Coke needs to reinvent itself
In May 2017, James Quincey, an insider, took over as CEO of The Coca-Cola Company. He has his work cut out for him. Not only will he be going to refranchise Coca-Cola’s vast network of bottlers in the US, which will reduce Coke to a branding and concentrates firm, the question for Mr Quincey is whether Coca-Cola can move beyond Coke. More and more governments see its sugar-laden products as a scourge.
It cannot have helped that in 2016, Americans were drinking more bottled water than soda. After decades-long strong growth, bottled water surpassed carbonated soft drinks to become the largest beverage category by volume in the US in 2016, according to research and consulting firm Beverage Marketing Corp.
The shift comes amid widespread concerns about the health effects of sugary beverages.
What’s added to Coke’s woes is that several of its previous attempts at introducing less sugary drinks have not proven successful. Remember Tumult, a fermented soda? Or Coke Life, which was launched with great fanfare in 2014? The green-labelled Coke, which was made with Stevia, was touted as a healthier alternative but sales volumes were disappointing. Coke Life has already been discontinued in the UK and Australia and will dwindle into near-insignificance in Germany.
True, it has also invested in other types of drinks. For instance, it recently bought AdeS, a soy drink, from Unilever. It is also developing products internally, such as Gold Peak iced tea, whose annual sales now exceed USD one billion. But soda still accounts for 70 percent of Coca-Cola’s volume. It will need more of such other products to significantly lessen its dependence on sodas.
Trouble is, traditional soda is usually more profitable than alternatives, largely because healthier brands’ ingredients cost more. Bottled water has seen greater growth than any other drink, but it has particularly slim margins.
Coca-Cola insists that it can broaden its portfolio profitably, by focusing on premium drinks.
As Coca-Cola tries to reinvent its core, investors want its 24 percent profit margin to expand. Beady-eyed analysts will be watching Mr Quincey’s every move, remembering only too well what Mr Lemann, the Brazilian investor behind AB-InBev, Kraft and Burger King, said almost a decade ago. He joked that he could run Coke with 200 people.
Pity for Mr Quincey that Mr Lemann probably did not mean it as a joke.
