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Sunday, August 28, 2005

Very Bad Business Idea

Warren Buffett once said that if you gave him a billion dollars to compete against Coca Cola, he would refuse the money because he considers it a nearly impossible task. The 22 Immutable Laws of Marketing give a pretty good explanation for why this is.

So when I stumble into "Malibu Cola" aka Calcol (horrible website), I find it interesting. Their photo gallery shows things like two people pouring sugar into a funnel as part of their manufacturing process. yeah, that's definitely going to get them a low cost-of-goods-sold. Other photos show their manufacturing process, as if making cola was rocket science. And even rocket science is becoming more of a comodity.

They apparently tried to enter a viable niche market back in 1989 with a marijuana spiked product. They may have run into regulatory problems.

When Chinese people want a cola, I'm thinking they're going to be choosing Coke or Pepsi.

But its expansion plans will allow Malibu to take on global names such as Coca-Cola Co. (KO) and Pepsico Inc.'s (PEP) Pepsi Cola, as well as local players such as Future Cola made by Hangzhou Wahaha Group Co. as an almost nationally available brand.

But even with three bottling plants in China, the company's spending plans are still pretty much small beer compared with the billion-dollar investments by the global giants.

Rivals Pour In Billions

Coca-Cola has spent $1.1 billion in China since 1979 and expects to invest an additional $150 million to build six more plants in the next five years to add to its existing 28 bottling plants.

PepsiCo has invested $1 billion in China to set up 14 bottling plants andmore than 20 joint ventures across the country.

While Coca Cola and Pepsi are available throughout most parts of China, sales of Malibu Cola, Malibu Diet Cola, Malibu Sunrise orange drink and Malibu Surfs Up lemon-lime drink are limited to Beijing and the surrounding areas such as Tianjin and Hebei province.

It makes me think of all the local brands of soda and beer that got destroyed by the major players (they weren't even potential micro-brews).

UPDATE Dec 8, 2005: According to the 2nd Immutable Law of Marketing, Malibu Cola should have a brand that is purely local to China, or even to a particular part of China. Coca Cola is a global brand that stands for all things foreign and sophisticated (to people in China), so Malibu Cola should be totally local in every way like Jack Daniels.

UPDATE Dec 14, 2006: Malibu cola is being distributed in various stores in China like Wal*Mart, news update. That doesn't change my view. They may even be successful, but I'm not betting on them because I see what I believe are key weaknesses in what they're doing. Looking at them again, I see nothing yet to change my opinion.

But even if they got beyond that issue, there's another issue that's even worse. There doesn't seem to be any financial disclosure by CLCL whatsoever. No SEC filings, no financial reports that I can find, nothing. Just vague claims. I completely understand why that might be the case: the information is [probably] shared only among a select group of investors who closely hold the company (as they say here). But if that's the case, why issue any press releases at all. Since I have no detailed information about the company, I see no reason to follow it, except for pure entertainment. If someone sent me detailed information about the company, I'd be happy to render an opinion on it, when I get the time to do so.

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