Strengthening Our System for Enduring Advantage
President, Europe, Middle East & Africa
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Good afternoon. Thanks for being here. I’m going to talk to you about EMEA. I was – actually just a year ago when Alfredo moved to the Head of Latin America I moved to the Head of EMEA from Latin America. So I want to leave you with three messages today. The first is that we have extremely compelling growth opportunities in EMEA. And I’ll try to give you the proof points around that. The second is the way we’re going to drive that growth and capitalize on that growth opportunity is by going back to execution basics in our base business – the leader business that Francisco and James talked to you about.
And the third one is as we do that over the next two or three years, we’re going to layer in brand platforms from other parts of the world to those white spaces that we have in the categories, so that we can build explorers, eventually challengers and then drive our top line growth with our base business from 2020 onward. And with hope, you’ll walk away with a little more belief that we in fact have those growth opportunities and know how to capitalize upon them.
So what’s EMEA? It’s big, it’s vast, it goes all the way from Iceland all the way to the Eastern most tip of Russia, down through Pakistan, down to the southernmost tip of Africa. We have 2.5 billion consumers. It’s a $275 billion retail industry. It’s – our share in that is about 25%. It’s very diverse in terms of the kinds of markets that we have from a mature Europe all the way down to low per capita sub-Sahara countries. We have four bottlers. We have a four big bottlers. We have six business units. Our base business is – 80% of our business is in sparkling, followed by water. So it’s vast, it’s diverse; it’s very diverse demographically, culturally. But there are commonalities in terms of the growth opportunities across all the BUs and the way that we’re going to go about addressing them.
So the first message, why is it a compelling growth opportunity? Well, if you look across all the different categories that we have, there’s a lot of growth going forward. We expect to grow between now and 2020. The industry growth is about $45 billion in incremental growth. And all of the categories are growing, even sparkling at 3%. And if you don’t see this is compelling. I mean just consider for a minute that our share in sparkling is 50%, but in everything else, they’re relatively low. So there’s a high sealing in terms of what we can go after, in terms of the opportunities.
So again, the leader, challenger, explorer model. What we’re going to do to justify our strategy is to go back to execution basics with our leaders, to be able to drive top line growth. That’s the basic business that we’re doing. And it’s something that we know how to do; it’s something that we know how to do because it’s something we’re doing in a lot of places around the world. Then what we want to do is upscale our standards in EMEA, and that will then fuel our challengers and our explorers over the next three years to build explorers into challengers, and hopefully challengers into leaders and then we can drive our growth going forward.
So you’re maybe asking yourselves why is this going to work. I mean, why do we believe this is going to work? Because we could have said the same thing to you three years ago, instead of why haven’t we done it yet. One of the biggest shifts that we’ve made as a system is to pivot from volume to value. We keep saying it, but it’s really important. And the reason that’s important is because, if we don’t – if we’re not aligned with our bottling system, if we get this aligned, we have a lot of weak flanks. And if we are totally aligned with our bottling system, there’s no other system in the world that can beat us, in terms of what we’re doing, brand building and distribution and building value in the beverage sector.
And so what happens if you chase volume, especially in say mature markets like in Europe where we have strong chains and private labels? We have to discount to be able to chase that volume, or in emerging markets where you have a lot of B brands and you also have to discount to be able to go after volume, you essentially have diminishing returns. And that drives system misalignment, because we’re essentially fighting over what the pie is. So, we under-invest in terms of capabilities. We get little traction in new categories and essentially it’s a vicious cycle.
If you pivot over to value – if we pivot over to value, then what happens is, you immediately start to take some of the unprofitable volume out at the margin. And what that does is, it drives higher returns and if you combine that with refranchising your bottling system, you essentially have the wherewithal to continue or to begin to reinvest in a more dynamic and a bigger way into execution fundamentals and then ultimately into new categories, and then you have a virtuous circle.
And so don’t underestimate the impact that this decision that’s been made about a year, year-and-a-half ago or thereabouts on our ability to go after top line growth. It’s fundamental in our ability to enable that to happen. So, again, what’s the strategy to upscale our execution. What does that mean? It means essentially – it’s a innovative and integrative process, through which our consumer marketing and our bottler execution, self reinforce and leverage on the competitive advantages that we have in our system. So it’s kind of a mouthful. So let me just give you an example.
In Poland, which is a market that we did revenue growth management a couple of years ago. As a result of that work, we came up with Hellenic – we came up with one of the key initiatives was a 200 ml can. A great example of pivoting from volume to value, right. Smaller pack, higher price, consumer centric, it’s a great packaged to go out and market to our consumer base to bring more people into our franchise and once we decided with Hellenic that it was the right pack and we decided which price through the consumer elasticities that we had in the revenue growth management analysis, which was essentially 80% of what a bus fare would be for young adults and teens.
We decided on the one hand to invest in marketing commercials specifically for that package and brand – and package graphics, which had celebrities which would resonate with our consumer target base. And Hellenic on their hand increased distribution up to 50%, and put racks in the marketplace. And also most importantly put that package next to the highest frequency packages that they had in the market, which is – which they have in the markets today, which is the regular can. By doing that, what we’ve been able to do is to grow that package 40% year-over-year and increased our immediate consumption transactions by 10% year-over-year as well.
