"We're reallocating money to the places that have momentum" - Coca-Cola Co COO - Analysis

In its first-half results yesterday, The Coca-Cola Co noted a strong performance in some of its largest and most developed markets - including the US, Mexico and Japan. However, this performance was offset by "difficult external conditions" in many of the company's emerging and developing markets - including China and Argentina. 

In the notes that followed, analysts called out Coca-Cola's global flat volumes for the second quarter, which ended in June. Wells Fargo's Bonnie Herzog said, in relation to volumes, that Q2 was the "worst performance in nearly two decades", while Bernstein's Ali Dibadj went with "worst quarterly result in recent memory". Dibadj said the primary sources of weakness appear to be "China, Argentina and Venezuela". 

In the company's results release, Coca-Cola CEO Muhtar Kent said that difficult conditions in emerging and developing markets contributed to "pressure on our volume and top-line performance in the quarter". The solution, he said, was to "reassess local market initiatives".

In the conference call that followed, president & COO James Quincey told analysts what that would involve. 

"We're reallocating money to the places that have momentum," he said. "And that's on the developed end, like the US and Japan. It's also on the emerging end, like Indonesia and the Philippines and places like that. We're going where we see the opportunity to get the biggest bang for the buck."

Quincey said the company would take some money from the markets which are under the most pressure. He said the company would "prioritise" in those pressured markets. "There's still some advertising, but we're doing innovations and we're doing execution and very importantly, doing affordability," he said. 

The COO pointed to an "extreme example" in Venezuela, where sugar factories had stopped production, due to a lack of raw materials. "We've actually doubled-down on really driving Coke with zero sugar in Venezuela with kind of a full red One Brand look. So there are places where we are adjusting to the need that just because you advertise, doesn't mean people are going to buy if it's an affordability problem," he said. 

Perhaps it's not just a case of 'fishing where the fish are' - the bait needs to fit the consumer. 

To look at Coca-Cola Co's performance on a regional basis, click here

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