Have we reached peak soft drink? – Coca-Cola | Summer Series

Bryce: [00:00:22] Welcome to the Equity Mates Summer Series, proudly sponsored by Sharesies. Over 12 episodes where diving into some of the most exciting, interesting and well known companies here in Australia and from the US. Each episode we're also joined by an expert to help us unpack the key metrics the bull case and the bear case for each company. My name is Bryce and as always, I'm joined by my equity by Ren. How are you going?

Alec: [00:00:44] Oh, I'm very good, Bryce. Good to be back. Yes. Cited for this one. 

Bryce: [00:00:48] Absolutely.

Alec: [00:00:49] Big company. Everyone's heard of it. But do we invest in it? That is the question. 

Bryce: [00:00:54] That is the question. And today we are diving into Coca-Cola

Audio Clip: [00:00:58] With more than 1.9 billion drinks served every day. Coca-Cola is one of the world's largest beverage companies from its humble beginnings, selling a single product at a drugstore for $0.05 a glass. The company now has a roster of 200 brands. That includes Coke, Fanta,. 

Bryce: [00:01:14] Massive Company. And you're going to see how big in a moment. And our expert joining us in the second half of this discussion is Will Liu from Wilson Asset Management. So can't wait to get him on to hear his thoughts on coke. The Equity Mates summer series is proudly supported by Sharesies and Sharesies just keep delivering. The Sharesies platform was awarded a 2022 Canstar Innovation Excellence Award, with the judges saying the platform is, quote, unique with a significant wow factor as it reduces barriers to entry for new investors and Ren. One of those barriers that they make easier is accessing stocks on three different markets Australia, US and New Zealand. And there's an auto invest feature which truly allows you to dollar cost average. Love to say it. You can use promo code grow when you sign up to the Sharesies platform for ten point in your account ready to invest promotion terms and conditions apply and that code is available to everyone. It's public. We don't get any kickback kickbacks from it. It's just for you. Yeah. 

Alec: [00:02:15] It's available to everyone, but multiple people use it. 

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Bryce: [00:02:33] That's it. That's it. We did give a call to action as well. Head to sharesies.com.au To learn more. Alright Ren, Well I ran we're starting with I explain this company in one sentence.

Alec: [00:02:43] World's largest non-alcoholic beverage company. 

Bryce: [00:02:47] Huge it was.

Alec: [00:02:48] The world's largest beverage company.

Bryce: [00:02:50] I guess it depends on how you define the size revenue market cap. 

Alec: [00:02:55] All of the above. 

Bryce: [00:02:56] All of the above. 

Alec: [00:02:57] Ladies souls, sub brands. Just had a quick google Bryce magic of podcasting. It will sound like it was but a second. Yes. So Coca Cola comes in at third second, Nestlé first, Anheuser-Busch InBev. The thing is, if Nestlé second, then. Like they're not selling alcohol, they're selling like formula and yeah. 

Alec: [00:03:21] Milo. 

Bryce: [00:03:23] Chocolate drinks. 

Alec: [00:03:25] So Coca Cola may be the world's largest pure play. You know, the alcoholic beverage company? 

Bryce: [00:03:31] Yeah. Good, good one. Good one. Founded in 1886 by a famous physician by the name of John Pemberton, who was living back in the 1800s, kicking around he after his stint in the war, he became addicted to morphine and needed a herbal remedy. So he found one called Vin Mariani, containing ground coca leaves and red wine. And after finding it a bit distasteful, given the fact that he was a physician, he created his own red wine drink using coca leaves and coal and nuts. Now coca leaves actually have 0.35% cocaine in them. Would you be surprised? 

Alec: [00:04:13] I wouldn't be, because you always bring them into the office in your life. Just to get me through the day. 

Bryce: [00:04:18] Not true. Anyway, long story. Short, that was the founding story of Coca Cola, coca leaves and kola nuts. Fast forward 200 odd years and it is now one of the largest pure play non-alcoholic beverages. 

