COCA-COLA

CASE COCA-COLA

Introduction

  • May 1, 2017: James Quincey became CEO of Coca-Cola (Coke) at age 52.

  • Quincey had worked at Coke since 1996, holding leadership roles in Latin America and Europe.

  • Initial directive:

    • Shift strategy to become a "total beverage company".

    • Focus on products beyond soda, as core brands faced declining consumption.

Market Context

  • Sin taxes imposed by governments on sugary drinks to reduce consumption.

  • Declining consumption of carbonated soft drinks (CSDs):

    • Per capita consumption in the U.S. fell from 53 gallons in 2000 to 38.5 gallons in 2016.

    • Coke's core brands fell by 5% in U.S. sales over three years; 1% worldwide.

  • Rising popularity of healthier alternatives:

    • Examples: Stevia-sweetened drinks outpacing diet CSDs.

  • Bottled water consumption surged from 13.2 gallons per capita in 2000 to 39.3 gallons in 2016.

Corporate Restructuring

  • Major reorganization of Coke's bottling network ongoing:

    • Acquired bottling operations in North America from Coca-Cola Enterprises in 2010.

    • Initiated refranchising of bottling plants for efficiency and focus on marketing.

  • Job cuts at headquarters: 1,200 positions eliminated, aiming to save $800 million by 2019.

  • Quincey's financial goals: Target of 4-6% annual revenue growth, amidst declining profits from $12 billion in 2010 to $6.5 billion in 2016.

Coke's Business Overview

  • World's largest beverage company with $35 billion in annual sales (2017).

  • Noncarbonated segments growing, making up 30% of volume (up from 20% in 2010).

  • Coca-Cola's operational model:

    • Relies on independent bottling franchises for distribution.

    • Owns or licenses over 500 non-alcoholic beverages across five categories:

      1. Sparkling soft drinks

      2. Water and enhanced beverages

      3. Juice and dairy products

      4. Tea and coffee

      5. Energy drinks

  • Nutritional insights:

    • Sparkling soft drinks account for 70% of Coke's volume.

    • Company maintains high gross margins (~60%) from concentrate sales, despite costs in product development and marketing.

Early History of Coke

Origins

  • Invented by pharmacist John Pemberton in 1886:

    • Initial formula included coca (cocaine until 1904) and kola for caffeine.

    • Marketed initially as a medicinal tonic for various ailments.

  • Asa Candler bought the rights from Pemberton and incorporated Coke in 1892, transforming it into a national brand.

Bottling Agreements

  • First bottling contract in 1899 allowed two lawyers to bottle Coke, creating a model for future franchising agreements.

  • Contract stipulations included:

    • Exclusivity in geographic territories for bottlers.

    • Low pricing on syrup concentrates paid to bottlers.

    • Obligation for bottlers to promote and advertise within their territories.

The Postwar Period: Struggles with Pepsi

Dominance and Challenges

  • Post-WWII, Coke had a strong market presence but faced competition from Pepsi, which used innovative marketing.

  • Woodruff, Coke's president, pushed for Coke's availability everywhere, targeting new markets and expanding internationally.

  • Pepsi's aggressive strategies increased their market share, including adapting product strategies to appeal to consumers.

Cola Wars Engagement

  • Pepsi garnered market attention through the "Pepsi Challenge", demonstrating that many consumers preferred its taste over Coke's.

  • Coke's response was ineffective, leading to price wars and a focus on international markets while losing ground domestically.

  • Roberto Goizueta replaced Paul Austin as CEO and sparked a company revival focused on consolidating bottling.

New Coke and Consumer Backlash

New Formulation

  • In 1985, the introduction of New Coke as a reformed classic brand was met with consumer uproar.

    • The backlash highlighted deep emotional ties to the original Coke formula, leading to a rapid reversion to "Coke Classic."

Current State and Future Direction

Recent Trends

  • By the late 1990s, Coke faced challenges including health concerns over sugary drinks.

  • The rise of non-carbonated drinks prompted diversification:

    • Launched brands like Dasani (bottled water) and acquired various companies enhancing its portfolio (e.g., Odwalla).

  • The success of Diet Coke highlighted market demand shifts towards healthier options.

Strategic Refranchising

  • Completed significant refranchising initiatives around 2017 to create a more responsive organization and maintain market share.

  • Ongoing challenges in balancing growth expectations with changing consumer preferences in the beverage sector.