So, it’s one example of the kinds of things that we’re doing and we’re going to do more of, because what we’re going to do is essentially rollout RGM across between now and the mid of next year 25 markets, of which 14 are top markets in EMEA. And we’re also going to double our placement of incremental coolers, which we found to be highly correlated with our ability to drive top-line growth.
So, let me just tell you a little bit more about RGM, for those of you that may not be familiar with it. It’s an analysis and what it takes as data is all the competitive information from our system. So be it, our products, our brands, our packs, our channels blah, blah, blah, our competitors and other information and puts it in and through algorithms we figure out what the right initiatives are to be able to capitalize on our strengths as a system and our competitors’ weaknesses.
And when you do that, you come up with initiatives that, as you can see here, that are perfectly aimed to be able to drive top line growth; hence, revenue growth management. If we do that, when we do that, we’re able to drive at least 1% more top line growth in the markets in which we do it and then implement it. So, we have to do it and then put the money behind as I just described in that example to be able to make it happen.
So, let me show you some proof points. Yes, they’re selected, I selected them. Not all markets are like this, but these are proof points that there’s some green shoots. And we know what we’re doing, we know what we have to do. Again, we’re not doing it everywhere all at the same time and so on so forth. But we are rolling this out and over the next year or so, we’ll be in 25 markets, implementing, executing this, not just with Hellenic, but with CCP, with the CCBA and the other bottlers.
So, we’re not only able to drive absolute revenue growth, anywhere from 2% in Spain to 29% in Nigeria, but we’re also gaining value share, which is the acid test, right. I mean, if we were doing the first part and we were losing share, then you’d say, well you’re mortgaging the future. We’re not. We’re able to do both of those things, and I think that’s the trick. And the trick for us is to be able to measure ourselves to keep ourselves honest that we’re taking the price mix that we can take without going overboard and balancing that with volume growth in such a way that we have the top line growth that will generate the cash flows to be able to fund the investments that we need to make, not only in the base business, but in all the new categories that we want to go after.
So, that’s my first part of my first message, which is how we’re going to build, how we’re going to grow the base. Second part of my message is, how are we going to layer in the stuff in the other categories where we have whitespaces, and we have many across EMEA. As you saw before, our share is relatively low in a lot of the categories. So, what we’re going to do or what we’re actually doing, as we speak, is taking brand platforms like smartwater, Honest, FUZE Tea and we’re rolling those across Europe, obviously, sequentially as fast as we can, but obviously we need to do in such a way that the bottler can handle the new brands successfully and not drop the ball on the base business.
We are also solidifying our position with Chi in Nigeria, which is a fantastic company that makes juices and makes dairy products and is a very strong challenger in Nigeria, and which we hope to be able to take and expand across other parts of Africa in the future.
I have two developments I want to tell you about today, two new things. I mean, we alluded to them before, James alluded to it. The first is VEB. We’ve launched VEB in Central and Eastern Europe business unit with Hellenic, and it’s a joint effort between us and the bottler. And we’ve launched three products, smartwater, ZICO, and Appletiser from South Africa. And it’s a dedicated sales force. It’s a dedicated set of people and [indiscernible] (02:00:44) because we’re much smaller but the intent is in the future that we’ll be able to build that not only in CEE but in other business units as well.
And the other development is we’re bringing AdeS from Latin America to Europe. And so, by January in 2018, we will launch AdeS. It’s been changed somewhat from Latin America. My instructions to the team were, don’t change anything. They changed everything, but it’s a much better product. Believe me. It’s fantastic. And it’s a huge growing market and plant based throughout Europe, not only in Western but in Eastern Europe. We’re going to launch in Spain and then we’re going to roll out from there.
So that’s what we’re doing in terms of – and there’s other things that are going on. There’s all kinds of things depending on the business units where they are, where the starting point is, where the best opportunities in terms of profit pools and so on and so forth. Remember, what we said is, they’re empowered to make their own choices with respect to how they are going to build the spaces into the whitespaces that they need to build into.
We will be prescriptive in terms of ensuring that they don’t drag their feet in terms of getting in, leaning into those spaces. And it’s okay to fail, it’s ok to experiment, it’s okay to bring the platforms in to adapt them, to make them work, and then eventually to make them grow.
So, with that, let me just reiterate my three key messages. First, compelling opportunity. Second, our growth is already happening. This year we’ve had a step change in terms of what we’re doing in terms of top line. We were going to continue to push that going forward. As I said, RGM in 25 markets by mid-next year, doubling the cooler placements, back to basics in terms of
One of the areas of opportunity that we have is, the way that we invest our DME monies. We believe that we can be more effective in spending those more intelligent and how we allocate those across brands and across the different types of media and across different types of market assets as well. And we will also be, to a certain extent, prescriptive in ensuring that the business units, even though they’re empowered to make their own decisions, are paying attention to the things that are coming out of the growth office that are helping to shape and make understand how that expended – those expenditures could be used most effectively. So, a combination of us spending more intelligently, the bottler investing more in terms of their execution acumen will drive our base business, our current base business. And all the other stuff we’re going to layer in over the next two or three years, we’ll get growth from it, but really those are the kinds of things that will eventually fuel much more material growth from 2020 onward.
And let me just say that we’re super bullish with respect to the opportunities. We’re fully convinced that we know how to capitalize on them, and we’re in the process of building a winning mindset in EMEA with our associates through massive amount of talent deployment, the right people in the right place to do the right job, and restructuring in such a way that we’re more agile with our bottling system.
Thank you very much.