Alec: [00:04:34] Now the company is called Coca Cola, but it is not just selling Coca Cola these days. The company today, depending on who you ask. But one website I came across has more than 4000 different drinks across 500 brands. And in our talk, we've got 200 brands. Yeah.

Bryce: [00:04:54] Maybe that's a bit old.

Alec: [00:04:55] Between 204 hundred Brands. 

Bryce: [00:04:56] 400 probably. Sounds. Sounds right.

Alec: [00:04:59] Sounds bigger.

Bryce: [00:05:01] And bigger. Their brands stretch across a number of categories hydration, sports, coffee, taste, sparkling, all that and hydration nation. 

Bryce: [00:05:09] Well, you know what I mean. 

Bryce: [00:05:10] Like sports. Yes. Huge house of brands. Ren.

Alec: [00:05:14] So, Bryce. Let's turn to the business model of Coca Cola, because I think that's really interesting. And I want to give a hot tip to a really good book on Coke. It's called Citizen Coke The Making of Coca Cola Capitalism. Yeah. Have you read it? 

Bryce: [00:05:26] No, but you've spoken about it. 

Alec: [00:05:28] Sorry, I'm a broken record on it.

Bryce: [00:05:30] No. 

Alec: [00:05:31] Anyway, it's. It's really good, but the Coke business model, the business model, innovation behind the drink is keep all the value creating parts in your business and then offload all of the costs onto suppliers, municipalities, governments. Not exactly ethical capitalism, but effective capitalism, but just a fascinating book. And that that really starts it doesn't end, but it really starts with the concentrates and syrups. 

Bryce: [00:06:01] Yeah. So essentially what you're saying Ren is that they have the IP around what goes into the concentrates and syrups and then they send these concentrates and syrups to bottlers and then outsource the actual bottling and distribution of the drinks. Yeah. So that all the cost associated with bottling and distribution sits outside of Coca-Cola. The value that they create and the IP, the ingredients and the recipes for the concentrates and syrup sits with them. 

Alec: [00:06:29] Yeah, and it's not just with concentrates and strips, it's even with, you know, back in the day, Coca Cola would recycle their own bottles, but they had orchestrated this massive PR marketing and lobbying campaign started in America to like offload that cost onto municipalities. And anyway, it's really interesting book, let's not get bogged down on it. But I think the interesting thing with this business model is that when you buy a Coke, wherever you are, almost wherever you are in the world, you're not buying it from the Coca-Cola Company in Australia. You were buying it from Coca-Cola Amatil and now they merge with the European bottler. Coca-Cola Amatil would buy syrup from Coca-Cola Company and then Amatil would. I'm fascinated to know how this works, but what I'm imagining is they pouring syrup into a giant SodaStream, fizz it up a bit, put it in little bottles that ship it off. Wouldn't it? Wouldn't you love to say a sparkling water factory? Like how like, wouldn't that just be fascinating? 

Bryce: [00:07:28] Yeah, it'd probably underwhelming, given the prices you pay for it at the checkout, but anyway, so they don't do they don't do this for all their drinks. They also do create the finished, finished products for some of their range. So sparkling water for one sports drinks, coffee, tea, juice, all the sort of non Coca-Cola branded products they keep in house and and sell direct to distributors. But to put some numbers around Coke, it's massive. 2.1 billion servings a day, roughly 225 bottling partners around the world, 900 bottling plants and 31 billion unit cases sold in 2021. 

Alec: [00:08:03] Bryce, was telling me offmic, he don't wanna be a Coca-Cola bottler. He would want to be a fanta bottler.

Bryce: [00:08:08] I do actually. Like Fanta in School. So huge numbers. 

Alec: [00:08:14] And very geographically diverse. I'd business as well looking at their revenue so 18% from Europe, Middle East and Africa that's a big geographic grouping, 11% from Latin America, 33% from North America, 13% from the Asia Pacific, 7% from the Global Ventures, and then 18% from bottling investments that they have. So like a very diversified business case volume. North America, not the biggest 8% of the volume comes from North America. So it's the biggest in terms of revenue at 33%. But in terms of volume, it's 18%. Latin America, 27%. Asia Pacific 23%. Europe, Middle East and Africa, highest volume probably because Europe, Middle East and Africa, it covers about half the world. 29%. 

