New bottling plant
In March 2010, Coca-Cola announced the construction of a new bottling plant in Malaysia. The announcement was made during the groundbreaking ceremony for the new plant.
The facility is built at Bandar Enstek industrial park in Nilai in the southern state of Negeri Sembilan, Malaysia.
Construction of the new facility was carried out according to leadership in energy and environment design (LEED) certification standards. The facility has been operational since June 2011.
About 30 acres of land was acquired by Coca-Cola from TH Properties, the developer of the Enstek industrial park, to build the new plant. The total built-up area of the facility is 123,024m². About 15% of stake in the new plant is held by Malaysian investors. Armed Forces Fund Board has a 10% stake and a private company AAD Equity has 5% stake.
Coca-Cola took the decision to locate the new plant in Nilai within four months after studying several other locations. Nilai was chosen because of the lower logistics costs for transporting raw materials and finished goods. The city is also close to Kuala Lumpur and Port Kland, and has a good supply of water and electricity. The availability of freehold land that fits into the timeline of the project was also a reason for choosing the Nilai site. In addition, the Malaysian Government offered several attractive incentives to set up the plant in the country.
Following the construction of the plant, Coca-Cola’s franchise agreement with Fraser and Neave expired in September 2011. The company’s contract with Fraser and Neave included bottling and distribution of the Coca-Cola and Sprite brands. The contract was worth $127m (MYR421m) per year.
Construction of the new plant has made Coca-Cola a direct competitor to Fraser and Neave and other local players. Fraser and Neave is expected to introduce about 50 new beverages over the next two years to compensate for the expiry of Coca-Cola’s contract.
The new plant was constructed to boost Coca-Cola’s sales in the stagnant Malaysian soft drinks market. The per capita consumption of the company’s soft drinks is low in Malaysia, at 4-6% per year, while the consumption rate in other emerging markets is almost double.
Construction of the plant is expected to boost consumption levels in Malaysia, particularly in supplying the company’s biggest brands such as Coca-Cola and Sprite.
About 600-800 jobs are expected to be created with the construction of the new plant. Economic impact studies have revealed that every job created at the Coca-Cola company will create an additional ten jobs.
Overall, about 600-800 jobs are expected to be created for local suppliers and distributors. Coca-Cola has planned to source about 90% of raw materials locally, which will also generate additional jobs.
Coca-Cola’s investment decision is expected to boost foreign investment into the Malaysian economy. Foreign investment into the country plummeted in 2009 and the country has not been able to attract any significant investments. With Coca-Cola’s announcement, the government hopes that other companies will follow suit.
Coca-Cola’s investment in Malaysia is part of the company’s increased focus on emerging markets. The company’s sales in countries such as China and India have offset the fallen sales in the US.
The company is planning to adopt an aggressive strategy to boost sales in Asia, which is expected to be biggest growth driver for the company in the future.
Coca-Cola has invested one third of the total $302m in building the new plant. The remaining will be invested in sales, marketing and production innovation over a period of five years.
The main reason for Coca-Cola’s stagnant sales in the Malaysian market has been attributed to tough competition and a narrow product range. The company’s investment in sales and marketing is expected to boost sales of its products. Coca-Cola is also planning to introduce new beverages into the Malaysian market. These beverages will be in different categories such as isotonic and tea.