In the Spotlight - Who Can Rescue the Soda Makers?
Coca-Cola released its full-year results this week
It was interesting to see Big Soda's contrasting reactions to more North American CSD volume falls in full year results this month.
While PepsiCo announced a raft of cost-cutting measure to preserve margins, the Coca-Cola Co is plumping for increased marketing expenditure.
This either shows the faith Coca-Cola has in the branding of its products - they include some of the world's most iconic names, after all - or its lack of options compared to PepsiCo, which always has a thriving snacks business to fall back on.
Coca-Cola’s inflated marketing budget pleased the analysts, though, with Stifel's Mark Swartzberg pointing to some happy precedents.
“In 2004, the last time (Coca-Cola's) marketing spend was structurally increased, by 20%, global volume growth accelerated,” he said.
Perhaps some of that money will help Coca-Cola continue its longest-serving advertising ploy - the secret recipe - that CNN showcased in an article after Coca-Cola’s results this week. According to CNN, the whole premise of Coca-Cola’s secret recipe - said to be only ever known by two company employees at any one time and kept in a safe at Coca-Cola’s headquarters in Atlanta - is probably bogus. It now only serves to increase consumer interest. “The very idea of mystery attracts attention, and is often seen as an element of quality,” a marketing expert told the news network. “A typical consumer would think that it must be a valuable product if they are doing all these things to protect the recipe.”
Coca-Cola will need all the help it can get as volumes in the core North American market continue to fall. It's a pattern reflected in PepsiCo's results, as well as those of Dr Pepper Snapple Group, which also unveiled its FY numbers this month.
But what to do about it?
Many analysts felt that there's not much anyone can do, as consumers exit the CSD category in droves because of health fears.
“Investors are beginning to fear that 1%-2% might be the new norm” for Coca-Cola’s volume growth, Citi beverage analyst Wendy Nicholson told the Wall Street Journal.
There was also concern over previously faster-growing developing markets. Yesterday, Mexican bottler Arca Continental reported a drop in CSD domestic volumes in 2013 in a country that gave it about 20% full-year volumes growth a year previously.
It is no surprise, then, that companies are searching for new channels. Coca-Cola earlier in the month announced it had teamed up with Green Mountain Coffee Roasters to co-develop the Keurig Cold, a single-serve at-home carbonated beverage maker due for release next year.
The Wall Street Journal said Coca-Cola made a paper profit of US$450m of the back of share increases sparked by the announcement.
However, the company is looking for longer-term gains.
As the slightly tongue-in-check Bloomberg article put it this week: “Perhaps the variety of Coca-Cola’s fizzy beverages and non-carbonated drinks such as teas, enhanced water, sports drinks, and juice on the upcoming Keurig Cold system will be enough to dazzle consumers and help them forget the bad associations keeping them away from store-bought soda.”
As soon as Coca-Cola made its announcement, all eyes turned to PepsiCo to see if it was also planning to enter the at-home carbonation market. Iin a call with analysts after her company's full-year results last week, PepsiCo's CEO Indra Nooyi revealed that the company had been working with “multiple partners” over home carbonation technology. Who those partners are, Nooyi is not saying.
But, in a possible dig at the yet-to-be released Keurig Cold, Nooyi said PepsiCo would not consider working with technology that has not been tested. Is PepsiCo working with market leader SodaStream, whose home carbonation machines have been around for years?
“We don’t have anything to add,” a PepsiCo spokesperson told just-drinks.
At SodaStream, the response was a simple: “No comment.”
Whatever happens, Big Soda would be wise to remember, as Business Insider did this week, the lessons of 1985, and the last time Coca-Cola stepped into the at-home carbonation market. The BreakMate, which could make the equivalent of 17 cans, was a 60-pound space-waster that came with an equally unwieldy US$1,799 price tag. Consumers initially attracted to the idea of having cold Coca-Cola brands on tap eventually slipped away after they realised it was far easier to buy a couple of two-litre bottles and keep them in the fridge.
Needless to say, the BreakMate was quickly forgotten. What are the chances of the Keurig Cold suffering the same fate?
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