In 1978, I started my
For months, I made deliveries, stocked shelves and set up displays. It was tough but invaluable work that helped me understand how we create value and refresh the world—one store, one cooler, one bottle at a time.
A lot has changed in 40 years. Our portfolio has grown from a handful of brands to more than 500. We’ve built strong businesses in juice, tea, coffee, sports drinks, water, energy drinks and value-added dairy. We offer many more package choices. And about a third of our product portfolio is now no- and low-calorie.
And yet the fundamentals endure. People still look to us for delicious refreshment, and we work with our bottling partners, retail customers and countless others to make sure our brands are well-loved and always within an “arm’s reach of desire.”
2016 was a pivotal and productive year in our journey, as we accelerated the transformation of our Company into a higher-margin business focused on creating value, building our brands and meeting our consumers’ evolving needs.
For the year, we grew organic revenue in our core business (the Company’s consolidated operations excluding Company-owned bottling operations) 4 percent, and we grew comparable currency neutral income before taxes (structurally adjusted) 8 percent on a consolidated basis. We also returned approximately $8.4 billion to you, our shareowners, through dividends and net share repurchases.1
Along the way, we strengthened our brand portfolio with more and better marketing, product and packaging innovation and targeted acquisitions. And we rolled out more than 500 new products.
We also launched the “Taste the Feeling” global marketing campaign and our “one brand” strategy to help people see
Our marketing dollars worked harder for us in 2016, with creative approaches that could readily be adapted across multiple markets. We ramped up our brand investments, devoting significantly more to direct marketing in 2016 than the previous year.
We also strengthened our bottling system. In North America, we accelerated refranchising, selling more territories to new and established bottling partners. Meanwhile, our North America business continued to flourish, with net revenue up 4 percent.
In addition, we agreed to sell our bottling operations in China, fostered the creation of
During 2016, we also gained momentum in building revenue growth through market segmentation. This means focusing more on revenue in developed markets, more on volume in emerging markets and a balance of the two in developing markets.
Meanwhile, we kept making a positive difference in our communities, concentrating on the “three Ws” of women, water and well-being. (For more, please see Our Company.)
In short, our plan has been working. And I give my
Now with the leadership of James Quincey, who will become Chief Executive Officer on May 1, 2017, we’re evolving our plans to further accelerate our transformation. (James has more to share in his letter below.)
I believe James is the right leader at the right time. Across two decades, he has led key markets from Latin America to Europe. He knows our business, our customers and our consumers.
Ultimately, we’re working to become a total beverage company, with thriving brands across all types of beverages our consumers want. To do so, we’ll need to keep getting better—acting faster to share brands and innovations across markets while improving marketing and in-store execution.
James has a compelling set of plans, and he’ll have my full support as I continue as Chairman of the Board.
Going back to my earliest days of learning this business, I’ve never been more optimistic about our future—and with many good reasons.
We’re competing and winning in a growth industry, with value rising in both sparkling and still beverages.
With a strong, well-aligned system of bottling partners, we provide our 24 million customer outlets with a significant share of their profits.
And we create value for the communities we serve, with our business and our sustainability work.
We have many well-loved brands, starting with
We have an amazing team of associates, united by a shared passion for this business. And we have a proven and innovative CEO-elect in James Quincey.
We’re also fortunate to have shareowners like you. We appreciate your support and your confidence, and we’ll keep doing all we can to make the most of your investment.
Lastly, I want you to know what an honor it is to serve you. As I continue as Chairman of the Board, I will remain committed to helping advance the near- and long-term interests of our business, our people and shareowners like you.
Chairman of the Board of Directors
April 3, 2017
1 See page 32 of the 2016 Annual Review for a reconciliation of non-GAAP financial measures to our results as reported under accounting principles generally accepted in the United States.
In business, nothing of lasting value and durability can be built without a solid foundation. Under Muhtar Kent’s leadership as Chief Executive Officer, we’ve built a strong foundation for continued growth.
