This Coca-Cola Business in China Gives You Steady Dividends

In China, foreign businesses often have to partner with local enterprises to sell their products or services. Even an internationally famous and giant beverage company like Coca-Cola is no exception.

Coca-Cola partnered with two companies to produce, bottle, and distribute Coca-Cola products in Mainland China. Swire Pacific (SEHK:19) first acquired a Coca-Cola bottler in Hong Kong in 1965. The partnership expanded to Mainland China and Taiwan in the 1970s.

Today, Swire Pacific is treated as an independent bottler, one of the five largest in the world. This means that Coca-Cola has no direct involvement in the operations of these plants, although there are agreements to pay royalties and fees, comply with standards, and purchase concentrates from Coca-Cola. Swire Pacific owns the following bottling and distribution subsidiaries in Mainland China:

1. Swire Coca-Cola Beverages Fuzhou Limited (100% owned)

2. Swire Coca-Cola Beverages Guangxi Limited (100% owned)

3. Swire Coca-Cola Beverages Hainan Limited (100% owned)

4. Swire Coca-Cola Beverages Hefei Limited (100% owned)

5. Swire Coca-Cola Beverages Jiangsu Limited (100% owned)

6. Swire Coca-Cola Beverages Jiangxi Limited (100% owned)

7. Swire Coca-Cola Beverages Yunnan Limited (95.10% owned)

8. Swire Coca-Cola Beverages Zhejiang Limited (80% owned)

9. Swire Coca-Cola Beverages Zhengzhou Limited (94.44% owned)

10. Swire Guangdong Coca-Cola Limited (62.96% owned)

11. Swire Guangdong Coca-Cola (Huizhou) Limited (62.96% - 85.19% owned)

12. Swire Coca-Cola Supply Chain Management (Hainan) Co., Ltd. (100% owned)

China Foods (SEHK:506) is Coca-Cola's other partner in Mainland China. Unlike Swire Pacific, China Foods isn't an independent bottler and has closer ties with Coca-Cola, which holds a 35% stake in the joint venture. China Foods' parent company, COFCO, China's state-owned and largest food and agriculture company, owns the remaining 65%. The joint venture was established in 2000, and China Foods’ sales cover North, Northeast, Northwest, and part of Southwest China.

The subsidiaries serving these regions are:

1. COFCO Coca-Cola Beverages Limited (COFCO Coca-Cola): 65% ownership

2. COFCO Coca-Cola Beverages (Inner Mongolia) Limited: 52% ownership

3. COFCO Coca-Cola Beverages (Shandong) Limited: 48.75% ownership

4. COFCO Coca-Cola Beverages (Jinan) Limited: 48.75% ownership

5. COFCO Coca-Cola Huazhong Beverages Limited: 65% ownership

6. Gansu COFCO Coca-Cola Beverages Limited: 65% ownership

7. Coca-Cola Bottlers Manufacturing (Jinan) Company Limited: 65% ownership

8. Coca-Cola Bottlers Manufacturing (Shijiazhuang) Company Limited: 65% ownership

9. Coca-Cola Bottlers Manufacturing (Yingkou) Company Limited: 65% ownership

There is no overlap between China Foods and Swire Pacific in their territories, which are well-defined.

We prefer to look at China Foods as a Coca-Cola pure play in the China market as opposed to Swire Pacific. The reason is that Swire Pacific is a conglomerate with many other businesses, including property development, hotel operations, Cathay Pacific airline, aircraft maintenance, food trading, and more. Owning Swire Pacific means holding other businesses that you may not fancy, and some of these businesses may even drag down the beverage results. Thus, China Foods is a cleaner and easier business to understand and value.