Coke after Coke?
Even though Coca-Cola was able to establish itself as one of the most prominent companies in
the United State since its inception in 1886, few companies are as defined as it is by one single
product. When Mr. Quincey stepped in as a CEO in May 2017, it was clear for him that the
future of the company would lie in its ability, or inability, to move beyond Coke.
Company under pressure
The company is under increasing
pressures from multiple fronts.
Government regulators see its
main product as a threat to
public health, and are
introducing taxes on soda
products. Consumers are
increasingly health conscious.
The soda consumption in
America has decreased by about
75% since the 90s. Even the
Coke Diet, once seen as a
healthier alternative to soda,
has experienced a decline in sales, as shoppers grew wary of artificial sweeteners. Furthermore,
like almost all industries at the moment, consumers are increasingly looking for the
convenience of shopping from home through e-commerce retailers.
Responding to these pressures, as well as to the impatient investors looking for increased
margins, efficiency measures are being taken. A plan to save 3.8B has been deployed in May
2017, selling off the company’s vast network of bottlers. This could mean a decrease in
revenues of almost $7B for Coca-Cola in 2017, but is being undertaken in an attempt to allow
them to be more agile and profitable moving forward.
Coca-Cola’s product portfolio
In 1955, the company still sold only Coca-Cola products. Today, Coca-Cola holds a 50.9% market
share in the carbonated drinks market, and 23.3% share in the general soft drinks market
(directly followed by competitor PepsiCo in both). It grew by offering other types of frizzy dinks,
such as Sprite and Fanta, as well as a diversifying in other drinks such as water (Smart Water),
Iced Tea (Honest, Fuze), healthier juices (Odwalla, Del Valle), and sports drinks (Powerade,
Vitamin Water).
This shift to other types of drinks is continuing, and Mr. Quincey wants to speed the growth of
such offering. However, soda still accounts for 70% of Coca-Cola’s volume. It has dedicated a
business unit whose sole purpose is to find new promising drinks, and to keep an eye on
emerging innovations in the drinks market.
The once star company slowing down
Coca-Cola has experienced a declining income year after year for the past few years. The
decline in sales for the soda segments, as well as the restructuring and transitioning of the
company, are at cause. As described earlier, such restructuring include the refranchising of
bottlers, to move away from a capital extensive model, in hopes of a higher margin future.
Competition
Coca-Cola is not the only one to think about diversification. PepsiCo has long had a more
diversified portfolio of drinks and snacks. It has diversified with mergers and acquisitions such
as Fritolay (Lays, Munchies, Doritos and more), Tropicana, Quaker and others.
However, Coca-Cola and PepsiCo obviously don’t see everything in the same light. As Coca-Cola
is selling its bottlers, PepsiCo did the exact opposite just a few years ago, purchasing its two
biggest bottling groups. According to reports, this move was done in an attempt for PepsiCo to
be able to have a quicker supply chain, enabling it to introduce more quickly new products on
the market, and develop a cost and competitive advantage.
Challenges ahead
Coca-Cola’s strength has long been in marketing. Would it be able to keep it’s magic with such
diversified brands and products? Furthermore, soda is more profitable than other types of
drinks, so would diversifying achieve the margins investors are looking for? Consumer demand
is growing for products such as bottled water, which is known to have particularly low margins.
Having a strong international presence, how can Coca-Cola diversify its brand portfolio to take
advantage of local tastes? Is the sale of bottlers really the right move for Coca-Cola’s future?
Source: The economist