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What can the soft drinks industry learn from The Coca-Cola Co? - Comment

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With the FIFA World Cup tournament in Russia just around the corner, the most suitable analogy when considering The Coca-Cola Co's recent performance would be to look at how the group's brands are performing on the global stage and, ultimately, decide whether the company will win or lose.

James Quincey took over as CEO from Muhtar Kent at The Coca-Cola Co in May 2017

James Quincey took over as CEO from Muhtar Kent at The Coca-Cola Co in May 2017

Results for Coca-Cola's team of brands have not been spectacular over the last five years but, in a challenging marketplace, any growth should be welcomed. In terms of tactics, the last five years have been a 'game of two halves'. The last two or three years have seen some fundamental changes in the group's strategic approach. A shift in thinking, coupled with the appointment of new leadership has seen Coca-Cola look to simplify how it does things and to restructure to put the emphasis further on to its portfolio of brands.

The headline shift has been to set about refranchising its bottling operations to return to a more "capital-light asset model". This will allow Coca-Cola to concentrate on its strength of brand management whilst letting the bottling system do what it does best; getting as much as the portfolio as possible into on- and off-premise outlets in 200 markets around the world.

Coca-Cola is now more in control of building the brand equity that facilitates much of the margin growth that will deliver the higher profit levels it aspires to

The old adage rings true: Coca-Cola has recognised that 'volume is for vanity and profit is for sanity'. Since 2015, the emphasis has been less on how much a consumer drinks and more on how much they spend on their refreshment. The restructuring means that Coca-Cola is now more in control of building the brand equity that facilitates much of the margin growth that will deliver the higher profit levels it aspires to.

A third major change during the last five years has been the adoption of the category cluster model. The movement of eggs to other baskets to make Coca-Cola a 'Total Beverage Company' had previously been assessed by crudely splitting the market between sparkling and stills. Now, the company dissects its markets by sparkling, energy, juice/dairy/plant, hydration and RTD tea & coffee. Strategy can then be fine-tuned, resources allocated and brand opportunities identified more effectively.

The introduction of brands into these clusters has also been transformed, and a new approach to innovation has been put in place. Smart companies learn as much from their failures as their triumphs, and the often-shambolic introduction of Coke Life into new markets has obviously played a part in Coca-Cola's change of style. Pioneering new concepts and ideas are now nurtured and given time to develop before the "Zombies", as Coca-Cola refers to them, are killed off and the 'building stars' are scaled up into the first team and deployed to new markets.

The company will be active in the transfer market too and if a brand is the right fit, then they can be added to the squad. Coca-Cola has demonstrated the effectiveness of this technique with the recent successes of Innocent, Zico and Honest Tea, among others. This was most profitably-illustrated with the purchase three years ago of shares and the strategic partnership with Monster Beverage Corp. Monster has finally enabled Coca-Cola to be properly represented in the rapidly-expanding global energy drink segment.

Consumer trends are constantly evolving, but so too will the products further down Coca-Cola's conveyor belt

The end result will be a conveyer belt of developing brands entering category clusters all over the world to join existing market leaders. Consumer trends are constantly evolving, but so too will the products further down the conveyor belt. This will ensure that the category clusters can always be serviced with the optimum balance of brand portfolio. 

The rise of Coke Zero, which enjoyed double-digit revenue growth last year and entered 20 new markets, highlights how valuable the new policy can be if executed well.  

The group's overall plan seems entirely plausible, but then it should do on paper. The reality on the ground may be different and bottlers will need to buy into any new innovation or product development because there is risk involved for them as well. Experience has shown that when a new product is added to the portfolio, retailers will demand that an existing product concedes shelf space. Therein lies the risk to Coca-Cola's bottling partners, and this could be a trigger for tension.

If the strategy does work, then we'll see an acceleration in the production of 'billion-dollar brands'. For Coca-Cola, these have already risen from 17 in 2013 to 21 in 2018. You would also expect that the new model will throw up enough new products to help dilute the worldwide share of CSDs from the current figure of 70%.

A good short-term test of how the new approach performs will be the further roll-out of Glaceau Smartwater and, more notably, Fuze Iced Tea. The latter has been fast-tracked as a replacement for the Nestea Iced Tea brand following the ending last year of the Beverage Partners Worldwide tie-up with Nestle, and has entered a number of new countries this year.    

What will be critical in facilitating future prosperity will be for Coca-Cola to foster a local perspective to its brand-building and marketing efforts, as well as a global one.

We may increasingly live in a global village, but every market is different and one size does not fit all.

The Coca-Cola Co Performance Trends 2013-2017 - results data


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