NEW YORK – Coca-Cola’s not-so-secret formula for returning its flagship market to growth is paying off, the president of the company’s North American operations told investors at the Morgan Stanley Global Consumer and Retail Conference.

Coca-Cola North America has taken steps in recent years to rewire its sparkling beverage strategy and core business model to focus more on transactions and revenue, while building a leading portfolio of still beverages. As a result, the company has consistently outperformed U.S. retail value growth for large consumer goods businesses and gained or held value share in the nonalcoholic, ready-to-drink (NARTD) beverage category for 26 consecutive quarters.

“We’ve evolved the business to operate in a rapidly changing external landscape and at the same time adapt in a very intimate way to the changing consumer preferences that are rapidly changing the marketplace in which we compete,” Sandy Douglas said on Nov. 15. “The evolution of our model along with the disciplined execution of our core strategy are why we've been able to maintain consistent top-tier growth for the last few years.”

Here are seven highlights from Douglas’ keynote presentation, which articulated both progress and promise:

Coke Truck NYC

Bottler refranchising has been a ‘growth tailwind’ for the Coca-Cola system in North America.

The company has signed refranchising agreements that account for about 65 percent of U.S. bottler-delivered distribution, or about 70 percent of the company-owned bottler volume in North America. The company remains on track to refranchise 100 percent of its company-owned bottling operations in North America by the end of 2017. This streamlined franchise system – linked together through new IT, customer management and product supply networks – is now powering the company’s brand-building and customer value creation strategies at the local level.

“Distribution territories that have been refranchised for 12 months or longer are thriving, and the majority of these partners have taken their territories to a higher level,” Douglas said. “The refranchising process has proven to be a source of short-term as well as long-term growth.”

The company’s customer service and satisfaction scores are the highest they’ve been in years.

The industry’s largest grocery, mass retail, club and value stores ranked The Coca-Cola Company No. 1 in customer satisfaction for the first time in the U.S. Advantage Report, and the company moved up to No. 2 in the Kantar Survey of top U.S. retailers. “Our retail partners are telling us that our process is working,” Douglas said.

Mini Cans 940

Value, not volume, dictates both the company’s commercial execution strategy and franchise bottling agreements.

“Our view is that this is the best way to measure and strategize about growth,” Douglas said of the business model, which leans on incidence/household penetration and transaction frequency as primary metrics. “Ultimately, it follows the consumer in every sense and, therefore, defines success by what the consumer is willing to spend money on… The sparkling consumer wants to have just what they want, whether it's a beverage with or without sugar, or somewhere in between.”

Coke’s segmented revenue and pricing strategy for sparkling beverages is anchored by mini cans and other smaller packs, which now account for 15 percent of Coke’s North America total sparkling portfolio in terms of value.

“We’re focused on selling the right-sized packages at the right prices,” Douglas added. “Getting better at 'small' will continue to be a big bet for us going forward in this very large and important segment of our business.”

The shift from volume to value can also be seen in the company’s new franchise bottling contracts, “at the heart of which have a change in the way the company gets paid,” Douglas explained. “We use to get paid for gallons of concentrate. Today, our bottlers compensate us only as a percentage of their net revenue, which makes it possible for us to align in a coherent way a strategy that's focused on revenue and not volume.”

Fanta Sprite cans

Amy Sparks

Fanta and Sprite are on a roll.

The two flavored sparkling brands have posted two successful years in a row, each delivering more than $100 million in retail value growth 2015 to 2016 year-to-date. Sprite continues to innovate with new flavors – including Sprite Cherry, which emerged as a fan favorite on the Coca-Cola Freestyle fountain dispenser before the company decided to introduce in bottle/can – and fresh marketing including the #WannaSprite campaign featuring basketball star LeBron James. Fanta Blueberry, meanwhile, launched in 2015 and has contributed nearly one-third of the total growth of the Fanta trademark year-to-date in 2016.


Amy Sparks

Over the past three years, Coca-Cola has grown its total Nielsen-measured retail value in North America by $1 billion – slightly more than two-thirds of which has come from its stills brands.

The growth of Coke’s stills portfolio is coming both organically from brands in established categories, and investments in emerging categories. Smartwater recently became the company’s 12th billion-dollar brand in North America, and Dasani continues to grow as the leading U.S. water brand. Both brands recently introduced sparkling extensions, too.

“The net effect is that our premium stills portfolio today is a crucial part of our growth engine and our ability to complement a growing sparkling revenue with even faster growth in the premium stills category,” Douglas said.

Coke is also tapping into fast-growing categories like value-added dairy with fairlife and cold-pressed organic juices and smoothies with Suja – both of which are growing double digits in 2016. These investments and others came from Coca-Cola North America’s Venturing & Emerging Brands unit, which is charged with identifying and nurturing future billion-dollar brands.

RTD Coffee 604

Ready-to-drink coffee will be a ‘big bet’ in 2017 and beyond.

Early next year, the company will roll out a range of diverse yet complementary RTD coffee offerings. Gold Peak, a billion-dollar tea brand in the U.S., will introduce two flavors of both cold-brew coffees and bottled tea lattes. Coca-Cola also will produce, distribute and market a line of Dunkin’ Donuts-branded iced coffee beverages, which will be sold in grocery stores, convenience stores and in Dunkin' Donuts restaurant. In the U.S., the multi-billion-dollar RTD coffee category has been growing by double digits annually since 2011 and shows no signs of slowing down.

'There will always be challenges, but the consumer will always look for great-tasting drinks to move about their life… and success will come to the business that move with them to be there with great solutions, that can generate value for customers and shareholders. We expect to be one of those players.'

The NARTD beverage industry in North America is healthy and growing.

When you look across the FMCG space and the beverage industry, you see beverages playing a top-tier growth role,” Douglas said. “And within that, The Coca-Cola Company has been growing retail value faster than any other large consumer goods business.”

Looking ahead, Douglas said he was optimistic about the company’s “short-, medium- and long-term potential” in its home market.

“The beverage business is a wonderful business,” he concluded. “There will always be challenges, but the consumer will always look for great-tasting drinks to move about their life… and success will come to the business that move with them to be there with great solutions, that can generate value for customers and shareholders. We expect to be one of those players.” 

Listen to audio of Douglas' presentation here, or a read a full transcript here.