Indeed, over the last nine years, we have added nine billion-dollar brands as measured in annual retail sales. Shareowner value has increased by nearly $100 billion. And we have increased value share in the nonalcoholic ready-to-drink beverage industry for 38 consecutive quarters—nearly a decade of consistent winning in the marketplace.
Through disciplined investments, the Company now has about 1,000 more products in the marketplace than we did in 2007, better aligning our offerings with what consumers want. We have also embraced productivity as a business strategy and competitive advantage.
Muhtar has worked hard over the last few years to refocus our Company on its core business model. A key part of that effort has been driving the evolution of our global bottling system. He has taken bold action to refranchise territories across North America, Germany, China and Africa to strong and capable bottling partners.
These achievements did not happen by accident. We would not be where we are now without Muhtar’s strong leadership. Muhtar polishes our brands every day, and we’re thankful for his example.
Now we’ve come to the next stage of our growth story, as we build a truly consumer-centric total beverage company. In 2017 and beyond, we will focus on five strategic imperatives: accelerating the growth of our consumer-centric brand portfolio, driving revenue growth, strengthening our global system, digitizing our enterprise and unlocking the power of our people. I’d like to discuss each of these pillars in turn.
1. Accelerating the growth of our consumer-centric brand portfolio. Creating consumer-centric brands will demand more from us than ever before. Let’s be clear: to create consumer-centric brands, we cannot begin with what we prefer to sell to consumers. We must start with consumers and understand what they truly want in their refrigerators, on their tables and in their hands. Consumers around the world are looking for more natural beverages, sometimes with less sugar, and with more and diverse functional benefits. We have the pervasive distribution system in place to ensure these beverages reach them quickly, efficiently and affordably.
Creating a consumer-centric total beverage company will require a shift in our mindset. Consumers do not see the world of beverages as divided between “sparkling” and “stills.” They see a broad, constantly shifting horizon of nearly unlimited choice. Our portfolio is undergoing a rapid evolution to meet those expectations. In fact, I expect more and more of our markets will emulate our business in Japan, which has long been known for product development cycles measured in weeks instead of years, with rapid testing and scaleup. In the future, Japan will look more like our standard than the exception.
2. Driving revenue growth. We’re reshaping our business for the future, focused on providing beverages to our consumers in the packages they want and delivering additional value to our retail customers. Today, some of our fastest-growing packages are treat size: for example, the 7.5-ounce mini cans in the United States. And we’re pursuing sweetener innovations and recipe changes to reduce calories and sugar in our beverages. We have more than 500 such reformulations now under way.
3. Strengthening our global system. Refranchising our U.S. operations by the end of 2017—and refranchising other territories around the world—will make our global bottling system stronger. By moving our bottling operations to capable, skilled partners, we’re expanding the executional advantages of our system and refocusing our Company on our core mission of building and nurturing brands the world loves.
Through a continued focus on women’s empowerment, water replenishment and community well-being, we will work with our bottling partners to protect and grow our social license to operate. We will create shared value for investors, associates, communities, consumers, bottling partners and others, attracting more investment into the system and allowing the virtuous cycle to continue.
4. Digitizing our enterprise. Technology is fundamentally changing the way we engage with consumers, work with customers and work with each other. As e-commerce changes global shopping patterns, we must put our beverages within a “click’s reach of desire.” Similarly, we must put actionable data to work inside our enterprise, liberate resources through the use of technology and broadly share data-based learnings across teams and functions.
5. Unlocking the power of our people. We’re building a performance-based culture with a sense of urgency, speed, agility, accountability and entrepreneurship. The
It’s clear that we need to be faster, more agile, and act with a greater sense of urgency. We will not wait for perfection—we will move with speed even in “beta” mode. We will be both thoughtful and fast. Consumers demand and rightly expect this from us, and we will deliver.
Thank you for your support and partnership as we continue on this journey together.
President and Chief Operating Officer
April 3, 2017