Following the release of The Coca-Cola Company’s first quarter 2015 earnings earlier this morning, Chairman and CEO Muhtar Kent conducted a call with financial analysts.
“I am pleased to report early momentum in the beginning of 2015, a year of transition for the company,” he said. “We delivered promising first quarter results, especially in light of the significant macroeconomic volatility in many markets around the world and the productivity and rewiring initiatives we are implementing this year. Our performance was largely driven by the strength of our global brand portfolio and the strong distribution capabilities of our bottling partners, as evidenced by our continued global value share gains in NARTD (nonalcoholic ready-to-drink), sparkling beverages and still beverages in the quarter."
Kent outlined progress made during the quarter on five strategic actions laid out in October 2014 to reignite growth:
1. Make Disciplined Brand and Growth Investments
“We increased our media investments double digits in the quarter as we work toward fully funding brand plans in markets around the world while at the same time enhancing the quality of our advertising.
A great example of this is the new Coca-Cola marketing campaign during the Chinese New Year, which helped our China business grow brand Coca-Cola volume by 9% despite slowing economic conditions.
As we have said previously, media investments take 12 to 24 months to realize their full value. So while we are seeing initial positive results, we are even more encouraged by the knowledge that it is still early in the process and we have tremendous runway for continued improvement in our top-line growth.”
2. Aggressively Expand Our Productivity Program
“We remain on track across all spend areas to deliver more than $500 million in savings this year and $3 billion in annualized savings by 2019. The difficult but necessary changes made during the end of 2014 are now accounted for in our budgets and tied to our objectives.
The initial implementation of our new operating model is on track, and the previously announced headcount reductions associated with this change are well underway. We are continuing to work through the rewiring of business processes within the organization.
For example, we have eliminated a layer in many of our functions at the group level and linked our corporate center directly to our business units. In R&D, this means connecting our corporate R&D efforts directly to our global development centers – and linking both of these to service our business units around the world. This allows us to scale our efforts in innovation, share new developments faster, and accelerate development of new products.”
3. Streamline and Simplify our Operating Model
“We are also rewiring our marketing organization around consumer clusters to drive speed, efficiency and effectiveness. This will allow us to better leverage learnings from similar markets regardless of the geographic location and improve the quality of our advertising through our networked marketing model.
A great example of this is how we are strategically leveraging the 100th anniversary of our contour Coca-Cola bottle to drive our business forward through integrating marketing, commercial and innovation under one umbrella to reach approximately 140 markets.
This campaign centers on the magic of drinking a Coke with the emphasis on the experience as much as the bottle. As such, it is focused on driving profitable immediate consumption packages and purchase transactions. And as part of this campaign, our system is investing in glass bottles around the world, while introducing the next generation contour PET bottle and expanding the supply of our premium aluminum bottles in key developed markets.
Importantly, this is not simply a global campaign. Rather, it’s a new way of networked marketing that has led to the creation of 20 marketing assets that markets can use in a more cost-effective modular manner. Some of our markets will leverage the campaign throughout the year while others by quarter. As a result, we have significantly reduced our production and development costs per Gross Rating Point, allowing more dollars to be focused against the consumer.”
4. Drive Revenue and Profit Growth, with Clear Portfolio Roles Across Markets
“Across the entire company, our deeper market segmentation strategy is also starting to yield early results.
Two examples are North America and India. In North America, we are focused on generating revenue through a greater reliance on price realization. Increased media investments, coupled with our segmented price/pack strategies, drove revenue growth in our sparkling portfolio through strong 3% price/mix and a 1% increase in transactions. Simply put, more consumers are enjoying our products more often, and are increasingly choosing smaller package sizes, including our iconic contour bottle.
In India, where our revenue growth strategies focus on expanding distribution and recruiting new consumers, we drove double-digit unit case volume growth in both our sparkling and still portfolios."
5. Refocusing on Our Core Business Model
“We remain on track with our previously announced territory transfers to existing partners. During the quarter, we transitioned four territories to Coca-Cola Consolidated and are on track to transfer additional territories in Kentucky and Tennessee to Consolidated and Corinth this year.
We are slightly ahead of schedule to close the previously announced transactions with new entrants into our bottling network. Territory transfers to both Troy Taylor in Central Florida and Reyes Holdings in Chicago are slated to close in the second quarter. Together, the territories pending to transition to these two new partners will represent approximately 5% of U.S. bottle/can volume.
Finally, just this morning, we announced the signing of new Letters of Intent with existing bottling partners for territories covering more than 5% of bottle/can volume. In aggregate, territories transitioned to-date and those covered by definitive agreements or Letters of Intent represent a little over 15% of total U.S. bottle/can volume.
Further, as we continue to transition territories, we are getting better and faster, which is why we are confident that our previously stated timelines to transfer over 50% of CCR’s territories by 2017 is very much on track.”