Last year was your first full year as
Coca-Cola’s COO. How do you feel about where the year landed?
2016 was another year of big change for our company, our system and our industry, as consumer preferences evolve, technology and e-commerce transform the retail landscape around us, and global economic conditions, especially in emerging markets, remain challenging.
Despite all of this, we fast-tracked the refranchising of company-owned bottlers, further advanced our work to focus on revenue growth ahead of volume, introduced a new marketing approach for Trademark
That said, we have to do more. In the year ahead, we are going to be laser focused on building and expanding our portfolio of consumer-centric drinks, including those with less sugar and calories; further evolving our approach to growing revenues from our global sparkling soft drink portfolio; and driving productivity through the organization to reduce complexity and redirect resources to drive revenue growth in a world with fast-changing consumer patterns.
What about the fact that reported revenues and profits declined significantly in 2016? Can you explain this?
The short of it is that we have a lot of moving parts in our business as we refranchise company-owned bottling operations in North America and around the world. As we sell these operations back to our aligned franchise partners, reported revenue and some profit goes with those sales, so we only seem to get smaller. Until we complete the refranchising process, we will continue to see these impacts to our reported results, especially in 2017 as we complete the biggest parts of the program. All this, though, is consistent with our growth strategy of returning to our core focus of building great brands and leading a strong global franchise system.
'The rate at which change occurs will be a function of our ability to innovate, market and execute so that we meet consumers’ needs with great tasting drinks with an evolving range of sweetness. If we do that, no matter the mix of drinks we sell, we will be successful.
Organic revenue growth was strong in the quarter, but volume remains under pressure. How important is increasing the pace of volume growth to future success?
Volume is just one piece of the equation that drives revenue. Our focus is to ensure we have a balanced approach to growing revenue between volume and price/mix. In the fourth quarter, we derived most of our global growth from strong price/mix rather than volume. Over time we have to do both in a more balanced way, but each quarter presents unique challenges that we must navigate.
In fact, in the fourth quarter, we saw good volume growth in both sparkling and other beverage categories in developed markets like the United States. But sustained economic recessions in markets like Brazil, Venezuela and Argentina weighed heavily on our ability to grow volume globally. While we could have intensified promotional activity to drive volume growth in these markets, we believed that it was not the best use of resources. Looking forward, our local teams are further adjusting our price/pack architecture in markets like Brazil to ensure our offerings meet the needs of consumers who are facing a tough economic situation.
Net net, we achieved strong organic revenue growth in the quarter while gaining global value share in total nonalcoholic ready-to-drink beverages.
You mention the need to create more drinks with less sugar and calories. How dramatically do you plan to change the mix of the products we make and sell?
We have been adapting our portfolio over the years to meet consumers changing needs and to be competitive in the market. This has been driven by broad change in our portfolio, including the addition of nine new billion-dollar brands and roughly 1,000 new products over the last decade.
Where we have to go now is to think holistically of the many beverage categories available to us for growth. The consumer doesn’t think about their drink choices as “sparkling” and “still.” They see a wide range of beverages that meet a variety of needs from energy to hydration to nutrition to simple enjoyment. What we see for the future is significant growth available to us across this wide variety of categories. The rate at which change occurs will be a function of our ability to innovate, market and execute so that we meet consumers’ needs with great tasting drinks with an evolving range of sweetness. If we do that, no matter the mix of drinks we sell, we will be successful.
'In our history, our biggest successes have come from products that inherently meet a consumer need.'
What about the North American business? It seems growing category headwinds are placing added pressures on the business in our largest market. Is this impacting our results?
The performance of our flagship North American business is strong. During 2016, North America again outperformed the retail value growth of both the North America nonalcoholic ready-to-drink beverage industry and total U.S. consumer packaged goods companies. This builds on the sustained growth we have seen for the last two years. We saw strong 4% net revenue growth for the year, on top of strong 6% net revenue growth last year. We have a great team of people in North America under Sandy Douglas’ leadership who have led a transformation of our largest market to deliver this type of sustained revenue and profit growth by evolving our offering of products and packages to reflect what people want.
Given the success in turning around North America over the last few years, what will it take to restore growth in emerging markets?
The trajectory of growth in emerging markets is very different than the strength we are seeing in our developed markets. This is primarily because emerging and developing markets have been disproportionally impacted by significant pressures on the disposable incomes of the consumers who enjoy our products. While our business once thrived on the roaring growth of emerging markets and a growing global middle class, many of these markets are now seeing subdued or negative GDP growth.
The good news is that we have been in this business a long time and have a number of strategies to employ to ensure we maintain the affordability of our products when markets are impacted by sustained recessions. This strategy includes the continued introduction of smaller, more convenient packages, which fits nicely with our broader strategy to help consumers manage their consumption of added sugars. This gives us confidence that growth will return.
You were recently named as
Coca-Cola’s next CEO. What are the immediate changes on the horizon once you take the helm?
You’ll see us moving quickly to continue to introduce beverages and packages that are driven by what consumers want. In our history, our biggest successes have come from products that inherently meet a consumer need. In Japan, for instance, our popular green tea brand Ayataka meets the consumer need for authentic green tea just like you can brew at home but available on-the-go. In the U.S., mini cans of
This Q&A includes certain "non-GAAP financial measures" as defined under U.S. federal securities laws. Refer to our fourth quarter and full year 2016 earnings release issued on Feb. 9, 2017, available on the Company's website at www.coca-colacompany.com (in the “Investors” section), for full financial results and a reconciliation of non-GAAP financial measures.
This Q&A may contain statements, estimates or projections that constitute “forward-looking statements” as defined under U.S. federal securities laws. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will” and similar expressions identify forward-looking statements, which generally are not historical in nature. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from The