Bryce: [00:09:04] Yeah. What is the future of Coke? This is just is this just a story of will take more market share or is it innovation? 

Alec: [00:09:10] I think like the conversation about the future starts with the conversation about customer trends because it feels like coke, full sugar baked, big time. I don't know if you feel that as well. 

Bryce: [00:09:20] Well, I mean, reading the the annual report, there's more and more products that they're developing with less and less sugar. So they have peaks in terms the amount of sugar they're putting in products. 

Alec: [00:09:31] When I was in the States, in Europe in 2016, I just remember this billboard and it stuck with me forever because it's like, this isn't having the effect that you want. Massive billboard, big bottle of Coke, Coca-Cola now with real sugar. It's like that, right? 

Alec: [00:09:48] Is making it clear that you are pumping high fructose corn syrup into it now. Like you're you're saying the quiet part out loud, like you shouldn't be revealing. These people thought it had real sugar. 

Bryce: [00:09:59] He got busted before that. So what you're saying is the the future of Coke lies in the changing consumer preferences when it comes to the types of drinks that we're drinking? 

Alec: [00:10:09] Yeah, I think that's that's what Coke are saying. They have a massive innovation pipeline. There's some pretty funny ones in there. Did you ever try Coca-Cola coffee? Not neither, but it was in when we were at college and Woollies. It got rolled out in Australia. I don't think it's rolled out anymore. They really, I guess, are proud of the innovation pipeline from a recent investor presentation. 1500 plus plans 2022 innovations across 80 markets. 60% of the innovations outside of sparkling products as well. So outside of the fizzy drinks, for want of a better term. 

Bryce: [00:10:49] Well, here you go. There's a start. 28% of their volume last year, 2021 was low or no calorie and Coke Zero grew by double digits across 108 countries in 2021. So that's the changing. No surprises there. 

Alec: [00:11:01] Have you ever wondered why they subbed out Coke Zero for Coconut Sugar in Australia? 

Bryce: [00:11:05] I did learn this at Woollies. It was. It's just a marketing play. 

Alec: [00:11:10] I always I might. This is may being cynical tinfoil hat on and allege and not true but I was always like there must have been something wrong with the Coke zero formula that they wanted to sub it out before people got wise to it. Pull it off the shelf, take it out, replace it. Because otherwise, like you replace one product with the same product. What is like does low sugar do better in focus groups than zero? It's like. But consumers know that zero is no sugar. 

Bryce: [00:11:39] Good question. We'll have to ask the Coke expert, which we will have coming up next. I know the answer, but let's have a look at some of the big numbers here. It was listed in 1982 and the stock is up 6,300%. Big fan of Coca-Cola is Warren Buffett. It's been in his portfolio for since inception almost.

Alec: [00:12:00] And he drinks one every morning.

Bryce: [00:12:01] Drinks one every day, $269 billion market cap, 38.7 billion in revenue in 2021, an almost $10 billion profit on top of that. So churning out the numbers. But just like we were speaking about with Amcor and even Nike, there is definitely an ASG tinge to Coca-Cola and it and it really surrounds water usage. Coca-Cola use about 305 billion litres of water per year, 305. Now, what does that boil down to? No pun intended. They use 1.8 litres of water for every litre of product that they produce. 

Alec: [00:12:44] Well, sorry, say that again. 

Bryce: [00:12:45] They use 1.8 litres of water for every litre of water products that they produce. So a huge water user. If you look through their annual presentation, it's everywhere. They recognise that it's a problem. They say they're doing everything to reduce their water consumption. They say they have and they are doing something about it. But it's just something to keep in mind when you're investing in companies like this, to have a look at the environmental impact. They use an extraordinarily large amount of water. They have ambitions as well to make 100% of packaging recyclable globally by 2025. That's interesting to keep in mind when you listen to the Amcor episode, given that Amcor produce the packaging for Coca-Cola, so 100% of packaging recyclable by 2025, currently they have 90% of the packaging. 

