The Power of Coke’s Durable Competitive Advantage
Brian Polino submits:
It was only after traveling across the heartland of America that I recognized the true value of a durable competitive advantage. On my way to the Berkshire Hathaway (NYSE:BRK.A) Annual Meeting, it was hard not to see a Coca-Cola (NYSE:KO) distribution truck every time you scanned the road’s horizon. After witnessing this firsthand, I wanted to immediately buy the stock as KO obviously benefitted from supreme economies of scale. Most investors flock to what seems to be the next high growth company, such as Amazon (NASDAQ: AMZN) or Apple (NASDAQ: APPL). However, these companies operate in a highly competitive industry where market share can be easily gained or lost. Coke’s biggest competitor is Pepsi (NYSE: PEP) and after a closer look, it seems more like friendly competition than a fierce fight for market share. Perhaps you need to look no further than Coke for the next high growth stock.
Franchise value, economies of scale, and durable competitive advantage all essentially translate to the same thing, which is operating with a wide economic moat to ward off competitors. Warren Buffett, an owner of Coke common stock, likes to invest in companies that operate with a wide and ever-expanding economic moat that makes it impossible for competitors to gain valuable market share and industry growth.
Investing, Long Term Investment, stock market | admin April 30, 2010
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