After 133 years, Coca-Cola is at a critical juncture in its history with its core brand and category in decline, requiring it to take unprecedented risks on innovation, acquisition and experimentation. Marketing Week got a behind-the-scenes look at the efforts under way at its Atlanta HQ
Coca-Cola is trying to change. From headline-grabbing acquisitions such as Costa Coffee to its first multibrand campaign last July, one thing is clear: Coke is committed to becoming what it calls a “total beverage company” – and fast.
From the moment you walk into the $35bn turnover business’s headquarters in Atlanta you can sense that change is happening. A circular marbled hall is surrounded by three arches, with the Coca-Cola logo emblazoned above each. But the red and white branding of classic Coke is not the sole focus; instead a logo with multiple drinks takes pride of place and various brands, including Honest Tea and Sprite, also adorn the walls.
As Marketing Week learned on a recent visit to Atlanta, the company is on a mission to diversify its portfolio and innovate on its products faster than ever before.
This is all encapsulated in a logo produced in 2017 to introduce Coca-Cola’s corporate positioning statement, ‘beverages for life’. It illustrates the company’s strategy of following consumers throughout their lifetime, and the eight drinks assembled together in the graphic reference the fact that the company currently accounts for an eighth of the world’s beverage supply and the belief it has the opportunity to cater for more.
The Quincey effect
This change in mindset is largely down to CEO James Quincey. He introduced the total beverage strategy as he took charge of the 133-year-old business in 2017.
The impact of Quincey is mentioned almost constantly at Coke. A CEO with a new vision is naturally going to have an effect but Quincey’s influence seems truly embedded.
Employees across different seniorities and working in a range of departments and markets all speak about the 53-year-old Briton’s mission to change the company from the inside out. His influence is clear and, whether mentioned in passing or through a direct reference, it seems every employee is on-message.
He’s made clear what he wants Coca-Cola as a total beverage company to look like. It needs to be unafraid of failing, faster at getting to market and better at introducing products that cater better for multiple occasions.
However, Quincey isn’t a pioneer at the forefront of FMCG disruption; he’s a pragmatist who realises Coca-Cola has to change or be left behind. The world is changing: governments are cracking down on high levels of sugar in food and drink, and consumer trends are leaning towards healthier options. The company’s future will not be as glittering as its past if it doesn’t keep up. Revenue fell nearly $13bn between 2012 and 2017, though in the past five years the share price has risen from $40 to around $50
Coca-Cola Classic will still be the biggest jewel we have but we do feel innovation has to happen with Coke.
According to Euromonitor International, global volume sales of carbonated soft drinks have been in decline for the past three years, falling from 164.3 billion litres in 2014 to 162.6 billion litres in 2017.
Yet the total soft drinks category has been in growth, with sales up 9.5% between 2014 and 2017 to 601 billion litres. Sales of coffee, tea and energy drinks are all on the rise too. Coffee has grown 10.2% to 5.4 billion litres, tea 0.2% to 35 billion litres and energy drinks 14% to 21.2 billion litres.
The trends mean Coca-Cola is losing volume market share. Its share of the global soft drinks category fell from 18% in 2016 to 17.6% in 2017.
This is, in some ways, down to Coca-Cola’s strategy to focus on value over volume sales, meaning the company is focused on premium-priced beverage categories rather than increasing consumption.
Obsessive pursuit of growth
To mitigate the decline in soft drinks, Coca-Cola must also prioritise growth in different markets, across different occasions and with a wider range of consumers.
This goal is reflected in its corporate structure, with Coca-Cola scrapping the CMO position in March 2017 and appointing Francisco Crespo as chief growth officer instead.
Coca-Cola’s global vice-president of creative, Rodolfo Echeverria, explains: “We have always been big but now we are obsessively pursuing growth, not in the sense that we want to be richer but in the sense that we are looking at those consumers who are not our consumers right now. We’re asking how can we grow? How can we satisfy more and better consumer needs?”
Looking to the future
To understand the future of Coca-Cola it helps to look to Japan, where the company launches four products a week.
Sparkling CMO Meza explains: “One of the things the Japan business has done is to understand very quickly which products have the chance have to be maintained and which have to be removed. It’s a change of mindset and that’s what James Quincey is pushing us to do, and I’ve seen more and more of that in Coca-Cola.”
Coca-Cola might appear to have been innovating for years given the steady stream of new Coke flavours. However, Roy admits these new flavours “don’t really help the brand grow in a long-term, sustainable way”.
To do that it needs to expand into new drinking occasions. And this is where it is starting to experiment. A year ago, Japan launched Coke with coffee. It’s a prime example of breaking the ‘holy grail’ rules because the combination of Coca-Cola and coffee beans fundamentally changes the core Coke recipe.
Coke with coffee is also different because its sales do not come at the expense of the core product. Instead, they come from looking at an occasion and a need – people wanting more caffeine to perk them up during an afternoon slump – thus taking sales from other categories rather than cannibalising Coca-Cola sales. It launched in Spain in October and the hope is that by the end of next year it will be in 50% of Coca-Cola’s markets.
Another example is the growing ‘food for specified health uses’ trend in Japan. The trend is about offering products that aid health and metabolism, so Coca-Cola has launched Coke plus fibre, which lowers the body’s fat absorption and is targeted at the over-40s.
It’s unlikely to launch more widely any time soon but the point is there is a market for more functional drinks. Following those trends will see Coca-Cola going boldly where Coke hasn’t gone before.
There is no doubt the organisation will look very different in 20 years’ time from how it does now if it continues on its current trajectory.
However, it’s unclear how this will translate to consumers. The Coca-Cola Company will still be synonymous with carbonated drinks and its namesake product but perhaps more popular products in other categories will become more important to the business.
Is there a point when the business owns a product bigger than Coca-Cola? Meza isn’t ruling it out, although he doesn’t see it happening in the next 10 years. What will be key, he believes, is Coca-Cola keeping up with the pace of change. “The moment the pace of change outside the company is higher than inside, then you start to lose,” he reflects.
Coca-Cola not a disruptor or a startup or an underdog tapping into a niche. It’s a big corporation and no amount of innovation hubs or logo updates is going to change that.
However, Coca-Cola is prioritising rapid innovation, launching into new markets and exploring nascent trends. Quincey’s decision to break old habits and adopt faster processes might be one born of necessity, but history is littered with companies that failed to do that. The future of the Coca-Cola brand may not be as exalted as in the past, but the company that bears its name still has some fizz left in it.