Alec: [00:13:31] That being Coca-Cola is a lot easier than being like Unilever and trying to do this because rigid plastic bottles and metal plastic cans a lot easier to recycle than your soft plastics. Yeah, yeah, yeah. Just one thing. You just got to be careful about greenwashing when it comes to a lot of these things. You just mentioned some of the the 305 billion litres of water used per year. 1.8 litres per litre of product. That doesn't feel like an efficient, I'm sure. Yeah. Anyway, Coke, would you be surprised to know that Coca-Cola won a Guardian Sustainable Business Award? 

Bryce: [00:14:08] I wouldn't be surprised. 

Alec: [00:14:10] I'm surprised The Guardian gave it to him. 

Bryce: [00:14:13] Unbelievable. But yeah, there is a fair bit of greenwashing, and particularly when you read the reports around this. No, it's all glowing from Coca-Cola's point of view. So you do need to take it with a grain of salt. So, yeah, just something to keep in mind. By 2030, the company aims to have at least 25% of volume globally across all of their brands sold in refillable or returnable glass or plastic bottles. But what is not a refillable plastic bottle? Do they mean you could go to a bottler and get it refilled with Coke 20? 

Alec: [00:14:46] No, no. They mean water. 

Bryce: [00:14:48] So what you're showing me which mean maybe it's a can can not refill. 

Alec: [00:14:52] You're not meant to refill those single use bottles. 

Bryce: [00:14:55] I think over And over again. 

Alec: [00:14:56] Yeah. Because I was doing it at work back in the day and my boss was like, you've got to stop doing that. 

Bryce: [00:15:01] Yeah. Because of the EPA or whatever anyway. 

Alec: [00:15:05] But looking at some of those things, talking about returnable bottles, recycling rate, citizen Coke, it's it's a must read. If you're interested in investing in Coke as a business, if you're interested in understanding the business model and I guess how they innovated around that business model because it's a pretty simple product, but it's a fascinating business. That book is a must read. 

Bryce: [00:15:27] So before we jump to a break, Coca-Cola is listed on the New York Stock Exchange. The ticker is KO. And a reminder, you can access the US stock market, plus the Australian and New Zealand markets on the Sharesies platform with no investment minimum use code grow when you sign up to the Sharesies platform for $10 in your account ready to invest. All investing involves risk. This is not a recommendation and you should perform your own research promotes and says apply. Now we're going to take a very quick break and we'll be right back to discuss Coca-Cola with Will Liu from Wilson Asset Management. We are back with our expert in the studio to help us understand a little bit more about Coca Cola. And it is our pleasure to welcome Will Lou investment analyst at Wilson Asset for the Wilson Global Fund. The ticker is WGB. Well, welcome.

Will: [00:16:23] Thanks for having me. 

Bryce: [00:16:24] We are excited for this one. Some people might think Coca-Cola is a boring company, but. Oh, my, it's a massive one. 

Alec: [00:16:29] It is. It is. Nothing boring about consistent returns for what, over a century? 

Will: [00:16:34] Yes. Particularly in this environment. 

Alec: [00:16:38] So we've spoken a little bit about what the company is before the break, and now we really want to turn to how we analyse it. And so let's start with what metrics matter, what metrics don't matter and what you're watching for if you're researching. 

Will: [00:16:52] Sure. I guess what metrics matter is really dependent on your investment philosophy as well, as well as the sector in the company. So I will send asset management. We tend to focus on undervalued growth companies. So naturally investment metrics tend to skew towards those characteristics. So I might frame it this discussion in the sense of growth value and then maybe quality as an overlay as well. So starting with growth, revenue growth, it's quite simple actually. It's unit volumes, which is unit cases, salt pricing and mix. So if you add those three together, you get to organic revenue number and that's a pretty good indication for top line growth. 

Alec: [00:17:27] And just for people. So pricing pretty obvious, but mix is about the different products that are sold and how much you know. Yes, correct. A case of Coke might be more valuable than a case of minute maid juice. Correct? Correct. That's one of their products, isn't it? 

Bryce: [00:17:49] Minute Maid. They make it in a minute.

