Despite global headlines about increasingly challenging retail conditions and declining soda consumption, Coke North America in 2016 grew its revenues 4% with a continued focus on launching smaller packages, diversifying its portfolio into new areas and growing the overall value of retail sales ahead of volume in categories like sparkling soft drinks.
Here are 10 key quotes and takeaways from Douglas’ chat with Lauren Lieberman from Barclays Capital:
Coca-Cola – and the beverage category overall – have weathered the ongoing macroeconomic storm that has hurt other CPG players.
“The best thing about the beverage business is that it's completely elastic to marketing and sales execution,” he said. “Wherever there's traffic, wherever there are thirsty people, there's an opportunity to sell a beverage.”
Coke’s decade-long process to return ownership of its bottling operations to local independent bottlers is showing early signs of success.
“The net effect is that our business has been growing ahead of the category now for over seven years,” Douglas said. “The bottlers are coming into their own, the enthusiasm in our system is very high, and the competition to get into the system reflected a bullishness for the beverage business in the U.S. that I think has given us a lot of confidence.”
Almost one-third of the ‘new’ refranchised
Coca-Cola system in North America is owned by African-American or Hispanic capital.
“We wanted a system that was reflected in its capital ownership like the population of the United States,” Douglas said. “If you ask me what are the two or three things about our franchise system that I’m most excited about, one of them is diversity of thought. There's just a whole lot of entrepreneurial energy in our system.”
Coca-Cola North America is an early adopter of CEO James Quincey’s ‘total beverage company’ vision.
“And it's working,” Douglas said, citing a shift from volume to revenue as a core metric. “Our growth in the last few years is borne of that focus.”
This is being driven by strategic acquisitions through Coke’s Venturing & Emerging Brands (VEB) unit (such as Honest Tea, ZICO and fairlife), organic growth of core still brands (Gold Peak, DASANI and Simply), and sparkling revenue growth through smaller packages and low- and no-sugar innovation.
Transaction packs, including mini cans and other smaller packaging, have jumped from 10% to 15% of Coke’s retail value in the US over the last 6 years, with mini cans growing double-digits over the last year (as measured by Nielsen).
Meanwhile, 2-liter bottles and other larger commodity packs now account for about 50% of this mix, down from more than 60% in 2011. “As long as the consumer wants things that are different than what we have, we can get there if we're good at moving at the speed of the consumer,” Douglas said.
And while sparkling volume is declining, the company’s core sparkling brands like Coke, Sprite and Fanta are growing in dollar sales thanks, in large part, to a focus on smaller, more convenient and on-trend packages.
“If you analyze in the North America market or the global market, one, three, five years out, the most growth dollars in beverages are still going to come from sparkling,” he added.
People who try the new
Coca-Cola Zero Sugar love it.
“Since the launch, the brand's growth has accelerated,” Douglas said. “And based on our experience in the UK and the early results here, it'll take Coke Zero Sugar to a new level and we're looking forward to that.”
‘Our items are among the fastest selling of e-retailers.’
E-commerce presents a tremendous opportunity for Coke to grow its business across multiple channels, from online ordering for at-home consumption, to mobile transactions for restaurants. “Our incidence of beverage attachment, if we're well merchandised on a digital app, is 50 percent higher on pizza orders than on telephone orders,” Douglas said. “In each of these cases, whether it's the experience, the order, the in-home out-of-stock or click-and-collect... all of it adds up to being another big merchandising opportunity and a chance for us to sell more beverages.”
…but brick-and-mortar stores are far from dead.
“Don't count out the brick retailers,” he added. “They're moving fast. They have significant assets, and they're working to serve the shopper. And don't think of e-commerce as a channel. It's a way for consumers to research, to buy, to experience brands and then, ultimately, to have them have fulfilled.
“The clicks are looking for bricks, and the bricks are looking for clicks.”
Coke’s VEB unit personifies the company’s efforts to take smart risks and create a more agile culture.
“Their mission is to find the future billion-dollar brands,” Douglas said. “But their work is fast, cheap failure and making a lot of quick decisions.”
Using a baseball metaphor, Douglas said more “at-bats” correlates to a higher success rate in the world of beverage innovation. In other words, the more swings Coke takes, the more home runs it hits.
“Part of this notion of fast, cheap failure and more at-bats is creating the cultural affinity to try things,” he continued. “And another is to make the mistakes cheaper. And I think our system helps with that.”
American Beverage Association
American Beverage Association
‘We believe common sense will prevail’
Sweetened beverage taxes in Philadelphia and Chicago are hurting Coke’s business and the business of its retail and restaurant customers. “We so passionately believe the consumer can make their own lifestyle decisions as long as we give them the choice, the information and the marketing to support making good choices.
“People would expect me to say that,” Douglas said. “But what we're seeing is that voters feel that way, too. And if that's strong enough, over time, common sense will prevail.”
Douglas advocated for more creative solutions than beverage taxes to create government revenue and help Americans live healthy lives. He noted that since 2001, the NARTD beverage industry has reduced sparkling beverages calories from sugar, per person, per day by 23 percent. In a Beverage Digest presentation earlier this year, Douglas noted this decline as “sustainable change by the consumer to buy what they want” with the added benefit of enabling Coke and the industry to “grow sustainably while enabling people to control added sugar intake.”