Stock of the Week: Coca-Cola

Here’s the real secret ingredient.

Andrew Willis 20 December, 2021 | 4:29AM
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Andrew Willis: Coca-Cola (KOenjoys a wide moat or competitive advantage thanks in part to intangible assets like their brand, or the jolly Coca-Cola Santa Claus. And while the flavour is hard to replace, the winning formula may be the business that surrounds it.

This Cola king leverages its popularity in a way that it achieves a cost advantage that is multiples of industry peers. Did you know that most of those trademark Coke beverages you see out there today likely weren’t packaged and distributed by Coca-Cola? Instead, Coke focuses on producing the syrup concentrate and shipping it off to bottlers to add carbonated water and sweeteners.

Sector Director Erin Lash says that this latter half of the journey that a can of Coke makes to the grocery store is the expensive part. To illustrate, Coke’s concentrate operations account for about 80% of their case volume and require about 30 manufacturing facilities. The firm’s operations that finish the product account for about 20% of case volume, but require close to 90 facilities.

Coke cost efficiencies could be why investors like Warren Buffet prefer it over the likes of Pepsi, which has four times the workforce for only twice the revenue. And they don’t even have their own Santa.

For Morningstar, I’m Andrew Willis.

 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Coca-Cola Co62.91 USD0.29Rating

About Author

Andrew Willis

Andrew Willis  Senior Editor at Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.

 

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