Alec: [00:17:50] No, no. Maid. MAID. 

Bryce: [00:17:52] Okay. 

Will: [00:17:54] It's very popular in China. Is it? I see it a lot on the aeroplanes when it's travelling. 

Alec: [00:17:58] It's big in America as well, isn't it. 

Will: [00:18:00] I think so, yes. 

Bryce: [00:18:02] Anyway, we divert, so. Yeah. 

Will: [00:18:06] Yeah. So that's your organic revenue growth profile. But I guess you have to delve a little bit deeper into that as well. So where is the geographic mix? How much of the growth is coming from emerging markets versus developed markets? What channel it's coming from side on market was on premise versus off premise. So whether you can show me at home or versus in a bar and then the key thing is really the market share across its beverage category. So the beverage industry is not the best, not the highest growth industry. So if they can take market share, that's a pretty good sign for the business. But we also I'd like top line growth is one thing we've seen in this environment. How it translates to earnings growth is really important as well. So we keep a really close eye on margins, particularly in this global inflationary environment. We've seen costs of goods go up, we've seen freight logistics costs go up, wages are going up. So it's an increasingly difficult environment for companies to navigate. And for Coca-Cola, we specifically look at those costs as a percentage of sales. And then if we look at how they can leverage those, you get a better understanding of margins and how that translates to earnings growth. 

Alec: [00:19:06] So how have Coke been managing the inflation affected? Supply chain disrupted 2022? 

Will: [00:19:13] Yeah, they're definitely feeling the pressure, their cost of goods gone up. The good thing about Coca-Cola is they're relatively inelastic demand, so they've been able to jam through pricing. So I'm sure people have noticed in the supermarkets the price of a Coca Cola is probably gone up quite a lot. If it hasn't gone up, it might have shrunk inside. 

Alec: [00:19:32] 375 mil cans. Now go to 250 like it is. Significant, massive. Yeah. 

Will: [00:19:39] And you don't even notice but the Oh yeah, that's good. 

Alec: [00:19:43] It's like those long thin cans rather than the fat ones. 

Bryce: [00:19:46] Yeah, yeah. Skinny cans is going nuts in the Asian countries. I think I was. Yeah. 

Will: [00:19:52] I can understand it. Like you for me, like whenever I have a coke, it's like the first three or four sips are really good. And then by the time you get to the end, it's sort of. 

Alec: [00:20:01] I find a way to palatable. So top line revenue bottom line earnings or profit they're, they're really the two things that you're looking for. 

Will: [00:20:15] Yeah. For the growth part of the equation. Yeah. The other part is obviously valuation and we know that valuation is really important. Like it's one thing to buy really great companies with really good outlooks, huge potential, but paying the right price is super important, particularly where interest rates are, where they are down. 

Bryce: [00:20:31] So we did a deep dive on Nike and on their Investor Relations website. The first thing that comes up, it says we are a growth company. They're a massive company. Yes. Well-established, similar to Coke, been around for ages, well established. You say that you're looking for undervalued growth companies. Is Coca Cola a growth company?

Will: [00:20:53] Yeah. So full disclosure, we don't own Coca Cola. We don't think it satisfies the growth criteria just because. We're a little bit sceptical on the beverage industry as a whole. The other thing is like with this uncertain environment, everyone's flocking to safety. So we feel like the market's shifted toward some of those very resilient earnings growth profiles. But the valuation doesn't really make sense for for its growth profile, despite it being a pretty good business.

Bryce: [00:21:20] Yeah, nice. 

Alec: [00:21:22] For context, it's trading at a 20 8pa at the moment. Yeah. You know, for a company like Coke. Yes. Surprisingly high. 

Will: [00:21:29] Yeah. Well, 28 times pay. They say industry growth is 4 to 5. It depends how you sort of mix and match it, which categories they do. Yeah. And I think we are aware of there is this trend towards health and wellness, towards healthy eating, and I think that probably is the biggest secular driver in the space. 

Alec: [00:21:47] Yeah, we were talking about that before. Like it definitely feels like the world has reached peak coke, at least full sugar coke. Like we're never going to drink as much as we did. Yeah, yeah. 

