burma. It's one of Southeast Asia's largest countries, but one of the least-developed, due mainly to the fact that it was under control of a brutal military dictatorship from 1962 until 2011.

Many companies, even if they had the opportunity to do business there, didn't want to be associated with such a government and so stayed away. Democratic elections were finally held in 2010, however, and as a result long-standing U.S. sanctions are going away and the country is slowly starting to open up for business. This is good news for the people of Myanmar, as well as investors in the cola giants.

Someone to watch over me
Pepsi's deal is with a distributor called Diamond Star, which has been doing business in Myanmar for 50 years. As such, Diamond Star undoubtedly knows its way around the economy. This should give Pepsi some advantage as it competes there with Coke. And Pepsi is wasting no time getting started in Myanmar. Its beverages are being sold in certain areas, with distribution set to increase in the coming weeks.

Coke announced its intention to return to Myanmar this past June, and seems to be moving more slowly. Its first move was to make a grant of $3 million to support women's economic empowerment there through job creation initiatives, a laudable way to kick things off. Its next move will be to import products into the country from Coca-Cola operations in neighboring countries. Previously, Coke had not done business in Myanmar for 60 years.

Coke and Pepsi: toe to toe
For what it's worth, the Dr Pepper Snapple Group (NYS: DPS) isn't operating in Myanmar, and appears to have no plans to. Monster Beverage (NAS: MNST) has no chance of going head-to-head there with Coke and Pepsi, so the upcoming cola wars in Myanmar ought to be a straightforward battle between the soda kings.

But while Pepsi has Diamond Star to expertly guide it through what is undoubtedly a very different kind of economic environment, Coke is No. 1 for a reason. With gross margins of 60% and 52% and operating margins of 23.22% and 14.95% for Coke and Pepsi, respectively, Coke is a distribution and marketing machine, a streamlined, jet-powered bulldozer. And once it's done its due diligence in figuring out how to do business in Myanmar, count on it to power through the country.

Being diversified beyond beverages into snack foods, Pepsi can never operate as efficiently as Coke, which really has just one job to focus on: selling drinks. And while Pepsi has one of the strongest brands in the world, Coke is almost certainly the world's biggest and best-known.

Did someone mention world domination?
All of which is not to say that Pepsi can't do well enough in Myanmar to bring in some serious revenue and profit. CEO Indra Nooyi seems confident: "PepsiCo has a strong and growing business that spans more than 200 countries and territories around the world, and we are constantly looking for new growth opportunities that will put our food and beverage brands in the hands of more consumers. Myanmar is a market with great potential, and our agreement with Diamond Star [is an] important first step toward expanding our presence in the country."

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Fool contributorJohn Grgurichis a regular contributor to The Motley Fool, and to both Coke's and Pepsi's diet-soda divisions, but holds no positions in any of the companies mentioned in this column. Follow John's dispatches from the front lines of capitalism on Twitter@TMFGrgurich.The Motley Fool owns shares of Coca-Cola and PepsiCo. Motley Fool newsletter services have recommended buying shares of PepsiCo, Monster Beverage, and Coca-Cola. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has a positively scintillatingdisclosure policy.

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