More Challenges Ahead For Coca-Cola India

BMI view: We see more challenges for Coca-Cola India in the coming months on the back of a crackdown on water overuse and pollution and a slowdown in consumer spending. Over the long term, we still see strong sales growth opportunities in the country, even if we expect juices and bottled water to perform better than carbonated drinks.

We see more challenges for Coca-Cola India in the coming months on the back of a crackdown on water overuse and pollution. Authorities in Northern India have ordered the closure of a Coca-Cola bottling plant on allegations that it was using too much groundwater, polluting the soil and hurting local agriculture. This comes as groundwaters in the Uttar Pradesh region have been at critically low levels for more than a decade. Severe water shortages are widespread in India on the back of wasteful irrigation practices that governments have had difficulties to address. Coca-Cola had already been accused in the past of polluting soils and hurting local agricultural prospects with waste from its plants.

We believe the plant shutdown will not hurt Coca-Cola's operating capacity in itself but we believe the company will be forced to be more cautious on water usage, especially in India, one of its largest growth markets. The plant shutdown should have little impact on the company's business as it is one of its smallest operating units in the country, producing an estimated 26,500 kilolitres of beverage a year. Still, we believe the decision, which could be followed by others in the coming months, will force Coca-Cola to limit water usage, especially in a region where water is already scarce and used intensively for local agriculture. We believe this will be particularly challenging for Coca-Cola since the company's product is extremely water-intensive (the company used 2.3 litres of water to produce 1.0 litres of Coke in 2010, which is already down from 2.7 in 2004). The company has the highest water consumption of the entire soft drinks and food industry.

Highest Water Usage In Industry
Selected Companies - Water Consumption (bn litres per year)

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Related sectors of this article: Food & Drink, Drink
Geography: India

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