Will: [00:21:57] Exactly. Like they've that they're aware of this sort of trend. They've tried to Coke Zero. They've quietly rolled that out. They've reduced the sugar content in reforming the sprite of Fanta products. And they've also like moved to adjacent categories of tea, coffee, sports, drinks, that type of thing. 

Alec: [00:22:19] Sparkling. Water. Sparkling. But it. Yeah, it's going. Yeah. 

Bryce: [00:22:22] You've mentioned that you don't own Coca-Cola, but if you were to build a bull case for it, what would the case be? And sort of particularly, how do you think Coke is building a competitive advantage beyond what it kind of or or maintaining?

Will: [00:22:38] I guess from a starting point, there's quite a unique business model for Coke in terms of their licencing model versus the finished product model. And that licencing model is lower operating revenues per high gross margin. So they've transitioned to this asset light high margin business model, which is quite unique in the beverage sector. If I were to paint a bull case, it has to be. It is a leading global beverage brand. It's the leading non-alcoholic beverage brand in the world, has a portfolio of really strong brands, relatively price inelastic. You can see that by you look at other consumer staples products. There's sometimes private label offerings. Private label has been relatively unsuccessful in the beverage category. And the reason why is we're willing to pay that little bit extra for Coca-Cola versus home brand.

Bryce: [00:23:22] Cola, black and gold Coca-Cola drink. 

Alec: [00:23:25] That's but I've never really thought about that. But why is it that with drinks so psychologically we're like, we need the name brand, but with every other food like chips all about don't care, give me the cheap one. 

Will: [00:23:35] I guess they're protected. They're protected though, like moat really closely, like hidden their secrets. It does taste a little bit different. I know people try and mix and match it in different ways, but I still think it's a little bit different and better than most others as well. But if we wanted to make the bull case for it, it is like if you look at what they say, 4 to 5% industry growth, $160 billion tam. You look at emerging markets, that's really where the opportunity is. They've got 14% penetration in developed markets, which make up 20% of the population. The penetration in emerging markets, only 6%. So if you wanted to build a case for long runway of growth, that emerging market pace of the story is increasingly important. 

Alec: [00:24:17] The bull case basically is like the world's population is going to grow and get richer and coke is everywhere. 

Will: [00:24:22] Yes. Yes. All right. The other side is just the resilience during economic cycles. So I think most people are aware that interest rates, inflation, we're probably going to go into a recessionary scenario in 2023. So like you look at Coke, what they did in the JSE, -3% revenue growth, flat margins -3% earnings per share growth, that's relatively good compared to the rest of the market and large company 2.2 times labour balance sheet. You're not worried that if they're going to be on the other side of this crisis. 

Bryce: [00:24:51] Yeah, sleep well at night. 

Alec: [00:24:53] That's fascinating that it is so inelastic. Why people just keep buying coke. 

Will: [00:24:57] Yes. 

Bryce: [00:24:59] Great products. 

Alec: [00:25:00] Great products. Yeah. So I guess let's turn to the other side, the bear case. What would have to go wrong for this company to fall? 

Will: [00:25:10] Yeah, well, one of the really interesting things is, I guess changing consumer preferences. The worry is that you look at Philip morris, which is a cigarette company in the 1990s, they're under huge pressure now. They were the largest cigarette company that own Marlboro, which is the leading cigarette brand we look today. Coca-Cola is the largest soft drink company. The biggest brand is Coca-Cola. And there's this trend towards health and wellness and there's increasing regulatory and tax risk on sugary drinks as well. So that's really the long term bear case. The other piece of the pie is increasing competition, so there is more and more products available. I use the sports drink category as a microcosm for the broader space. If you look at sports drinks, Gatorade is number one that's owned by PepsiCo. PepsiCo, Powerade is a distant number two, if you. Roll back a few years. There's a brand called Bodyarmor, which was Kobe Bryant. That was the equity holders expand of VitaminWater. 

Alec: [00:26:06] I had never heard of it. 

