Feb 14

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Do People Drink More Coke as their Country Becomes Richer?

The average person in the world consumes 89 Coca-Cola beverages per year. While this datum might sound impressive, Matthew Yglesias of Slate.com (along with other business analysts) argues that this number is rather small and in fact represents the tremendous growth potential for Coke, particularly within emerging markets. In the United States, an unequivocally well-developed market for Coke, the average person consumes 394 beverages. Yglesias argues that as incomes around the world converge, the “soda gap” will narrow. The logic for this expansion is simple and alluring: as incomes rise, people will become more willing to buy luxury goods like soft drinks. It turns out, however, that this causal link is not supported empirically.

In a fairly basic regression model that uses GDP per capita to predict Coke beverage consumption (see here for underlying data), I find that GDP/capita has no statistically significant effect on consumption after accounting for country-specific factors. This result isn’t terribly surprising when we consider that societies and cultures vary tremendously in their discretionary spending and dietary habits. Indeed, it is for this same reason that consumers in highly developed markets like France drink less than half as many Coke beverages as their US counterparts. Apparently, the French prefer other drinks (perhaps French wine?) in spite of their high level of discretionary income. Conversely, Mexico, which has a GDP/capita less than one fourth the size of that of the US, consumes the most Coke beverages per capita, 675!


About the author

Benjamin Bohr

Benjamin is a manager at Fulcrum Financial Inquiry. He specializes in statistics and data analysis for use in high-stakes litigation, business valuations, and other financial matters.

Permanent link to this article: http://betweenthenumbers.net/2012/02/do-people-drink-more-coke-as-their-country-becomes-richer/

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