Will: [00:26:07] Yes, that's up and coming is start from a small cap company turned into a significant number three player. Then Coca-Cola had to buy it out. They paid $5.6 billion for the remaining 85% they didn't own well, and that's seen as largely a defensive move because you should be able to act like you have power. Right. Why do you need to go out and buy this extra growth? 

Alec: [00:26:27] Did they. Is it still does it still exist? It still. 

Will: [00:26:30] Exists. Aren't owned by Coca-Cola? It's struggling a little bit. And then I guess it's just so many new entrants in the space, like in the sports drink category. I'm not sure if you've heard of electrolyte. So it's a mexican company that's been around for 70 years owned by a company, Mexican pharmaceuticals company called Group. PEYSER Well, and they're sort of product in the market is they have more electrolytes than everyone else. And it's taking like it's taking market share. It's going I think it's got 3% of the market in the U.S. And then the other one that's really interesting is Prime. So I'm sure you've heard of Prime, which is Logan Paul's case I the YouTube is the sports drinks. I'm, there's a massive beverage company called Prime and they're selling out, say Logan, Paul and CO. They have 37 million followers combined on Instagram. 70 million on YouTube. Yeah. And they're just marketing. So they sponsored Arsenal Football Club and you know, they sponsored NASCAR and it's going gangbusters. So it shows. Just decided. Start of this year. So it shows, like how competitive it is and like how much you need to invest to stake in shows. 

Bryce: [00:27:38] The power of Instagram and YouTube if you're watching hydration drinks and sponsoring Chelsea Football Club. 

Alec: [00:27:47] Well is that what's in the inspired unemployed future? Yeah. Well, what's on the wall of this? 

Bryce: [00:27:51] Is this is this not, though, like the alcohol industry, where you've got four massive players that just scoop up every new entrant that comes in. Yeah. That has any sort of momentum and growth. Yeah. It just can't just not come along to Prime and go.

Will: [00:28:06] Yeah, there is, there is a little bit of that because I guess the beer industry is probably even worse in terms of lower growth. You have to look into the premium beers or the Mexican beers to find subcategories which are growing the spirits industries better because there is this transition to premiumization. Yeah, this transition away from beer towards spirits. I think for Coca Cola, it really depends on how they optimise their portfolio. Like 47% of their unit volume sold is still trademark Coca Cola brand. When they go into tea coffee, how successful they are in those high growth calories is going to be really important and we'll see how management responds to that. 

Alec: [00:28:42] I just want to go back to the Philip morris example, because everything that could have gone wrong for cigarette companies went wrong, know they got tried in front of Congress, they got regulated, they got tax, plain packaging, society turned against them. But as stocks haven't they actually done okay like they're become good dividend players and payers and they've held up. 

Will: [00:29:03] Yeah they've held up okay. There but haven't been the best space to be just because if you look at this, the space they've actually decorated. So there's two sides of the ship. So the earnings power but also the valuation that the market assigns to it, particularly as everyone becomes more ESG aware in the world, there's less and less investors like that. Cash flow is very attractive, particularly in a downturn. But I think as an overall, there's been much better places to be, so it's a good place to play. Defence not so much offence. Yeah.

Alec: [00:29:34] Okay. So that that could be Coke's future just generating cash, but no one wants to own them. But yeah, there's a stigma against. 

Will: [00:29:42] Yeah. Potentially if they pivot fast enough then they might be okay but we'll see what happens. Yeah. Five, ten years.

Alec: [00:29:47] I guess the question is in like in 50 years, are they still called Coke or are they called minute maid juice or they own monster energy? Right. 

Will: [00:29:56] Yeah, they do. The distribution for Monster. 

Alec: [00:29:59] Or are they called Prime? 

Bryce: [00:30:00] Well, I've gone down a rabbit. Hole in hydration here. Prime. Their website, everything sold out. Yeah. Can't get a drink and then electrolyte. Their slogan is instant hydration. Instant insisted that how is hang over, get on that instant hydration. 

Alec: [00:30:18] I want to try it. Have you tried it before? 

Will: [00:30:22] I haven't tried one, but I'm going to try one. 

Bryce: [00:30:25] I'm looking at the where to buy a section of the site and 7-Eleven. This could be us, though.

Will: [00:30:31] Yeah. 

Bryce: [00:30:31] Doesn't doesn't look like it's okay. It doesn't look like it's Aussie yet, but Walmart, 7-Eleven, Kroger, if you're overseas, check it out. 

Alec: [00:30:39] This is Coke's competitive advantage, though. These up and coming drinks don't have the supply chain, so the coke never sold out. You know, you can get a Coke. 

Will: [00:30:47] Yeah. The difference like it used to be distribution. You have to go to Wal Mart and Kroger. But now like they say, you can do your own supply and distribute it pretty easily the power of the Internet. 

Bryce: [00:30:57] So we'll we've got to talk about ASG because. Coca-Cola is now saying, we just saw that 305 billion litres of water a year. 

Will: [00:31:05] Yes, they. 

Bryce: [00:31:05] Say that they're improving on that year, on year and have sustainability measures. But what's your take on the ESG side of Coke? 

Will: [00:31:13] Broadly, I think this applies to most companies. Most companies are trending in the right direction, like they're very well aware of the strict criteria that investors expect. So like that, they're always going to have to use what I it's a and put into their products but if you can get better test day inspection certification, make sure that's reused or recycled where possible. I think that's going to be the pathway that they go down on the side, whether they're never going to be the most ESG friendly company. But I think they've also de-risk because you have to understand a lot of the boss land is in the bottler companies, which is not that related to Coke. So they've outsourced some of that risk in some aspects as well. 

Alec: [00:31:50] Well, we always like to finish by talking about long term plans. And we we normally ask the question as if the company is successful in its ambitions. What will it look like in ten years? But for a company, that's what, 160 years old or something, it feels like ten years isn't that long term? So, you know, if Coke's successful, what does it look like 20, 50 years from now?

Will: [00:32:11] Yeah, I think it continues to be a steady compound. I would be it would be my base case if I split it into qualitative and quantitative components. Quantitative. They've given investors the guideline. So they expect to do 4 to 6% revenue growth, 60% operating profit growth, 7 to 9% earnings per share growth with a 90 to 95% free cash flow conversion. So that equation is what they'll probably do. I think that's a reasonable base case assumption. Qualitatively, I'm really looking toward how successful they are in emerging markets, whether the Coke brand resonates in the same way. And then the portfolio optimisation. So how much can they pivot towards where the consumer is moving their preference towards? I mean, if they can do that successfully, then that's that's quite good. And then finally, it is a consumer staple. What happens with the dividend yield, what happens with the share count, with the buybacks? I think there's a bit of financial engineering in that. But that that that helps the investment case as well. 

Alec: [00:33:04] Just one I know we said final question, but just you mentioned the emerging market stories a little bit like how does Coke resonate? I guess in South East Asia is probably where we see the middle class growing the fastest. So maybe if we say there like does coke land there? 

Will: [00:33:19] Well, I think it does. I think if you look at the earnings results, the growth drivers, they continue to take market share. Yeah. Whether that's the long term trajectory where they ultimately end up is is the key question. So they're quite fortunate in terms of in terms of the growth curve right now, I think emerging markets, the category is growing at 9%. So you're doing that. You're doing pretty well even if you just get industry growth. 

Alec: [00:33:41] Well, if Wilson want to send Bryce and I on a study tour to Bali, we'll tell it. We'll tell you how Coke's travelling. 

Bryce: [00:33:48] So Coke is listed on the New York Stock Exchange. The ticker is K. Okay. So if you're interested, you can jump on the Sharesies app and check it out. More information itsharesies.com.au. You can use the promo code GROW for $10 into your account as well. Promo T&Cs apply but Will thank you so much for sharing your time. Love it that you've come in and given us to the day. Brief on Coca-Cola fascinating company large can be called boring but another long term growth well compound that has some defensive assets to it. So appreciate it. Thank you very much.

Will: [00:34:21] Thank you for having me. It's been a pleasure. 

Alec: [00:34:22] Thanks Will.